SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-9210
---------------------
OCCIDENTAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-4035997
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10889 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(Address of principal executive offices) (Zip Code)
(310) 208-8800
(Registrant's telephone number, including area code)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at June 30, 2003
--------------------------------- ----------------------------
Common stock $.20 par value 382,767,268 shares
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
June 30, 2003 and December 31, 2002 2
Consolidated Condensed Statements of Operations--
Three and six months ended June 30, 2003 and 2002 4
Consolidated Condensed Statements of Cash Flows --
Six months ended June 30, 2003 and 2002 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
Item 4. Controls and Procedures 24
PART II OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 25
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2003 and December 31, 2002
(Amounts in millions)
2003 2002
================================================================================ ========== ==========
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 115 $ 146
Receivables, net 1,016 1,079
Inventories 497 491
Prepaid expenses and other 161 157
---------- ----------
Total current assets 1,789 1,873
LONG-TERM RECEIVABLES, net 253 275
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES 1,084 1,056
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation, depletion and amortization of $6,973 at
June 30, 2003 and $6,395 at December 31, 2002 13,797 13,036
OTHER ASSETS 256 308
---------- ----------
$ 17,179 $ 16,548
================================================================================ ========== ==========
The accompanying notes are an integral part of these financial statements.
2
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2003 and December 31, 2002
(Amounts in millions)
2003 2002
================================================================================ ========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ 28 $ 206
Accounts payable 784 785
Accrued liabilities 931 1,107
Domestic and foreign income taxes 208 137
---------- ----------
Total current liabilities 1,951 2,235
---------- ----------
LONG-TERM DEBT, net of current maturities and unamortized discount 4,065 3,997
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 996 982
Other 2,333 2,228
---------- ----------
3,329 3,210
---------- ----------
MINORITY INTEREST 326 333
---------- ----------
OCCIDENTAL OBLIGATED MANDATORILY REDEEMABLE
TRUST PREFERRED SECURITIES OF A SUBSIDIARY
TRUST HOLDING SOLELY SUBORDINATED NOTES OF
OCCIDENTAL 454 455
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, at par value 77 75
Additional paid-in capital 4,088 3,967
Retained earnings 2,902 2,303
Accumulated other comprehensive income (13) (27)
---------- ----------
7,054 6,318
---------- ----------
$ 17,179 $ 16,548
================================================================================ ========== ==========
The accompanying notes are an integral part of these financial statements.
3
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Amounts in millions, except per-share amounts)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
2003 2002 2003 2002
================================================================= ========== ========== ========== ==========
REVENUES
Net sales $ 2,266 $ 1,867 $ 4,637 $ 3,390
Interest, dividends and other income 17 26 51 51
Gains (losses) on disposition of assets, net 22 (1) 22 (1)
---------- ---------- ---------- ----------
2,305 1,892 4,710 3,440
---------- ---------- ---------- ----------
COSTS AND OTHER DEDUCTIONS
Cost of sales 1,264 1,125 2,562 2,112
Selling, general and administrative and other
operating expenses 250 161 437 312
Environmental remediation 13 -- 13 --
Exploration expense 29 59 57 86
Interest and debt expense, net 59 78 190 152
---------- ---------- ---------- ----------
1,615 1,423 3,259 2,662
---------- ---------- ---------- ----------
Income before taxes and other items 690 469 1,451 778
Provision for domestic and foreign income and other taxes 290 221 623 347
Minority interest 19 16 38 41
Loss (income) from equity investments 7 (9) 23 26
---------- ---------- ---------- ----------
Income from continuing operations 374 241 767 364
Discontinued operations, net -- (1) -- (4)
Cumulative effect of changes in accounting principles, net -- -- (68) (95)
---------- ---------- ---------- ----------
NET INCOME AND EARNINGS APPLICABLE TO
COMMON STOCK $ 374 $ 240 $ 699 $ 265
========== ========== ========== ==========
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations $ 0.98 $ 0.64 $ 2.02 $ 0.97
Discontinued operations, net -- -- -- (0.01)
Cumulative effect of changes in accounting principles, net -- -- (0.18) (0.25)
---------- ---------- ---------- ----------
Basic earnings per common share $ 0.98 $ 0.64 $ 1.84 $ 0.71
========== ========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE
Income from continuing operations $ 0.97 $ 0.63 $ 1.99 $ 0.96
Discontinued operations, net -- -- -- (0.01)
Cumulative effect of changes in accounting principles, net -- -- (0.18) (0.25)
---------- ---------- ---------- ----------
Diluted earnings per common share $ 0.97 $ 0.63 $ 1.81 $ 0.70
========== ========== ========== ==========
DIVIDENDS PER COMMON SHARE $ 0.26 $ 0.25 $ 0.52 $ 0.50
========== ========== ========== ==========
BASIC SHARES OUTSTANDING 382.6 375.8 380.9 375.1
========== ========== ========== ==========
DILUTED SHARES 386.7 379.1 384.9 378.0
================================================================= ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
4
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Amounts in millions)
2003 2002
===================================================================================== ========== ==========
CASH FLOW FROM OPERATING ACTIVITIES
Income from continuing operations $ 767 $ 364
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation, depletion and amortization of assets 571 514
Deferred income tax provision 50 114
Other noncash charges to income 112 18
(Gains) losses on disposition of assets, net (22) 1
Loss from equity investments 23 26
Dry hole and impairment expense 30 42
Changes in operating assets and liabilities 36 (78)
Other operating, net (101) (88)
---------- ----------
Operating cash flow from continuing operations 1,466 913
Operating cash flow from discontinued operations -- (3)
---------- ----------
Net cash provided by operating activities 1,466 910
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (791) (557)
Sales of businesses and disposal of property, plant and equipment, net 26 1
Purchase of businesses, net (251) (77)
Equity investments and other investing, net (110) 169
---------- ----------
Investing cash flow from continuing operations (1,126) (464)
Investing cash flow from discontinued operations -- (3)
---------- ----------
Net cash used by investing activities (1,126) (467)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt 298 --
Repurchase of trust preferred securities (1) (4)
Purchases for natural gas delivery commitment -- (63)
Payments of long-term debt and capital lease liabilities (587) (3)
Proceeds from issuance of common stock 7 7
Cash dividends paid (193) (187)
Stock options exercised 106 40
Other financing, net (1) (1)
---------- ----------
Net cash used by financing activities (371) (211)
---------- ----------
(Decrease) increase in cash and cash equivalents (31) 232
Cash and cash equivalents--beginning of period 146 198
---------- ----------
Cash and cash equivalents--end of period $ 115 $ 430
===================================================================================== ========== ==========
The accompanying notes are an integral part of these financial statements.
5
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2003
1. General
In these unaudited consolidated condensed financial statements,
"Occidental" means Occidental Petroleum Corporation, entities where it owns
a majority voting interest, its undivided interest in exploration and
production ventures, and variable interest entities where it is the primary
beneficiary. Certain information and disclosures normally included in notes
to consolidated financial statements have been condensed or omitted
pursuant to the Securities and Exchange Commission's rules and regulations,
but resultant disclosures are in accordance with accounting principles
generally accepted in the United States of America as they apply to interim
reporting. The consolidated condensed financial statements should be read
in conjunction with the consolidated financial statements and the notes
thereto in Occidental's Annual Report on Form 10-K for the year ended
December 31, 2002 (2002 Form 10-K).
In the opinion of Occidental's management, the accompanying consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to fairly present Occidental's
consolidated financial position as of June 30, 2003, and the consolidated
statements of operations and cash flows for the three months then ended.
The income and cash flows for the period ended June 30, 2003, are not
necessarily indicative of the income or cash flows to be expected for the
full year.
Certain financial statements and notes for the prior year have been changed
to conform to the 2003 presentation.
Refer to Note 1 to the consolidated financial statements in the 2002 Form
10-K for a summary of significant accounting policies, including critical
accounting policies.
2. Accounting Changes
See Notes 8 and 9 regarding accounting changes related to asset retirement
obligations and variable interest entities, respectively.
In May 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity." SFAS No. 150 establishes accounting standards for how a company
classifies and measures financial instruments that have characteristics of
liabilities and equity. Occidental will adopt the provisions of this
statement in the third quarter of 2003. On a preliminary basis, Occidental
believes that, upon adoption, its mandatorily redeemable trust preferred
securities will be considered a liability and the payments to the holders
of the securities, which are currently recorded as minority interest on the
statement of operations, will be recorded to interest expense.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments.
This statement is effective for contracts entered into or modified after
June 30, 2003. Occidental will adopt this statement in the third quarter of
2003. Occidental is currently evaluating the provisions of this statement
but does not expect it to have a material effect on its financial
statements.
In January 2003, the FASB issued FASB Interpretation No. (FIN) 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires a
company to recognize a liability for the obligations it has undertaken in
issuing a
6
guarantee. This liability would be recorded at the inception of a guarantee
and would be measured at fair value. FIN 45 also requires certain
disclosures related to guarantees, which are included in Note 11.
Occidental adopted the measurement provisions of this statement in the
first quarter of 2003 and it did not have an effect on the financial
statements when adopted.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 permits two
additional transition methods for companies that elect to adopt the
fair-value-based method of accounting for stock-based employee
compensation. The statement also expands the disclosure requirements for
stock-based compensation (See Note 13). The provisions of this statement
apply to financial statements for fiscal years ending after December 15,
2002. The statement did not have a material effect on the financial
statements.
Since 1999, Occidental has accounted for certain energy-trading contracts
in accordance with Emerging Issues Task Force (EITF) Issue No. 98-10,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities." EITF Issue No. 98-10 required that all energy-trading
contracts must be marked to fair value with gains and losses included in
earnings, whether the contracts were derivatives or not. In October 2002,
the EITF rescinded EITF Issue No. 98-10 thus precluding both mark-to-market
accounting for all energy-trading contracts that are not derivatives and
fair value accounting for inventories purchased from third parties. Also,
the rescission requires derivative gains and losses to be presented net on
the income statement, whether or not they are physically settled, if the
derivative instruments are held for trading purposes. Occidental adopted
this accounting change in the first quarter of 2003 and recorded a
cumulative effect of a change in accounting principles charge of
approximately $18 million, after tax.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires that a
liability be recognized for exit and disposal costs only when the liability
has been incurred and when it can be measured at fair value. The statement
is effective for exit and disposal activities that are initiated after
December 31, 2002. Occidental adopted SFAS No. 146 in the first quarter of
2003 and it did not have a material effect on its financial statements.
Occidental has classified all of its mineral drilling rights as tangible
assets in property, plant and equipment. Under a possible interpretation of
SFAS No. 141, "Business Combinations", paragraph A14.d (7), contract-based
mineral rights acquired after June 30, 2001 may have to be classified as
intangible assets. Occidental's understanding is that this issue is being
considered by the FASB and the staff of the Securities and Exchange
Commission. Occidental is in the process of determining the impact of this
potential change on the financial statements; however, we do not expect the
resolution of the issue to materially affect Occidental's results of
operations.
3. Asset Acquisitions and Dispositions and Other Commitments
In 2003, Occidental made several acquisitions in the Permian Basin for
approximately $251 million in cash.
In April 2003, Occidental exercised its purchase option related to the
OxyVinyls, L.P., LaPorte, Texas VCM plant lease for approximately $180
million.
7
4. Comprehensive Income
The following table presents Occidental's comprehensive income items (in
millions):
Periods Ended June 30
-------------------------------------------------------
Three Months Six Months
------------------------- -------------------------
2003 2002 2003 2002
============================================= ========== ========== ========== ==========
Net income $ 374 $ 240 $ 699 $ 265
Other comprehensive income items
Foreign currency translation adjustments 22 (12) 24 (12)
Derivative mark-to-market adjustments 7 (7) (5) (9)
Minimum pension liability adjustments (4) -- (4) --
Unrealized (losses) gains on securities (24) 82 (1) 82
---------- ---------- ---------- ----------
Other comprehensive income, net of tax 1 63 14 61
---------- ---------- ---------- ----------
Comprehensive income $ 375 $ 303 $ 713 $ 326
============================================= ========== ========== ========== ==========
5. Supplemental Cash Flow Information
During the six months ended June 30, 2003 and 2002, net cash payments (net
of refunds) for federal, foreign and state income taxes were approximately
$152 million and $(18) million, respectively. Interest paid (net of
interest capitalized of $3 million for both periods) totaled approximately
$180 million and $120 million for the six months ended June 30, 2003 and
2002, respectively.
6. Inventories
A portion of inventories is valued under the LIFO method. The valuation of
LIFO inventory for interim periods is based on management's estimates of
year-end inventory levels and costs. Inventories consist of the following
(in millions):
Balance at June 30, 2003 December 31, 2002
========================= ==================== ====================
Raw materials $ 56 $ 54
Materials and supplies 142 125
Finished goods 306 319
---------- ----------
504 498
LIFO adjustment (7) (7)
---------- ----------
Total $ 497 $ 491
========================= ========== ==========
7. Derivative Activities
For the three and six months ended June 30, 2003, the results of operations
included a net pre-tax gain of $2 million and $23 million, respectively,
related to derivative mark-to-market adjustments. For the three and six
months ended June 30, 2002, the results of operations included a net
pre-tax (loss) gain of $(5) million and $4 million, respectively, related
to derivative mark-to-market adjustments. The amount of interest expense
recorded in the income statement was lower by approximately $13 million and
$26 million for the three and six months ended June 30, 2003, respectively,
to reflect net pre-tax gains from fair-value hedges. The amount of interest
expense recorded in the income statement was lower by approximately $11
million and $22 million for the three and six months ended June 30, 2002,
respectively, to reflect net pre-tax gains from fair-value hedges.
8
The following table summarizes after-tax derivative activity recorded in
other comprehensive income (OCI) for the six months ended June 30, 2003 and
2002 (in millions):
2003 2002
======================================================= ========== ==========
Beginning Balance $ (26) $ (20)
Losses from changes in current cash flow hedges (14) (11)
Amount reclassified to income from the expiration of
cash flow hedges 9 3
---------- ----------
Ending Balance $ (31) $ (28)
======================================================= ========== ==========
During the next twelve months, Occidental expects that $6 million of net
derivative after-tax losses included in OCI, based on their valuation at
June 30, 2003, will be reclassified into earnings. Hedge ineffectiveness
did not have a significant impact on earnings for the three and six months
ended June 30, 2003 and 2002.
8. Asset Retirement Obligations
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires companies to recognize the
fair value of a liability for an asset retirement obligation in the period
in which the liability is incurred if there is a legal obligation to
dismantle the asset and reclaim or remediate the property at the end of its
useful life. When the liability is initially recorded, the company
capitalizes the cost into property, plant and equipment. Over time, the
liability is accreted and the cost is depreciated, both over the asset's
useful life. Occidental's asset retirement obligations primarily relate to
the cost of plugging and abandoning wells, well-site cleanup, facilities
abandonment and environmental closure and post-closure care.
Occidental adopted SFAS No. 143 in the first quarter of 2003. The initial
adoption resulted in an after-tax charge of $50 million, which was recorded
as a cumulative effect of a change in accounting principles. The adoption
increased net property, plant and equipment by $73 million, increased asset
retirement obligations by $151 million and decreased deferred tax
liabilities by $28 million. The pro-forma asset retirement obligation, if
the adoption of this statement had occurred on January 1, 2002, would have
been $131 million at January 1, 2002 and $151 million at December 31, 2002.
The following table summarizes the activity of the asset retirement
obligations (in millions):
Three Months Six Months
Ended Ended
June 30, 2003 June 30, 2003
======================================================= =============== ===============
Beginning balance $ 151 $ --
Cumulative effect of change in accounting principles 150
Liabilities settled in the period (3) (5)
Accretion expense 2 5
Acquisitions 2 2
Revisions to estimated cash flows 3 3
--------------- ---------------
Ending balance $ 155 $ 155
======================================================= =============== ===============
9. Variable Interest Entities (VIE)
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities." FIN 46 requires a company to consolidate a variable
interest entity if it is designated as the primary beneficiary of that
entity even if the company does not have a majority of voting interests. A
VIE is generally defined as an entity whose equity is unable to finance its
activities or whose owners lack
9
the risk and rewards of ownership. The statement also has disclosure
requirements for all the VIEs of a company, even if the company is not the
primary beneficiary. The provisions of this statement apply at inception
for any entity created after January 31, 2003. Occidental adopted the
provisions of this Interpretation for its existing entities on April 1,
2003 which resulted in the consolidation of its OxyMar VCM joint venture
that was previously accounted for as an equity investment. As a result of
the OxyMar consolidation, assets increased by $166 million and liabilities
increased by $72 million. There was no material effect on net income as a
result of the consolidation.
Occidental has a 50-percent interest in Elk Hills Power LLC (EHP), a
limited liability company that operates a gas-fired, power-generation plant
in California. EHP is a VIE under the provisions of FIN 46. However,
Occidental is not the primary beneficiary of EHP and therefore accounts for
it as an equity investment. In January 2002, EHP entered into a $400
million loan facility, 50 percent of which is guaranteed by Occidental. The
loan facility was increased to $425 million in May 2003.
10. Environmental Expenditures
Occidental's operations in the United States are subject to stringent
federal, state and local laws and regulations relating to improving or
maintaining the quality of the environment. Foreign operations also are
subject to environmental-protection laws. The laws that require or address
environmental remediation may apply retroactively to past waste disposal
practices and releases. In many cases, the laws apply regardless of fault,
legality of the original activities or current ownership or control of
sites. Occidental Petroleum Corporation (OPC) or certain of its
subsidiaries are currently participating in environmental assessments and
cleanups under these laws at federal Superfund sites and other sites
subject to the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA), comparable state sites and other remediation sites,
including Occidental facilities and previously owned sites.
The following table presents Occidental's environmental remediation
reserves at June 30, 2003, grouped by three categories of environmental
remediation sites ($ amounts in millions):
# of Sites Reserve
============================== =============== ===============
CERCLA & Equivalent Sites 127 $ 254
Active Facilities 14 51
Closed or Sold Facilities 42 56
--------------- ---------------
Total 183 $ 361
============================== =============== ===============
In determining the environmental remediation reserves, Occidental refers to
currently available information, including relevant past experience,
available technology, regulations in effect, the timing of remediation and
cost-sharing arrangements. Occidental expects that it will continue to
incur additional liabilities beyond those recorded for environmental
remediation at these and other sites. The range of reasonably possible loss
for existing environmental remediation matters could be up to $400 million
beyond the amount accrued.
10
Shown below is additional detail regarding reserves for CERCLA or
CERCLA-equivalent proceedings in which OPC or certain of its subsidiaries
were involved at June 30, 2003 ($ amounts in millions):
Description # of Sites Reserve
============================== =============== ===============
Minimal/No Exposure (a) 107 $ 6
Reserves between $1-10 MM 13 53
Reserves over $10 MM 7 195
--------------- ---------------
Total 127 $ 254
============================== =============== ===============
(a) Includes 33 sites for which Maxus Energy Corporation has retained the
liability and indemnified Occidental, 7 sites where Occidental has
denied liability without challenge, 55 sites where Occidental's
reserves are less than $50,000 each, and 12 sites where reserves are
between $50,000 and $1 million each.
Refer to Note 8 to the consolidated financial statements in the 2002 Form
10-K for additional information regarding Occidental's environmental
expenditures.
11. Lawsuits, Claims, Commitments, Contingencies and Related Matters
OPC and certain of its subsidiaries have been named in a substantial number
of lawsuits, claims and other legal proceedings. These actions seek, among
other things, compensation for alleged personal injury, breach of contract,
property damage, punitive damages, civil penalties or other losses; or
injunctive or declaratory relief. OPC and certain of its subsidiaries also
have been named in proceedings under CERCLA and similar federal, state and
local environmental laws. These environmental proceedings seek funding or
performance of remediation and, in some cases, compensation for alleged
property damage, punitive damages and civil penalties; however, Occidental
is usually one of many companies in these proceedings and has to date been
successful in sharing response costs with other financially sound
companies. With respect to all such lawsuits, claims and proceedings,
including environmental proceedings, Occidental accrues reserves when it is
probable a liability has been incurred and the amount of loss can be
reasonably estimated.
During the course of its operations, Occidental is subject to audit by tax
authorities for varying periods in various federal, state, local and
foreign tax jurisdictions. Taxable years prior to 1997 are closed for U.S.
federal income tax purposes. Taxable years 1997 through 2000 are in various
stages of audit by the Internal Revenue Service. Disputes arise during the
course of such audits as to facts and matters of law.
As mentioned in Note 2, Occidental is required under FIN 45 to disclose
information relating to guarantees issued by Occidental and outstanding at
June 30, 2003. These guarantees encompass performance bonds, letters of
credit, indemnities, commitments and other forms of guarantees provided by
Occidental to third parties, mainly to provide assurance that Occidental
and/or its subsidiaries and affiliates will meet their various obligations.
At June 30, 2003, the notional amount of these guarantees was approximately
$540 million. Of this amount, approximately $430 million relates to
Occidental's guarantee of equity investees' debt and other commitments. The
remaining $110 million relates to various indemnities and guarantees
provided to third parties.
It is impossible at this time to determine the ultimate liabilities that
OPC and its subsidiaries may incur resulting from any lawsuits, claims and
proceedings, audits, commitments, contingencies and related matters. If
these matters were to be ultimately resolved unfavorably at amounts
substantially exceeding Occidental's reserves, an outcome not currently
anticipated, it is possible that such outcome could have a material adverse
effect upon Occidental's consolidated financial position or results of
operations. However, after taking into account reserves, management does
not expect the ultimate resolution of any of these matters to have a
material adverse effect upon Occidental's consolidated financial position
or results of operations.
11
12. Income Taxes
The provision for taxes based on income for the 2003 and 2002 interim
periods was computed in accordance with Interpretation No. 18 of APB
Opinion No. 28 on reporting taxes for interim periods and was based on
projections of total year pre-tax income excluding significant unusual
items.
13. Stock-Based Compensation
Occidental accounts for stock options using the intrinsic value method
under Accounting Principles Board Opinion (APB) No. 25 and related
interpretations. Under this accounting method, Occidental did not record
any compensation expense related to its stock option plans. The following
table presents pro-forma information as if Occidental had adopted the
provisions of SFAS No. 123 at January 1, 2002 (in millions, except per
share amounts):
Periods Ended June 30
-------------------------------------------------------
Three Months Six Months
------------------------- -------------------------
2003 2002 2003 2002
============================================= ========== ========== ========== ==========
Net income $ 374 $ 240 $ 699 $ 265
SFAS No. 123 compensation cost, net 5 5 9 10
---------- ---------- ---------- ----------
Pro-forma net income $ 369 $ 235 $ 690 $ 255
========== ========== ========== ==========
Basic earnings per share $ 0.98 $ 0.64 $ 1.84 $ 0.71
SFAS No. 123 compensation cost, net per share 0.01 0.01 0.03 0.03
---------- ---------- ---------- ----------
Pro-forma basic earnings per share $ 0.97 $ 0.63 $ 1.81 $ 0.68
========== ========== ========== ==========
Diluted earnings per share $ 0.97 $ 0.63 $ 1.81 $ 0.70
SFAS No. 123 compensation cost, net per share 0.02 0.01 0.03 0.03
---------- ---------- ---------- ----------
Pro-forma diluted earnings per share $ 0.95 $ 0.62 $ 1.78 $ 0.67
============================================= ========== ========== ========== ==========
14. Investments in Unconsolidated Subsidiaries
The following table presents Occidental's proportionate interest in the
summarized financial information of its equity method investments (in
millions):
Periods Ended June 30
-------------------------------------------------------
Three Months Six Months
------------------------- -------------------------
2003 2002 2003 2002
============================================= ========== ========== ========== ==========
Revenues $ 316 $ 557 $ 743 $ 989
Costs and expenses 323 548 766 1,015
---------- ---------- ---------- ----------
Net income (loss) $ (7) $ 9 $ (23) $ (26)
============================================= ========== ========== ========== ==========
12
15. Industry Segments
The following table presents Occidental's interim industry segment
disclosures (in millions):
Corporate
Oil and Gas Chemical and Other Total
======================================== =============== =============== =============== ===============
Six months ended June 30, 2003
Net sales $ 2,993 $ 1,575 $ 69 (d) $ 4,637
=============== =============== =============== ===============
Pre-tax operating profit (loss) $ 1,637 $ 84 $ (331)(a) $ 1,390
Income taxes (273) (6) (344)(b) (623)
Cumulative effect of changes in
accounting principles, net -- -- (68) (68)
--------------- --------------- --------------- ---------------
Net income (loss) $ 1,364 $ 78 $ (743)(c) $ 699
======================================== =============== =============== =============== ===============
Six months ended June 30, 2002
Net sales $ 2,123 $ 1,267 $ -- $ 3,390
=============== =============== =============== ===============
Pre-tax operating profit (loss) $ 932 $ 9 $ (230)(a) $ 711
Income taxes (205) (6) (136)(b) (347)
Discontinued operations, net -- -- (4) (4)
Cumulative effect of changes in
accounting principles, net -- -- (95) (95)
--------------- --------------- --------------- ---------------
Net income (loss) $ 727 $ 3 $ (465) $ 265
======================================== =============== =============== =============== ===============
(a) Includes unallocated net interest expense, administration expense and
other items.
(b) Includes unallocated income taxes.
(c) Includes a $61 million pre-tax interest charge ($40 million net of
tax) to repay a $450 million 6.4 percent senior note issue that had
ten years of remaining life, but was subject to remarketing on April
1, 2003.
(d) During the first quarter of 2003, the Taft cogeneration facility began
generating revenue, which is included in the corporate net sales
amount.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
Occidental (as defined in Note 1 to the consolidated condensed financial
statements) reported net income for the first six months of 2003 of $699
million, on net sales of $4.6 billion, compared with net income of $265 million,
on net sales of $3.4 billion, for the same period of 2002. Basic earnings per
common share were $1.84 for the first six months of 2003, compared with basic
earnings per share of $0.71 for the same period of 2002. Occidental reported net
income for the second quarter of 2003 of $374 million, on net sales of $2.3
billion, compared with net income of $240 million, on net sales of $1.9 billion,
for the same period of 2002. Basic earnings per common share were $0.98 for the
second quarter of 2003, compared with basic earnings per share of $0.64 for the
same period of 2002.
Net income for the first six months and the second quarter of 2003, compared to
the same periods in 2002, reflected higher crude oil and natural gas prices and
higher crude oil sales volumes. Additionally, net income in both periods of
2003, compared to the same periods in 2002, increased due to higher chemical
prices, partially offset by higher energy and raw material costs and lower
chemical sales volumes.
The increase in net sales of $399 million and $1.2 billion for the three and six
months ended June 30, 2003, compared with the same periods in 2002, primarily
reflected higher crude oil, natural gas and chemical prices and higher oil
production partially offset by lower chemical sales volumes. For the three
months ended June 30, 2003, the gains (losses) on disposition of assets, net
account included a pre-tax gain of $22 million on the sale of the remaining
interests in a subsidiary holding assets in the Gulf of Mexico.
The increase in cost of sales of $139 million and $450 million for the three and
six months ended June 30, 2003, respectively, compared with the same periods in
2002, primarily reflected higher energy and raw material costs. The increase of
$89 million and $125 million in selling, general and administrative and other
operating expenses for the three and six months ended June 30, 2003,
respectively, compared with the same periods in 2002, primarily reflected
increases in various oil and gas costs, including higher production taxes.
Additionally, for the three months ended June 30, 2003, selling, general and
administrative and other operating expenses included $16 million of severance
costs for the chemical segment and a $9 million pre-tax write-off for certain
assets at a Niagara Falls plant. The decrease in exploration expense of $30
million and $29 million for the three and six months ended June 30, 2003,
respectively, compared with the same periods in 2002, was primarily due to the
2002 write-off of leases in the San Joaquin Valley. The decrease in interest and
debt expense, net of $19 million for the three months ended June 30, 2003,
compared to the same period in 2002, primarily reflected lower interest rates.
The $38 million increase in interest and debt expense, net for the six months
ended June 30, 2003, compared to the same period in 2002, primarily reflected a
pre-tax debt repayment charge of $61 million, partially offset by lower interest
rates and lower average debt levels.
14
SEGMENT OPERATIONS
The following table sets forth the sales and earnings of each operating segment
and corporate items (in millions):
Periods Ended June 30
-------------------------------------------------------
Three Months Six Months
------------------------- -------------------------
2003 2002 2003 2002
======================================================= ========== ========== ========== ==========
SEGMENT NET SALES
Oil and Gas $ 1,440 $ 1,165 $ 2,993 $ 2,123
Chemical 785 702 1,575 1,267
Other 41 -- 69 --
---------- ---------- ---------- ----------
NET SALES $ 2,266 $ 1,867 $ 4,637 $ 3,390
========== ========== ========== ==========
SEGMENT EARNINGS
Oil and Gas $ 637 $ 421 $ 1,364 $ 727
Chemical 43 34 78 3
---------- ---------- ---------- ----------
680 455 1,442 730
UNALLOCATED CORPORATE ITEMS
Interest expense, net (53) (66) (177) (122)
Income taxes (167) (101) (345) (145)
Trust preferred distributions and other (11) (12) (22) (23)
Other (75) (35) (131) (76)
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 374 241 767 364
Discontinued operations, net -- (1) -- (4)
Cumulative effect of changes in accounting
principles, net -- -- (68) (95)
---------- ---------- ---------- ----------
NET INCOME $ 374 $ 240 $ 699 $ 265
======================================================= ========== ========== ========== ==========
15
SIGNIFICANT ITEMS AFFECTING EARNINGS
Occidental's results of operations often include the effects of significant
transactions and events affecting earnings that vary widely and unpredictably in
nature, timing and amount. Therefore, management uses a measure called "core
earnings", which excludes those items. This non-GAAP measure is not meant to
disassociate those items from management's performance, but rather is meant to
provide useful information to investors interested in comparing Occidental's
earnings performance between periods. Reported earnings are considered
representative of management's performance over the long term. Core earnings is
not considered to be an alternative to operating income in accordance with
generally accepted accounting principles.
The following table sets forth the core earnings and significant items affecting
earnings for each operating segment and corporate for the three months ended
June 30, 2003 and 2002:
Three Months Ended June 30
-------------------------------------------------------
Basic Basic
(in millions, except per share amounts) 2003 EPS 2002 EPS
============================================= ========== ========== ========== ==========
TOTAL REPORTED EARNINGS $ 374 $ 0.98 $ 240 $ 0.64
========== ========== ========== ==========
OIL AND GAS
- -----------
Segment Earnings 637 421
No significant items affecting earnings -- --
---------- ----------
Segment Core Earnings 637 421
---------- ----------
CHEMICAL
- --------
Segment Earnings 43 34
No significant items affecting earnings -- --
---------- ----------
Segment Core Earnings 43 34
---------- ----------
CORPORATE
- ---------
Results (306) (215)
Less:
Discontinued operations, net * -- (1)
---------- ----------
TOTAL CORE EARNINGS $ 374 $ 0.98 $ 241 $ 0.64
============================================= ========== ========== ========== ==========
* These amounts are shown after-tax.
16
The following table sets forth the core earnings and significant items affecting
earnings for each operating segment and corporate for the six months ended June
30, 2003 and 2002:
Six Months Ended June 30
-------------------------------------------------------
(in millions, except per share amounts) 2003 EPS 2002 EPS
============================================= ========== ========== ========== ==========
TOTAL REPORTED EARNINGS $ 699 $ 1.84 $ 265 $ 0.71
========== ========== ========== ==========
OIL AND GAS
- -----------
Segment Earnings $ 1,364 $ 727
No significant items affecting earnings -- --
---------- ----------
Segment Core Earnings 1,364 727
---------- ----------
CHEMICAL
- --------
Segment Earnings 78 3
No significant items affecting earnings -- --
---------- ----------
Segment Core Earnings 78 3
---------- ----------
CORPORATE
- ---------
Results (743) (465)
Less:
Debt repayment charge (61) --
Tax effect of pre-tax adjustments 21 --
Discontinued operations, net * -- (4)
Changes in accounting principles, net * (68) (95)
---------- ----------
TOTAL CORE EARNINGS $ 807 $ 2.12 $ 364 $ 0.97
============================================= ========== ========== ========== ==========
* These amounts are shown after-tax.
17
OIL AND GAS SEGMENT
Periods Ended June 30
-------------------------------------------------------
Three Months Six Months
------------------------- -------------------------
Summary of Operating Statistics 2003 2002 2003 2002
======================================================= ========== ========== ========== ==========
NET PRODUCTION PER DAY:
CRUDE OIL AND NATURAL GAS LIQUIDS (MBL)
United States 254 232 246 232
Latin America 54 54 54 52
Middle East and Other Eastern Hemisphere 107 100 108 107
NATURAL GAS (MMCF)
United States 541 565 535 579
Middle East and Other Eastern Hemisphere 77 50 76 50
BARRELS OF OIL EQUIVALENT (MBOE)
Consolidated subsidiaries 518 489 510 496
Other interests 26 23 28 22
---------- ---------- ---------- ----------
Worldwide production 544 512 538 518
======================================================= ========== ========== ========== ==========
AVERAGE SALES PRICE:
CRUDE OIL ($/BBL)
United States 26.89 23.88 29.15 21.35
Latin America 25.01 22.78 28.06 20.67
Middle East and Other Eastern Hemisphere 25.22 24.27 27.71 22.15
NATURAL GAS ($/MCF)
United States 5.46 2.92 4.89 2.64
Middle East and Other Eastern Hemisphere 1.91 2.04 1.91 2.28
======================================================= ========== ========== ========== ==========
Oil and gas earnings for the six months ended June 30, 2003 were $1.4 billion,
compared with $727 million for the same period of 2002. Oil and gas earnings for
the three months ended June 30, 2003 were $637 million, compared with $421
million for the same period of 2002. The increase in earnings for the three and
six months ended June 30, 2003 compared with the same periods in 2002, primarily
reflected higher crude oil and natural gas prices, higher crude oil sales
volumes and lower exploration expense.
The increase in net sales of $275 million and $870 million for the three and six
months ended June 30, 2003, compared with the same periods in 2002, primarily
reflected higher crude oil and natural gas prices and higher oil production.
The average West Texas Intermediate price in the second quarter of 2003 was
$28.89 per barrel and the New York Merchantile Exchange (NYMEX) natural gas
price for the second quarter of 2003 was $5.83 per thousand cubic feet. A swing
of 10-cents per million BTU's in NYMEX gas prices impacts quarterly oil and gas
segment earnings by $5 million while a $1.00 per barrel change in oil prices has
a quarterly impact of $30 million.
For the first six months of 2003, production volumes increased to 538,000
barrels of oil equivalent (BOE) per day compared with 518,000 BOE per day for
the same period in 2002. For the second quarter of 2003, production volumes
increased to 544,000 BOE per day compared with 512,000 BOE per day for the same
period in 2002. Occidental expects third quarter 2003 oil and gas production to
remain at approximately the same level as the second quarter of 2003.
The Core Venture Two consortium, in which Occidental had a 20-percent interest,
will not be continuing its development efforts in Saudi Arabia. However,
Occidental continues to evaluate exploration and production in the Kingdom and
hopes to be selected to participate in future opportunities as they arise.
18
CHEMICAL SEGMENT
Periods Ended June 30
-------------------------------------------------------
Three Months Six Months
------------------------- -------------------------
Summary of Operating Statistics 2003 2002 2003 2002
======================================================= ========== ========== ========== ==========
MAJOR PRODUCT VOLUMES
Chlorine (M Tons) 664 735 1,350 1,436
Caustic (M Tons) 719 743 1,356 1,317
Ethylene Dichloride (M Tons) 108 140 239 292
PVC Resins (MM Lbs.) 872 1,151 1,935 2,193
MAJOR PRODUCT PRICE INDEX (BASE 1987-1990 = 1.0)
Chlorine 1.81 0.77 1.72 0.64
Caustic 0.87 0.66 0.84 0.79
Ethylene Dichloride 1.17 1.29 1.21 0.94
PVC Resins 0.97 0.70 0.92 0.62
======================================================= ========== ========== ========== ==========
Chemical earnings for the six months ended June 30, 2003 were $78 million,
compared with $3 million for the same period of 2002. Chemical earnings for the
three months ended June 30, 2003 were $43 million, compared with $34 million for
the same period of 2002. The increase in earnings for the three and six months
ended June 30, 2003, compared to the same periods in 2002, primarily reflected
higher sales prices, mainly for chlorine and polyvinyl chloride resins (PVC),
partially offset by higher energy and raw material costs, lower sales volumes
and severance charges. Additionally, the 2002 results reflected losses from the
Equistar equity investment of $4 million and $40 million for the three and six
months ended June 30, 2002, respectively. The Equistar equity investment was
sold in August 2002.
The increase in net sales of $83 million and $308 million for the three and six
months ended June 30, 2003, respectively, compared with the same periods in
2002, primarily reflected higher sales prices, mainly for chlorine and PVC,
partially offset by lower sales volumes.
Occidental expects third quarter 2003 chemical segment earnings to be between
$30 million and $45 million since no upturn in chemical markets is expected.
CORPORATE AND OTHER
The three and six months ended June 30, 2003 other net sales amount includes
revenues from certain co-generation facilities. The three and six months ended
June 30, 2003 unallocated corporate items - other amount includes the results
from the Lyondell equity investment. Unallocated corporate items - income taxes
exclude U.S. federal income tax charges and credits allocated to the segments
and foreign taxes. For the first six months of 2003, segment earnings include
charges of $7 million (all for oil and gas). For the first six months of 2002,
segment earnings benefited by $9 million from credits allocated: $1 million to
oil and gas and $8 million to chemical.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Occidental's net cash provided by operating activities was approximately $1.5
billion for the first six months of 2003, compared with net cash provided of
$910 million for the same period of 2002. The increase of approximately $556
million in the 2003 amount is primarily attributable to higher income from
continuing operations in 2003 compared with the same period in 2002.
Additionally, changes in operating assets and liabilities reflected
significantly increased income tax expense payable in future quarters.
Occidental's net cash used by investing activities was $1.1 billion for the
first six months of 2003, compared with net cash used of $467 million for the
same period of 2002. The 2003 amount includes several acquisitions in the
Permian Basin totaling $251 million. The 2003 amount also includes advances and
capital contributions to equity investees, purchases of equity investee debt and
an additional purchase
19
of stock of a cost-method investee. The 2002 amount includes the receipt of
partial repayments of amounts that were advanced to equity affiliates in prior
years. Capital expenditures for the first six months of 2003 were $791 million,
including $508 million for oil and gas and $273 million for chemical. The
chemical amount includes $180 million for the purchase of a leased facility in
La Porte, Texas and $44 million related to the exercise of purchase options for
certain leased assets. Capital expenditures for the first six months of 2002
were $557 million, including $497 million for oil and gas.
Financing activities used net cash of $371 million in the first six months of
2003, compared with cash used of $211 million for the same period of 2002. The
2003 amount includes net debt payments of approximately $289 million.
Available but unused lines of committed bank credit totaled approximately $1.8
billion at June 30, 2003. In addition, OxyMar has a $220 million committed bank
revolver which was unused at June 30, 2003. Occidental currently expects to
spend approximately $1.4 billion (excluding the lease buyouts mentioned above)
on its 2003 capital spending program with about 90 percent in the oil and gas
segment. Occidental expects to have sufficient cash in 2003 from operations to
fund its operating needs, capital expenditure requirements, dividend payments
and mandatory debt repayments. If needed, Occidental could access existing
credit facilities.
ASSET ACQUISITIONS AND DISPOSITIONS AND OTHER COMMITMENTS
In 2003, Occidental made several acquisitions in the Permian Basin for
approximately $251 million in cash.
In April 2003, Occidental exercised its purchase option related to the
OxyVinyls, L.P., LaPorte, Texas VCM plant lease for approximately $180 million.
DERIVATIVE ACTIVITIES
For the three and six months ended June 30, 2003, the results of operations
included a net pre-tax gain of $2 million and $23 million, respectively, related
to derivative mark-to-market adjustments. For the three and six months ended
June 30, 2002, the results of operations included a net pre-tax (loss) gain of
$(5) million and $4 million, respectively, related to derivative mark-to-market
adjustments. The amount of interest expense recorded in the income statement was
lower by approximately $13 million and $26 million for the three and six months
ended June 30, 2003, respectively, to reflect net pre-tax gains from fair-value
hedges. The amount of interest expense recorded in the income statement was
lower by approximately $11 million and $22 million for the three and six months
ended June 30, 2002, respectively, to reflect net pre-tax gains from fair-value
hedges.
The following table summarizes after-tax derivative activity recorded in other
comprehensive income (OCI) for the six months ended June 30, 2003 and 2002 (in
millions):
2003 2002
======================================================= ========== ==========
Beginning Balance $ (26) $ (20)
Losses from changes in current cash flow hedges (14) (11)
Amount reclassified to income from the expiration of
cash flow hedges 9 3
---------- ----------
Ending Balance $ (31) $ (28)
======================================================= ========== ==========
During the next twelve months, Occidental expects that $6 million of net
derivative after-tax losses included in OCI, based on their valuation at June
30, 2003, will be reclassified into earnings. Hedge ineffectiveness did not have
a significant impact on earnings for the three and six months ended June 30,
2003 and 2002.
20
ACCOUNTING CHANGES
In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes accounting standards for how a company classifies and measures
financial instruments that have characteristics of liabilities and equity.
Occidental will adopt the provisions of this statement in the third quarter of
2003. On a preliminary basis, Occidental believes that, upon adoption, its
mandatorily redeemable trust preferred securities will be considered a liability
and the payments to the holders of the securities, which are currently recorded
as minority interest on the statement of operations, will be recorded to
interest expense.
In January 2003, the FASB issued FASB Interpretation No. (FIN) 46,
"Consolidation of Variable Interest Entities." FIN 46 requires a company to
consolidate a variable interest entity if it is designated as the primary
beneficiary of that entity even if the company does not have a majority of
voting interests. A VIE is generally defined as an entity whose equity is unable
to finance its activities or whose owners lack the risk and rewards of
ownership. The statement also has disclosure requirements for all the VIEs of a
company, even if the company is not the primary beneficiary. The provisions of
this statement apply at inception for any entity created after January 31, 2003.
Occidental adopted the provisions of this Interpretation for its existing
entities on April 1, 2003 which resulted in the consolidation of its OxyMar VCM
plant that was previously accounted for as an equity investment. As a result of
the OxyMar consolidation, assets increased by $166 million and liabilities
increased by $72 million. There was no material effect on net income as a result
of the consolidation.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires companies to recognize the fair value of a
liability for an asset retirement obligation in the period in which the
liability is incurred if there is a legal obligation to dismantle the asset and
reclaim or remediate the property at the end of its useful life. When the
liability is initially recorded, the company capitalizes the cost into property,
plant and equipment. Over time, the liability is accreted and the cost is
depreciated, both over the asset's useful life. Occidental's asset retirement
obligations primarily relate to the cost of plugging and abandoning wells,
well-site cleanup, facilities abandonment and environmental closure and
post-closure care. Occidental adopted SFAS No. 143 in the first quarter of 2003.
The initial adoption resulted in an after-tax charge of $50 million, which was
recorded as a cumulative effect of a change in accounting principles. The
adoption increased net property, plant and equipment by $73 million, increased
asset retirement obligations by $151 million and decreased deferred tax
liabilities by $28 million. The pro-forma asset retirement obligation, if the
adoption of this statement had occurred on January 1, 2002, would have been $131
million at January 1, 2002 and $151 million at December 31, 2002.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments. This
statement is effective for contracts entered into or modified after June 30,
2003. Occidental will adopt this statement in the third quarter of 2003.
Occidental is currently evaluating the provisions of this statement but does not
expect it to have a material effect on its financial statements.
In January 2003, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 requires a company to recognize a liability for the obligations
it has undertaken in issuing a guarantee. This liability would be recorded at
the inception of a guarantee and would be measured at fair value. FIN 45 also
requires certain disclosures related to guarantees, which are included in
"Lawsuits, Claims, Commitments, Contingencies and Related Matters" below.
Occidental adopted the measurement provisions of this statement in the first
quarter of 2003 and it did not have an effect on the financial statements when
adopted.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 permits two additional
transition methods for companies that elect to adopt the fair-value-based method
of accounting for stock-based employee compensation. The
21
statement also expands the disclosure requirements for stock-based compensation.
The provisions of this statement apply to financial statements for fiscal years
ending after December 15, 2002. The statement did not have a material effect on
the financial statements.
Since 1999, Occidental has accounted for certain energy-trading contracts in
accordance with Emerging Issues Task Force (EITF) Issue No. 98-10, "Accounting
for Contracts Involved in Energy Trading and Risk Management Activities." EITF
Issue No. 98-10 required that all energy-trading contracts must be marked to
fair value with gains and losses included in earnings, whether the contracts
were derivatives or not. In October 2002, the EITF rescinded EITF Issue No.
98-10 thus precluding both mark-to-market accounting for all energy-trading
contracts that are not derivatives and fair value accounting for inventories
purchased from third parties. Also, the rescission requires derivative gains and
losses to be presented net on the income statement, whether or not they are
physically settled, if the derivative instruments are held for trading purposes.
Occidental adopted this accounting change in the first quarter of 2003 and
recorded a cumulative effect of a change in accounting principles charge of
approximately $18 million, after tax.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires that a liability be
recognized for exit and disposal costs only when the liability has been incurred
and when it can be measured at fair value. The statement is effective for exit
and disposal activities that are initiated after December 31, 2002. Occidental
adopted SFAS No. 146 in the first quarter of 2003 and it did not have a material
effect on its financial statements.
Occidental has classified all of its mineral drilling rights as tangible assets
in property, plant and equipment. Under a possible interpretation of SFAS No.
141, "Business Combinations", paragraph A14.d (7), contract-based mineral rights
acquired after June 30, 2001 may have to be classified as intangible assets.
Occidental's understanding is that this issue is being considered by the FASB
and the staff of the Securities and Exchange Commission. Occidental is in the
process of determining the impact of this potential change on the financial
statements; however, we do not expect the resolution of the issue to materially
affect Occidental's results of operations.
ENVIRONMENTAL MATTERS
Occidental's operations in the United States are subject to stringent federal,
state and local laws and regulations relating to improving or maintaining the
quality of the environment. Foreign operations also are subject to
environmental-protection laws. The laws that require or address environmental
remediation may apply retroactively to past waste disposal practices and
releases. In many cases, the laws apply regardless of fault, legality of the
original activities or current ownership or control of sites. Occidental
Petroleum Corporation (OPC) or certain of its subsidiaries are currently
participating in environmental assessments and cleanups under these laws at
federal Superfund sites and other sites subject to the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA), comparable
state sites and other remediation sites, including Occidental facilities and
previously owned sites.
The following table presents Occidental's environmental remediation reserves at
June 30, 2003, grouped by three categories of environmental remediation sites ($
amounts in millions):
# of Sites Reserve
============================== =============== ===============
CERCLA & Equivalent Sites 127 $ 254
Active Facilities 14 51
Closed or Sold Facilities 42 56
--------------- ---------------
Total 183 $ 361
============================== =============== ===============
In determining the environmental remediation reserves, Occidental refers to
currently available information, including relevant past experience, available
technology, regulations in effect, the timing of remediation and cost-sharing
arrangements. Occidental expects that it will continue to incur additional
liabilities beyond those recorded for environmental remediation at these and
other sites. The range of
22
reasonably possible loss for existing environmental remediation matters could be
up to $400 million beyond the amount accrued.
Shown below is additional detail regarding reserves for CERCLA or
CERCLA-equivalent proceedings in which OPC or certain of its subsidiaries were
involved at June 30, 2003 ($ amounts in millions):
Description # of Sites Reserve
============================== =============== ===============
Minimal/No Exposure (a) 107 $ 6
Reserves between $1-10 MM 13 53
Reserves over $10 MM 7 195
--------------- ---------------
Total 127 $ 254
============================== =============== ===============
(a) Includes 33 sites for which Maxus Energy Corporation has retained the
liability and indemnified Occidental, 7 sites where Occidental has
denied liability without challenge, 55 sites where Occidental's
reserves are less than $50,000 each, and 12 sites where reserves are
between $50,000 and $1 million each.
Refer to the "Environmental Expenditures" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations in the 2002 Form 10-K
for additional information regarding Occidental's environmental expenditures.
LAWSUITS, CLAIMS, COMMITMENTS, CONTINGENCIES AND RELATED MATTERS
OPC and certain of its subsidiaries have been named in a substantial number of
lawsuits, claims and other legal proceedings. These actions seek, among other
things, compensation for alleged personal injury, breach of contract, property
damage, punitive damages, civil penalties or other losses; or injunctive or
declaratory relief. OPC and certain of its subsidiaries also have been named in
proceedings under CERCLA and similar federal, state and local environmental
laws. These environmental proceedings seek funding or performance of remediation
and, in some cases, compensation for alleged property damage, punitive damages
and civil penalties; however, Occidental is usually one of many companies in
these proceedings and has to date been successful in sharing response costs with
other financially sound companies. With respect to all such lawsuits, claims and
proceedings, including environmental proceedings, Occidental accrues reserves
when it is probable a liability has been incurred and the amount of loss can be
reasonably estimated.
During the course of its operations, Occidental is subject to audit by tax
authorities for varying periods in various federal, state, local and foreign tax
jurisdictions. Taxable years prior to 1997 are closed for U.S. federal income
tax purposes. Taxable years 1997 through 2000 are in various stages of audit by
the Internal Revenue Service. Disputes arise during the course of such audits as
to facts and matters of law.
As mentioned above, Occidental is required under FIN 45 to disclose information
relating to guarantees issued by Occidental and outstanding at June 30, 2003.
These guarantees encompass performance bonds, letters of credit, indemnities,
commitments and other forms of guarantees provided by Occidental to third
parties, mainly to provide assurance that Occidental and/or its subsidiaries and
affiliates will meet their various obligations. At June 30, 2003, the notional
amount of these guarantees was approximately $540 million. Of this amount,
approximately $430 million relates to Occidental's guarantee of equity
investees' debt and other commitments. The remaining $110 million relates to
various indemnities and guarantees provided to third parties.
It is impossible at this time to determine the ultimate liabilities that OPC and
its subsidiaries may incur resulting from any lawsuits, claims and proceedings,
audits, commitments, contingencies and related matters. If these matters were to
be ultimately resolved unfavorably at amounts substantially exceeding
Occidental's reserves, an outcome not currently anticipated, it is possible that
such outcome could have a material adverse effect upon Occidental's consolidated
financial position or results of operations. However, after taking into account
reserves, management does not expect the ultimate resolution of any of these
matters to have a material adverse effect upon Occidental's consolidated
financial position or results of operations.
23
SAFE HARBOR STATEMENT REGARDING OUTLOOK AND FORWARD-LOOKING INFORMATION
Portions of this report contain forward-looking statements and involve risks and
uncertainties that could significantly affect expected results of operations,
liquidity, cash flows and business prospects. Factors that could cause results
to differ materially include, but are not limited to: global commodity pricing
fluctuations; competitive pricing pressures; higher-than-expected costs,
including feedstocks; crude oil and natural gas prices; chemical prices;
potential liability for remedial actions under existing or future environmental
regulations and litigation; potential liability resulting from pending or future
litigation; general domestic and international political conditions; potential
disruption or interruption of Occidental's production or manufacturing
facilities due to accidents, political events or insurgent activity; potential
failure to achieve expected production from existing and future oil and gas
development projects; the supply/demand considerations for Occidental's
products; any general economic recession or slowdown domestically or
internationally; regulatory uncertainties; and not successfully completing, or
any material delay of, any development of new fields, expansion, capital
expenditure, efficiency-improvement project, acquisition or disposition.
Forward-looking statements are generally accompanied by words such as
"estimate", "project", "predict", "will", "anticipate", "plan", "intend",
"believe", "expect" or similar expressions that convey the uncertainty of future
events or outcomes. Occidental expressly disclaims any obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed might not occur.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period ended June 30, 2003, there were no material changes in the
information required to be provided under Item 305 of Regulation S-X included
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations (Incorporating Item 7A) - Derivative Activities" in
Occidental's 2002 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Occidental's Chief Executive Officer and Chief Financial Officer supervised and
participated in Occidental's evaluation of its disclosure controls and
procedures as of the end of the period covered by this report. Disclosure
controls and procedures are controls and procedures designed to ensure that
information required to be disclosed in Occidental's periodic reports filed or
submitted under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. Based upon that
evaluation, Occidental's Chief Executive Officer and Chief Financial Officer
concluded that Occidental's disclosure controls and procedures are effective.
There has been no change in Occidental's internal control over financial
reporting during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, Occidental's internal control over
financial reporting.
24
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
There is incorporated by reference herein the information regarding legal
proceedings in Note 11 to the consolidated condensed financial statements in
Part I hereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.(I) Restated Certificate of Incorporation of Occidental,
dated November 12, 1999 (incorporated by reference to
Exhibit 3.(I) to the Annual Report on Form 10-K of
Occidental for the fiscal year ended December 31, 1999,
File No. 1-9210)
3.(I)(A) Certificate of Change of Location of Registered Office
and of Registered Agent, dated July 6, 2001
(incorporated by reference to Exhibit 3.1(I) to the
Registration Statement on Form S-3 of Occidental, File
No. 333-82246)
3.(II) Bylaws of Occidental, as amended through February 13,
2003 (incorporated by reference to Exhibit 3.1(II) to
the Annual Report on Form 10-K of Occidental for the
fiscal year ended December 31, 2002, File 1-9210)
10.1 Employment Agreement, dated May 19, 2003, between
Occidental and Donald P. de Brier
10.2 Consulting Agreement, dated as of July 1, 2003, between
Occidental and J. Roger Hirl
10.3 Occidental Petroleum Corporation 2001 Incentive
Compensation Plan Incentive Stock Option Terms and
Conditions
10.4 Occidental Petroleum Corporation 2001 Incentive
Compensation Plan Nonqualified Stock Option Terms and
Conditions
10.5 Occidental Petroleum Corporation 2001 Incentive
Compensation Plan Restricted Share Unit Award Terms and
Conditions (mandatory deferred issuance of shares)
11 Statement regarding the computation of earnings per
share for the three and six months ended June 30, 2003
and 2002
12 Statement regarding the computation of total enterprise
ratios of earnings to fixed charges for the six months
ended June 30, 2003 and 2002 and the five years ended
December 31, 2002
31.1 Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certifications of CEO and CFO Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
25
(b) Reports on Form 8-K
During the quarter ended June 30, 2003, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated April 22, 2003 (date of
earliest event reported), filed on April 22, 2003, for the
purpose of reporting, under Items 9 and 12, Occidental's
results of operations for the first quarter ended March 31,
2003, and speeches and supplemental investor information
relating to Occidental's first quarter 2003 earnings
announcement.
2. Current Report on Form 8-K dated April 25, 2003 (date of
earliest event reported), filed on April 25, 2003, for the
purpose of reporting, under Item 9, a speech made by Dr. Ray
R. Irani, Chief Executive Officer, at Occidental's 2003
Annual Meeting of Stockholders.
From June 30, 2003 to the date hereof, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated July 22, 2003 (date of
earliest event reported), filed on July 22, 2003, for the
purpose of reporting, under Items 9 and 12, Occidental's
results of operations for the second quarter ended June 30,
2003, and speeches and supplemental investor information
relating to Occidental's second quarter 2003 earnings
announcement.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OCCIDENTAL PETROLEUM CORPORATION
DATE: August 5, 2003 /s/ S. P. Dominick, Jr.
--------------------------------------------------
S. P. Dominick, Jr., Vice President and Controller
(Chief Accounting and Duly Authorized Officer)
27
EXHIBIT INDEX
EXHIBITS
- --------
10.1 Employment Agreement, dated May 19, 2003, between Occidental and
Donald P. de Brier
10.2 Consulting Agreement, dated as of July 1, 2003, between
Occidental and J. Roger Hirl
10.3 Occidental Petroleum Corporation 2001 Incentive Compensation Plan
Incentive Stock Option Terms and Conditions
10.4 Occidental Petroleum Corporation 2001 Incentive Compensation Plan
Nonqualified Stock Option Terms and Conditions
10.5 Occidental Petroleum Corporation 2001 Incentive Compensation Plan
Restricted Share Unit Award Terms and Conditions (mandatory
deferred issuance of shares)
11 Statement regarding the computation of earnings per share for the
three and six months ended June 30, 2003 and 2002
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the six months ended June 30, 2003
and 2002 and the five years ended December 31, 2002
31.1 Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certifications of CEO and CFO Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
EXHIBIT 10.1
AGREEMENT
This Employment Agreement is made as of the 19th day of May, 2003 by and
between Occidental Petroleum Corporation, a Delaware corporation (hereinafter
referred to as "Employer"), and Donald P. de Brier (hereinafter referred to as
"Employee").
WITNESSETH
----------
WHEREAS, Employee has been rendering services to Employer pursuant to a
written agreement which will expire on May 31, 2003, and
WHEREAS, the parties now desire to provide for a continuation of Employee's
employment by Employer beyond that date, and to specify the rights and
obligations of the parties during such continued employment;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein, Employer and Employee hereby agree to continue such employment upon the
following terms and conditions:
1. Duties. Employee shall continue to perform the duties of Executive
Vice President, General Counsel and Secretary, or shall serve in such other
capacity and with such other duties for Employer or any of the subsidiaries of
Employer or any corporation affiliated with Employer (any such subsidiary or
affiliated corporation hereafter to be deemed Employer under this Agreement) as
Employer may direct. In performing such duties, Employee will comply with
Employer's Code of Business Conduct and Corporate Policies, as the same may be
amended from time to time.
2. Term of Employment. The term of employment hereunder shall be for a
period of five (5) years, commencing on June 1, 2003, and ending midnight May
31, 2008, unless terminated prior thereto in accordance with the provisions of
this Agreement, or unless extended by mutual agreement in accordance with
Paragraph 9 hereof.
3. Compensation. For the services to be performed hereunder, Employee
shall be compensated by Employer at the rate of not less than five hundred
fifty-one thousand dollars ($551,000) per annum, payable semi-monthly. The
minimum salary hereunder shall be automatically adjusted to the level of any
increase in annual compensation as the Employer may determine during the term of
this Agreement.
4. Participation in Benefit Programs. Employee shall be eligible to
participate in all benefit programs and under the same terms and conditions as
are generally applicable to salaried employees and senior executives of Employer
during the term of this Agreement. These benefits include life insurance in the
event of death equivalent to three (3) times base pay while employed. Employee
will be entitled to one country club membership paid for by Employer provided
that the Chief Executive Officer of Employer has prior approval on the selection
of the specific club. Employee shall also be eligible to participate in (i)
Employer's Incentive Compensation Plan and (ii) Employer's 1995 Incentive Stock
Plan and 2001 Incentive Compensation Plan, as long as Employer continues such
plans during the term of this Agreement, and to receive awards or grants under
such Plans at Employer's sole discretion.
5. Exclusivity of Services. Employee shall not render paid or unpaid
services on a self-employed basis or to any other employer.
6. Vacation. Employee shall be entitled to a total of six (6) weeks
vacation per year, effective January 1, 2003. Employee agrees to follow
Employer's relevant policies and procedures for scheduling and taking such
vacations.
7. Termination.
a. Cause. Notwithstanding the term of this Agreement, Employer may
discharge Employee and terminate this Agreement without severance or other pay
for cause, including without limitation, (i) failure to satisfactorily perform
his duties or responsibilities hereunder or negligence in complying with
Employer's legal obligations, (ii) refusal to carry out any lawful order of
Employer, (iii) breach of any legal duty to Employer, (iv) breach of Paragraph 5
of the Agreement, or (v) conduct constituting moral turpitude or conviction of a
crime which may diminish Employee's ability to effectively act on the Employer's
behalf or with or on behalf of others, or (vi) death. In the case of events (i)
through (v) above, Employer shall give Employee notice of such cause and
Employee shall have thirty (30) days to cure such breach.
b. Incapacity. If, during the term of this Agreement, Employee is
incapacitated from performing the essential functions of his job pursuant to
this Agreement by reason of illness, injury, or disability, Employer may
terminate this Agreement by at least one week's written notice to Employee, but
only in the event that such conditions shall aggregate not less than one-hundred
eighty (180) days during any twelve (12) month period. In the event Employee
shall (i) continue to be incapacitated subsequent to termination for incapacity
pursuant to this Paragraph 7(b), and (ii) be a participant in and shall qualify
for benefits under Employer's Long Term Disability Plan ("LTD"), then Employer
will continue to compensate Employee, for so long as Employee remains eligible
to receive LTD benefits, in an amount equal to the
2
difference between sixty percent (60%) of Employer's annual compensation as set
forth in Paragraph 3 hereof and the maximum annual benefit under the LTD,
payable monthly on a pro rated basis.
c. Without Cause. Employer may at any time terminate the employment
of Employee without cause or designate a termination for cause as a termination
without cause, and in such event Employer shall, in lieu of continued
employment, compensate Employee in an amount equal to two (2) times the sum of
Employee's highest annual base salary and annual cash bonus target, such amount
payable in equal monthly installments over two (2) years (the "Compensation
Period"). In the event Employee dies during the "Compensation Period" any
remaining payments due will be made to Employee's estate.
During the Compensation Period, Employee shall continue to be
eligible to (i) participate in all employee benefit plans of Employer, in which
he is participating at the time of the notice and so long as such plans are
available to salaried employees and senior executives, and (ii) exercise all
stock options previously granted to Employee under Employer's 1987 Stock Option
Plan, 1995 Incentive Stock Plan and 2001 Incentive Compensation Plan, which
options are or become exercisable under the provisions of such Plans, and (iii)
continue to vest in any restricted stock or performance stock awards previously
granted to Employee under Employer's 1995 Incentive Stock Plan and 2001
Incentive Compensation Plan.
During the Compensation Period, Employee shall not accept
employment with, or act as a consultant for, or perform services for any person,
firm or corporation directly or indirectly engaged in any business competitive
with Employer without the prior written consent of Employer.
8. Confidential Information. Employee agrees that he will not
divulge to any person, nor use to the detriment of Employer or any of its
affiliates or subsidiaries, nor use in any business or process of manufacture
competitive with or similar to any business or process of manufacture of
Employer or any of its affiliates or subsidiaries, at any time during employment
by Employer or thereafter, any trade secrets or confidential information
obtained during the course of his employment with Employer, without first
obtaining the written permission of Employer.
Employee agrees that, at the time of leaving the employ of Employer,
he will deliver to Employer, and not keep or deliver to anyone else, any and all
credit cards, notes, notebooks, memoranda, documents and, in general, any and
all material relating to Employer's business, including copies therefor, whether
in paper or electronic format.
3
9. Modification. This Agreement contains all the terms and
conditions agreed upon by the parties hereto, and no other agreements, oral or
otherwise, regarding the subject matter of this Agreement shall be deemed to
exist or bind either of the parties hereto. This Agreement cannot be modified
except by a subsequent writing signed by both parties.
10. Prior Agreement. This Agreement supersedes and replaces any and
all previous agreements between the parties.
11. Severability. If any provision of this Agreement is illegal and
unenforceable in whole or in part, the remainder of this Agreement shall remain
enforceable to the extent permitted by law.
12. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of California. In the event that any
ambiguity or questions of intent or interpretation arise, no presumption or
binder of proof shall arise favoring or disfavoring the Employer by virtue of
authorship of this Agreement and the terms and provisions of this Agreement
shall be given their meaning under law.
13. Assignment. This Agreement shall be binding upon Employee, his
heirs, executors and assigns and upon Employer, its successors and assigns.
14. Arbitration. In consideration for entering into this Agreement
and for the position, compensation, benefits and other promises provided
hereunder, the Employee and Employer agree to be bound by the arbitration
provisions attached hereto as Attachment 1 and incorporated herein by this
reference.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
OCCIDENTAL PETROLEUM CORPORATION
By: /s/ RAY R. IRANI
-----------------------------
By: /s/ DONALD P. DE BRIER
-----------------------------
Donald P. de Brier
4
ATTACHMENT 1
ARBITRATION PROVISIONS ("Provisions")
Incorporated by Reference into and Made a Part of the
Agreement, dated May 19, 2003 (the "Agreement"), between
Occidental Petroleum Corporation (the "Employer")
and Donald P. de Brier (the "Employee")
In recognition of the fact that differences may arise between the Employer
and the Employee arising out of or relating to certain aspects of the Employee's
employment with the Employer or the termination of that employment, and in
recognition of the fact that resolution of any differences in the courts is
rarely timely or cost-effective for either party, the Employer and Employee have
agreed to the incorporation of the Provisions into the Agreement in order to
establish and gain the benefits of a speedy, impartial and cost-effective
dispute resolution procedure. By so doing, the Employer and the Employee
mutually agree to arbitrate Claims (as defined below) and each knowingly and
voluntarily waive their rights before a jury. Each party's promise to resolve
Claims (as defined below) by arbitration in accordance with these Provisions is
consideration for the other party's like promise, in addition to any other
consideration.
1. Claims
1.1 Except as provided in paragraph 1.2 below, "Claims" (collectively
called "Claim" or "Claims" in these Provisions) means all claims or
controversies between the Employer and Employee or between the Employee and
others arising out of, or relating to or concerning the Employee's employment
with the Employer or termination thereof for which a state or federal court
otherwise would be authorized to grant relief, including, but not limited to,
claims based on any purported breach of contract, tort, state or federal statute
or ordinance, common law, constitution or public policy, claims for wages or
other compensation, or of discrimination, or violation of public policy of any
type. Claims expressly include the Employee's Claims against the Employer, and
any subsidiary and related or affiliated entity, successor or assign, and any of
their officers, directors, employees, managers, representatives, attorneys or
agents, and Claims against others arising out of, relating to or concerning the
Employee's employment with the Employer or termination thereof.
1.2 These Provisions do not apply to or cover: claims for workers'
compensation benefits, claims for unemployment compensation benefits, or claims
for which the National Labor Relations Board has exclusive jurisdiction; claims
by the Employer for injunctive and/or other equitable relief for intellectual
property, unfair competition and/or the use and/or unauthorized disclosure of
trade secrets or confidential information; and claims based upon an employee
pension or benefit plan the terms of which contain an arbitration or other
non-judicial resolution procedure, in which case the provisions of such plan
shall apply. Employee shall further retain the right to seek injunctive and/or
other equitable relief expressly made available by a statute which forms the
basis of a Claim which is subject to arbitration under these Provisions. Where
one or more of the included Claims in a dispute are covered under these
Provisions and one or
more of the included Claims in the dispute are not covered under these
Provisions, such covered and non-covered claims shall be separated and shall be
heard separately in the appropriate forum for each claim.
2. Agreement to Arbitrate All Claims
2.1 Except for claims excluded from these Provisions by paragraph 1.2
above and as otherwise provided in paragraph 1.2 and 4.1, the Employer and the
Employee hereby agree to the resolution by exclusive, final and binding
arbitration of all Claims.
2.2 The parties further agree that any issue or dispute concerning the
formation, applicability, interpretation, or enforceability of these Provisions,
including any claim or contention that all or any part of these Provisions is
void or voidable, shall be subject to arbitration as provided herein. The
arbitrator, and not any federal, state or local court or agency, shall have
authority to decide any such issue or dispute.
3. Governing Law
3.1 Except as modified by these Provisions, the arbitration shall be
conducted pursuant to the rules set forth in the California Arbitration Act,
California Civil Code or Procedure Section 1281, et. seq.
3.2 The Arbitrator shall apply the substantive law (and the law of
remedies, if applicable) of the State of California, or federal law, or both, as
applicable to the Claims asserted.
4. Binding Effect
4.1 The arbitration Award (see Section 10, herein) shall be final and
binding on the parties except that both parties shall have the right to appeal
to the appropriate court any errors of law in the decision rendered by the
Arbitrator.
4.2 The Award may be entered as a judgment in any court of competent
jurisdiction and shall serve as a bar to any court action for any Claim or
allegation which was, or could have been, raised in Arbitration.
4.3 For Claims covered by these Provisions, Arbitration is the exclusive
remedy, except as provided by paragraph 1.2. The parties shall be precluded from
bringing or raising in court or before any other forum any dispute which could
have been brought or raised pursuant to Arbitration.
4.4 Nothing in these Provisions shall prevent a party from pursuing any
legal right to bring an action to vacate or enforce an Award or to compel
arbitration pursuant to applicable California law.
2
5. Initiating Arbitration
To initiate the arbitration process, the aggrieved party must provide the
other party or parties with: a written request to arbitrate any covered Claims
which states the Claim or Claims for which arbitration is sought. The written
request to arbitrate must be received within the limitations periods applicable
under the law to such Claims.
6. Selection of the Arbitrator
6.1 All Claims shall be decided by a single neutral decision-maker, called
the "Arbitrator."
6.2 To be qualified to serve, the Arbitrator must be an attorney in good
standing with at least seven years experience in employment law or a retired
judge and be available to hear the matter within sixty (60) days of selection
and on consecutive days.
6.3 Within fifteen calendar days after receipt of the written request to
arbitrate, the parties will attempt to agree on the selection of a qualified
Arbitrator pursuant to paragraph 6.2 above. If the parties fail to agree on the
selection of an Arbitrator within that fifteen calendar day period, the Employer
will designate an alternate dispute resolution service (by way of example,
American Arbitration Association, National Arbitration Forum, Judicial
Arbitration and Mediation Services/Endispute) which has the capacity of
providing the parties with a list of potential qualified arbitrators. The
parties shall request that designated alternate dispute resolution service to
provide them with a list of nine persons who meet the requirements of paragraph
6.2 above. Each party shall rate the nine names by giving the most preferred
arbitrator the number nine and using descending successive numbers to rate the
remaining choices in descending order of that party's preference and returning
the list to the alternate dispute resolution service for calculation. The
arbitrator candidate with the highest combined rating will be the Arbitrator.
The functions of the alternate dispute resolution service shall be strictly
limited to providing the list of arbitrator candidates and tallying the
respective parties' ratings of the candidates in accordance with this Section 6
and no rules of that service shall otherwise apply.
7. Arbitration Procedures:
7.1 All parties may be represented by counsel throughout the arbitration
process, including without limitation, at the arbitration hearing.
7.2 The Arbitrator shall afford each party a full and fair opportunity to
present relevant and material proof, to call and cross-examine witnesses, and to
present its argument.
7.3 The Arbitrator shall not be bound by any formal rules of evidence with
the exception of applicable law regarding the attorney-client privilege and work
product
3
doctrine, and any applicable state or federal law regarding confidentiality of
documents and other information (including, without limitation, pursuant to
rights of privacy).
7.4 The Arbitrator shall decide the relevance of any evidence offered, and
the Arbitrator's decision on any question of evidence or argument shall be final
and binding.
7.5 The Arbitrator may receive and consider the evidence of witnesses by
affidavit and shall give it such weight as the Arbitrator deems appropriate
after consideration of any objection made to its admission.
7.6 Either party, at its expense, may arrange and pay for the cost of a
court reporter to provide a stenographic record of the proceedings. The other
party may obtain a copy of the recording by paying the reporter's normal fee for
such copy. If both parties agree to utilize the services of a court reporter,
the parties shall share the expense equally and shall be billed and responsible
for payment individually.
7.7 Either party shall have the right to file an pre- or post-hearing
brief. The time for filing such briefs shall be set by the Arbitrator.
7.8 The Arbitrator has authority to entertain a written or oral motion to
dismiss and motion for summary judgment, dispositive of all or part of any
Claim, to which the Arbitrator shall apply the standards governing such motions
under the Federal Rules of Civil Procedure.
8. Discovery
8.1 Discovery shall be governed by this paragraph 8, notwithstanding Code
of Civil Procedure Section 1283.05 to the contrary.
8.2 Discovery shall be conducted in the most expeditious and
cost-effective manner possible, and shall be limited to that which is relevant
and for which the party seeking it has substantial, demonstrable need.
8.3 All parties shall be entitled to receive, reasonably prior to the
hearing, copies of relevant documents which are requested in writing, clearly
described and governed by paragraph 8.2 above, and sought with reasonable
advance notice given the nature of the requests. Upon request, Employee shall
also be entitled to a true copy of his or her personnel file kept in the
ordinary course of business and pursuant to the Employer policy. Any other
requests for documents shall be made by subpoena as provided for in Section 9
herein.
8.4 Except as mutually agreed by the parties, all parties shall be
entitled to submit no more than twenty interrogatories (including subparts) and
twenty requests for admission (including subparts), on each of the other
parties, which are requested in
4
writing, clearly described and governed by paragraph 8.2 above, and sought with
reasonable advance notice given the nature of the requests.
8.5 Upon reasonable request and scheduling, each party shall be entitled
to take three depositions in total of relevant parties, representative of the
opposing party, or third parties, of up to two days duration each.
8.6 Physical and/or mental examinations may be conducted in accordance
with the standards established by the Federal Rules of Civil Procedure.
8.7 At a mutually agreeable date, the parties will exchange lists of
experts who will testify at the arbitration. Each party may depose the other
party's experts and obtain documents they reviewed and relied upon and these
depositions will not be charged against the party's limit of three depositions.
8.8 Any disputes relative to discovery or requests for discovery other
than specifically provided for herein, shall be presented to the Arbitrator who
shall make final and binding decisions in accordance with paragraphs 8.1 and 8.2
herein.
9. Subpoenas
9.1 Subject to formal request and a determination of both need and
relevance by the Arbitrator in accordance with paragraphs 8.1 and 8.2 above,
each party may issue a subpoena for production of documents or persons (other
than those provided for in Sections 8.3, 8.5 and 8.7) relevant to the procedure.
The Arbitrator's decision regarding relevance and the need for subpoenas shall
be final and binding.
9.2 The Arbitrator is empowered to subpoena witnesses or documents to the
extent permitted in a judicial proceeding, upon his or her own initiative or at
the request of a party.
9.3 The party requesting the production of any witness or proof shall bear
the costs of such production.
10. The Award
10.1 The Arbitrator shall render his or her decision and award
(collectively the "Award") based solely on the evidence and authorities
presented, the applicable policies of the Employer, any applicable written
employment agreement, the applicable law argued by the parties, and these
Provisions as interpreted by the Arbitrator.
10.2 The Award shall be made promptly by the Arbitrator, and unless
otherwise agreed by the parties, not later than sixty (60) days from the closing
of the hearing, or the date post-hearing briefs are filed, whichever is later.
5
10.3 The Award shall be in writing and signed and dated by the Arbitrator.
The Award shall decide all issues submitted, shall contain express findings of
fact and law (including findings on each issue of fact and law raised by a
party), and provide the reasons supporting the decision including applicable
law. The Arbitrator shall give signed and duplicate original copies of the Award
to all parties at the same time.
11. Damages and Relief
11.1 The Arbitrator shall have the same authority to award remedies and
damages as provided to a judge and/or jury under applicable state or federal
laws, where the aggrieved party has met his or her burden of proof.
11.2 Both parties have a duty to mitigate their damages by all reasonable
means. The Arbitrator shall take a party's failure to mitigate into account in
granting relief in accordance with applicable state and federal law.
11.3 Arbitration of damages or other remedies may be conducted in a
bifurcated proceeding.
12. Fees and Expenses
12.1 All parties shall share equally the fees of the Arbitrator. Each party
will deposit funds or post other appropriate security for its share of the
Arbitrator's fee, in an amount and manner determined by the Arbitrator, at least
ten (10) days before the first day of hearing. Additionally, each party shall
pay for its own expenses associated with the arbitration process and attorneys'
fees, if any. If any party prevails on a statutory claim which entitles the
prevailing party to attorneys' fees, or if there is a written agreement
providing for fees, the Arbitrator may award reasonable fees to the prevailing
party in accordance with such statute or agreement.
12.2 The Arbitrator may additionally award either party its reasonable
attorneys' fees and costs, including reasonable expenses associated with
production of witnesses or proof, upon a finding that the other party (a)
engaged in unreasonable delay, or (b) failed to comply with the Arbitrator's
discovery order.
6
EXHIBIT 10.2
ANNEX I
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is entered into as of this 1st
day of July, 2003, by and between Occidental Petroleum Corporation, a Delaware
corporation ("OPC"), and J. Roger Hirl ("Consultant").
WITNESSETH:
WHEREAS, Consultant has been employed as an employee of OPC since July,
1983; and
WHEREAS, the parties now desire to end the employment relationship and
provide for the availability of Mr. Hirl solely on a consulting basis;
NOW, THEREFORE, in consideration of the mutual covenants and. agreements
herein set forth, the parties agree as follows:
1. Services. Effective as of the date hereof, Consultant shall be
available to render services to OPC as a consultant for up to thirty (30) days
during each twelve (12) month period from July 1, 2003 through June 30, 2005
(the "Consultant Term"). Consultant's consultation services shall be limited to
those services which OPC requests from time to time. Consultant shall make
himself available for such consultation services in OPC's offices and elsewhere
as determined by OPC. OPC shall reimburse Consultant for all of his reasonable
and actual business expenses incurred in connection with providing services
specified hereunder.
2. Compensation. During the Consultant Term OPC shall compensate
Consultant at the monthly rate of sixteen thousand six hundred sixty-seven
dollars ($16,667) (the "Monthly Retainer"), payable semimonthly, less
appropriate deductions for taxes, etc.
3. Restriction on Other Services. During the Consultant Term, Consultant
shall not engage in full or part-time employment or work; accept employment
with, or act as a Consultant for, or perform services for any person, firm or
corporation without the prior written consent of OPC.
4. Non-Disclosure of Information. Without the prior written consent of
OPC (which consent shall not be unreasonably withheld to the extent any
disclosure by Employee is required by applicable law or regulation or applicable
order of any court or governmental agency), Consultant shall not divulge to any
person, business, firm, corporation or government entity, nor use to the
detriment of OPC, or any of its subsidiaries, nor use in any business, venture,
or any organization of any kind, or in any process of manufacture, production or
mining, at any time, except as necessary in performing services for OPC:
(a) Any OPC trade secrets in any form, including without limitation,
all graphic material, forms, documents, data and information; and
(b) Any OPC confidential information in any form, including without
limitation, concerning inventions, discoveries, improvements. methods,
technology, business plans, environmental plans, audits, reviews or other
investigatory processes, procedures and practices, enterprises, exploration,
mining or drilling information, manufacturing information, plant design,
location or operation, financial results, reports or similar information, or any
other OPC confidential information affecting or concerning the business or
operation of OPC or any of its directors, officers or employees developed,
acquired, used by or disclosed to Consultant in the performance of his services
at any time in any capacity for OPC.
5. Return of Documents. Consultant agrees to return to OPC no later than
ten (10) calendar days after the effective date hereof, all OPC property and all
originals and copies of OPC's property in his possession or under his control,
including without limitation, keys, security passes, directories, policies,
procedures. manuals. reports, organization charts, files, and computer discs
containing any information concerning his job or any other information
concerning OPC which he acquired during his employment with OPC. Consultant
agrees that he will forever keep in strictest confidence (and will not deliver
to anyone else) any and all notes, notebooks, memoranda, documents computer
discs, manuals, files, and phone lists and, in general, any and all information
and material in his possession or control affecting or concerning OPC's business
or operations without the prior written consent of OPC (which consent shall not
be unreasonably withheld to the extent any disclosure by Employee is required by
applicable law or regulation or applicable order of any court or governmental
agency).
6. Non-Disclosure of Terms, etc. Consultant shall not, unless directed by
lawful court order, disclose the terms and conditions of this Agreement to
anyone other than his immediate family and any person deemed to be necessary to
effectuate the terms and conditions of this Agreement, such as his attorney or
accountant.
7. Termination. OPC may terminate this Agreement for cause (as defined in
the Employment Agreement, between OPC and Consultant, dated December 13, 2001),
and Consultant may terminate this Agreement at any time upon thirty (30) days'
notice to OPC.
-2-
8. Release and Discharge. Except for obligations created by this
Agreement, and obligations to indemnify and defend Consultant for his acts or
omissions as an employee, officer or director of either OPC or its subsidiaries
pursuant to either OPC's by-laws, its Directors and Officers Liability Insurance
or any other of its insurance applicable thereto, Consultant absolutely and
forever releases and discharges Occidental Petroleum Corporation and its past
and present subsidiaries, affiliated corporations and each of their
shareholders, officers, directors, employees, insurance carriers, predecessors
and successors, assigns, agents, attorneys, representatives, heirs,
administrators (collectively "OPC Releasees") from any and all claims, demands,
damages, losses, liabilities, debts, liens, judgments, obligations, accounts,
actions, and causes of action, whether past, present, or future, known or
unknown, at law, in arbitration or in equity, arising out of or in connection
with any act or omission occurring at any time heretofore, including without
limitation any act or omission related to or arising out of Consultant's
employment, or the termination of benefits or other terms of employment by OPC
or any California or other state, municipal, or Federal constitution, statute,
regulation, ordinance, order, or common law, including without limitation, Title
VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et
seq.; the Civil Rights Act of 1991; the Civil Rights Act of 1866, as amended, 42
U.S.C. Section 1981 et seq.; the Equal Pay Act, as amended, 29 U.S.C. Section
206(d) et seq.; Employee Retirement Income Security Act of 1974, as amended, 29
U.S.C. Section 1001 et seq.; The Americans With Disabilities Act, 42 U.S.C.
Section 12101 et seq.; the Family and Medical Leave Act of 1993, 29 U.S.C.
Section 2601 et seq.; United States Executive Orders 11246 and 11375; the Age
Discrimination in Employment Act of 1967, as amended, 29 U.S.C. Section 621 et
seq.; California Government Code Section 12900 et seq.; the UNRUH Civil Rights
Act, as amended, California Civil Code Section 51 et seq.; the Regulations of
the Office of Federal Contract Compliance Programs, as amended, 41 C.F.R.
Section 60 et seq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C.
Section 701 et seq.; or any claims based on misrepresentation, fraud, contract,
an accounting, wrongful or constructive discharge, breach of privacy,
retaliation, breach of covenant of good faith and fair dealing, violation of
public policy, defamation, negligent or intentional infliction of emotional
distress, discrimination on any basis prohibited by statute, common law,
ordinance or public policy, loss of consortium, negligence, interference with
business opportunity or with contracts, breach of fiduciary duty, or unfair
insurance practices arising out of or related to any act or omission occurring
before this Agreement is executed by Consultant, except that Consultant does not
waive any claim for vested pension benefits or other welfare benefits to which
Consultant is entitled per the terms of the plans, e.g. medical benefits.
Consultant represents that he is unaware of any workers' compensation claims
brought on his behalf or of any facts on which such a claim could be brought.
9. Waiver. Consultant understands and acknowledges that there are laws
which may invalidate releases of claims which are unknown to the releasing
party. Consultant hereby waives any protection to which he may otherwise be
entitled against OPC Releasees by virtue of any such law. In particular, and not
by way of limitation, Consultant represents and acknowledges that he is familiar
with Section 1542 of the California Civil Code, which provides as follows:
"A general release does not extend to claims which the creditor does not know or
suspect to exist
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in his favor at the time of executing the release, which if known by him must
have materially affected his settlement with the debtor.
Consultant waives and relinquishes any rights and/or benefits which he has or
may have against OPC Releasees under Section 1542 of the California Civil Code,
or any similar applicable statute of any jurisdiction to the fullest extent
permitted by law.
10. No Other Severance Benefits. Notwithstanding anything in this
Agreement to the contrary, Consultant hereby acknowledges and agrees that this
Agreement is in lieu of, and because he has entered into this Agreement he is
automatically ineligible for and disqualified from participating in, any and all
plans, programs or arrangements of severance, separation, termination or pay
continuation announced or maintained heretofore or hereafter by OPC or any of
its subsidiary or affiliated companies.
11. Nature of Relationship. Consultant's relationship with OPC shall be as
an independent consultant, and not as an employee.
12. No Other Employment Agreements. As of the date of this Agreement any
other existing employment or consulting agreement, or any plan, program or
arrangement of severance, separation, termination, or pay continuation, oral,
written or implied, between Consultant and OPC shall be deemed to be terminated
and of no further force or effect. Further, the parties agree and acknowledge
that this Agreement constitutes and contains the entire agreement and
understanding of the parties concerning the subject matters hereof, and
supersedes and replaces all prior negotiations, proposed agreements, or
agreements, written or oral or implied. The parties each acknowledge, one to the
other, that no other party, nor any agent or attorney of any other party, has
made any promise, representation, or warranty whatsoever (express, implied or
statutory) not contained herein concerning the subject matters hereof to induce
them to execute this Agreement and that they have not executed this Agreement in
reliance upon any such promise, representation, or warranty not contained
herein. The parties further agree that any oral representations or modifications
concerning this instrument shall be of no force or effect, and that this
Agreement can only be modified by a writing, signed by all of the parties
hereto.
13. Arbitration. In the event of any dispute rising out of this Agreement,
Consultant's prior employment or the Consultant Term or any other matter between
the parties, Consultant and OPC agree that any such dispute shall be decided
exclusively by neutral binding arbitration conducted in Los Angeles, California
in accordance with the then current rules of the American Arbitration
Association in effect in Los Angeles, California applicable to employment
disputes. In the event the parties are unable to agree upon an arbitrator, they
shall select from a list of seven (7) arbitrators designated by the American
Arbitration Association. This Agreement to resolve any disputes by binding
arbitration shall extend to claims by Consultant against any OPC Releasees and
shall apply as well, to the full extent permitted by law to claims arising out
of local, state and federal common law, statutes and ordinances. However,
Consultant and OPC shall retain whatever rights to injunctive relief may be
available under applicable laws concerning any claims and any dispute or claim
in connection with the receipt of benefits under any benefit plans shall be
governed by the claims procedures under the applicable plan.
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14. Release Acknowledgment. Consultant expressly acknowledges and agrees
that the releases given above include a waiver and release of all claims which
Consultant has or may have under the Age Discrimination in Employment Act Of
1967, as amended, 29 U.S.C. Section 621 et seq. The releases given above are
given only in exchange for consideration (something of value) in addition to
anything of value to which Consultant is otherwise already entitled. All
releases set forth above do not waive rights or claims which may arise after the
date of execution of this Agreement. Consultant acknowledges that (i) this
entire Agreement is written in a manner calculated to be and is understood by
Consultant, (ii) he has been advised in writing to consult with an attorney
before executing this Agreement, and (iii) he has up to forty-five (45) days
from the date he is presented with this Agreement to consider whether or not to
sign the Agreement, and (iv) to the extent he executes this Agreement before the
expiration of the forty-five (45)-day period, he does so knowingly and
voluntarily. If Consultant signs this Agreement he shall have the right to
cancel and revoke this Agreement during a period of seven (7) calendar days
following his execution of the Agreement and this Agreement shall not become
effective, and no money shall be paid hereunder until the expiration of such
seven (7)-day period. In order to revoke this Agreement, Consultant shall
deliver to OPC, prior to the expiration of said seven (7)-day period, a written
notice of cancellation. This Agreement shall become effective on the eighth
(8th) day after Consultant's execution, provided there has been no revocation
pursuant to this paragraph.
15. Severability. Should any part of this Agreement, with the exception of
Paragraphs 1 and 2, the releases and related provisions embodied in Paragraphs
8, 9 and 14, be declared or determined by any Court or other tribunal of
appropriate jurisdiction to be invalid or unenforceable, any such invalid or
unenforceable part, term or provision shall be stricken and severed from this
Agreement and all other terms of the Agreement shall remain in full force and
effect to the fullest extent permitted by law. The releases and related
provisions embodied in Paragraphs 8, 9, and 14 and Paragraphs 1 and 2 are
material to this Agreement and should any of these paragraphs be deemed invalid
or unenforceable, this Agreement shall be null and void and any consideration
received under this Agreement shall be returned to OPC.
16. Assignment. This Agreement shall be binding upon Consultant, his
heirs, executors and assigns and upon OPC, its successors and assigns.
17. Governing Law. This Agreement is made and entered into in the State of
California and shall be governed by, and construed in accordance with, the laws
of the State of California, without regard to principles of conflict of laws.
18. No Change of Control of Employer (as defined below) shall be deemed to
amend the terms and conditions of this Agreement. For purposes of this Agreement
a "Change of Control of Employer" shall be deemed to have occurred if, after the
date of this Agreement, any person, corporation or other entity becomes the
beneficial owner, directly or indirectly, of 25% or more of the combined voting
power of Employer's then outstanding voting securities.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed the
day and year first hereinabove written.
OCCIDENTAL PETROLEUM CORPORATION
By /s/ RAY R. IRANI
-----------------------------
Dr. Ray R. Irani
Consultant
By /s/ J. ROGER HIRL
-----------------------------
J. Roger Hirl
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EXHIBIT 10.3
OCCIDENTAL PETROLEUM CORPORATION
2001 INCENTIVE COMPENSATION PLAN
INCENTIVE STOCK OPTION
TERMS AND CONDITIONS
Date of Grant: July 16, 2003
Number of Optioned Shares: See "Shares Granted/Awarded" (Grant Acknowledgement
screen)
Option Price: $31.13
Expiration Date: July 16, 2013
Vesting Schedule:* 1st Anniversary 33 1/3 Percent of Number of
Optioned Shares
2nd Anniversary 33 1/3 Percent of Number of
Optioned Shares
3rd Anniversary 33 1/3 Percent of Number of
Optioned Shares
The following TERMS AND CONDITIONS (these "Terms and Conditions") are set forth
as of the Date of Grant between OCCIDENTAL PETROLEUM CORPORATION, a Delaware
corporation ("Occidental") and, with its subsidiaries, (the "Company"), and the
Eligible Employee receiving this grant (the "Optionee").
1. GRANT OF STOCK OPTION. Occidental grants to the Optionee as of the Date of
Grant a stock option (this "Option") to purchase up to the number of Optioned
Shares at the Option Price, from time to time, in accordance with these Terms
and Conditions and the Occidental Petroleum Corporation 2001 Incentive
Compensation Plan, as amended from time to time (the "Plan"). This Option is
intended to be an "incentive stock option" within the meaning of that term under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor provision thereto. If these Terms and Conditions cannot be
construed in a manner to enable this Option to qualify as an incentive stock
option, the right to purchase the Optioned Shares on these Terms and Conditions
shall survive as if this Option were a nonqualified stock option.
2. TERM OF OPTION. The term of this Option begins on the Date of Grant and
expires on the tenth anniversary of the Date of Grant (the "Expiration Date")
unless it is terminated earlier as provided in Section 6.
3. RIGHT TO EXERCISE. Unless this Option has expired, terminated, or
accelerated, on each anniversary of the Date of Grant the amount of Optioned
Shares indicated above in the Vesting Schedule for such anniversary will become
exercisable on a cumulative basis until this Option is fully exercisable. In the
event that the Vesting Schedule results in fractional shares, the fractional
shares will be rounded the nearest whole share as follows: for Optioned Shares
vesting on the first anniversary, the fraction will be rounded up to the nearest
whole number; for Optioned shares vesting on the third anniversary, the fraction
will be rounded down to the nearest whole number; and for Optioned Shares
vesting on the second anniversary, the fraction will be rounded up or down to
the nearest whole number as necessary so that the sum of the three tranches of
Optioned Shares will equal the total number of Optioned Shares. This Option may
be exercised, in whole or in part, only for the number of Optioned Shares that
are vested on the date of exercise. The last date to exercise this Option is the
New York Stock Exchange trading day prior to the earlier of the date this Option
terminates and the Expiration Date.
4. OPTION NONTRANSFERABLE. This Option may not be transferred nor assigned by
the Optionee other than to a beneficiary designated on a form approved by the
Company, by will or, if the Optionee dies without designating a beneficiary or a
valid will, by the laws of descent and distribution. During the Optionee's
lifetime, only the Optionee, or in the event of his or her legal incapacity, a
properly appointed guardian or legal representative, may exercise this Option.
5. NOTICE OF EXERCISE; PAYMENT.
(a) To exercise this Option, the Optionee must give oral or written notice
to Occidental or any agent designated by Occidental to administer grants made
under the Plan. If Occidental has designated
an agent, notice must be given to the agent to be effective. The notice of
exercise must state the number of Optioned Shares for which this Option is being
exercised and the manner of payment. The date the notice is received is the
exercise date unless (i) notice is received after the close of trading on the
New York Stock Exchange or on a day which is not a New York Stock Exchange
trading day, in which case the exercise date is the next trading day on the New
York Stock Exchange, or (ii) if limit orders are permitted by the Administrator
or any agent designated by Occidental and the notice contains a limit order in
accordance with the procedures established by the Administrator or the agent,
then the exercise date is the trading date on the New York Stock Exchange during
the limit order period on which the price of the Common Stock traded on the New
York Stock Exchange reaches the price specified in the notice and there is a
single buyer willing to purchase the total number of shares specified in the
notice. The Optionee understands that limit orders will be processed in the
order received and there can be no assurances that there will be sufficient
buyers to process all limit orders received. If requested, any oral notice of
exercise shall be confirmed in writing the same day before the close of trading
on the New York Stock Exchange.
(b) Payment equal to the aggregate Option Price of the Optioned Shares
must be:
(i) in cash in the form of a certified or cashiers check or wire
transfer,
(ii) by actual or constructive transfer to Occidental of
nonforfeitable, nonrestricted Common Shares acquired by the
Optionee more than six (6) months prior to the date of exercise,
or
(iii) by any combination of the foregoing methods of payment.
Common Shares that are transferred by the Optionee in payment of all or any part
of the Option Price shall be valued on the basis of their Fair Market Value on
the date of exercise. The requirement to pay cash shall be satisfied if the
Optionee makes arrangements with a broker that is a member of the National
Association of Securities Dealers, Inc. to sell a sufficient number of the
Optioned Shares, so that the net proceeds of the sale transaction will at least
equal the amount of the aggregate Option Price plus the amount of any taxes
required to be withheld, and pursuant to which the broker undertakes to deliver
the amount of the aggregate Option Price plus the amount of any taxes required
to be withheld, not later than the date on which the sale transaction will
settle in the ordinary course of business.
(c) If pursuant to the Occidental Petroleum Corporation Deferred Stock
Program (the "Deferral Program") the Optionee has elected to defer any gain
realized upon exercise of this Option, exercise of this Option will be made
pursuant to the terms and conditions of the Deferral Program.
6. TERMINATION OF RIGHT TO EXERCISE. The right to exercise this Option
terminates automatically and without further notice on the date the Optionee
ceases to be an employee of the Company for any reason whatsoever, except as
follows:
(a) IF THE OPTIONEE DIES, the Optioned Shares will vest immediately as of
the date of the Optionee's death for the full number of Optioned Shares, and
this Option may be exercised up to the Expiration Date by a transferee
acceptable under Section 4 as an incentive stock option if the Optionee dies
while an employee or within three months of ceasing to be an employee for a
reason specified in Section 6(b) or Section 6(c) or as a nonqualified option if
the Optionee dies more than three months after ceasing to be an employee for a
reason specified in Section 6(b) or Section 6(c).
(b) IF THE OPTIONEE BECOMES PERMANENTLY AND TOTALLY DISABLED, the Optioned
Shares will continue to vest in accordance with the Vesting Schedule and this
Option may be exercised as an incentive stock option up to the sooner of (i) one
year after the disability first arose (the "Disability Period") and (ii) the
Expiration Date. If the Expiration Date is later than the last day of the
Disability Period, then for the period beginning on the first day after the
Disability Period up to the Expiration Date, the Optioned Shares will continue
to vest in accordance with the Vesting Schedule and this Option may be exercised
as a nonqualified option. For purposes of these Terms and Conditions, "to be
permanently and totally disabled" means to be unable to engage in any
substantial gainful activity by reason of an impairment which can be expected to
result in death or which has lasted, or can be expected to last for a continuous
period of at least twelve (12) months.
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(c) IF THE OPTIONEE RETIRES, the Optioned Shares will continue to vest in
accordance with the Vesting Schedule, and this Option may be exercised as an
incentive stock option up to the sooner of (i) three (3) months following the
last day of Optionee's employment (the "Retirement Period") and (ii) the
Expiration Date. If the Expiration Date is later than the last day of the
Retirement Period, then for the period beginning on the first day after the
Retirement Period up to the Expiration Date, the Optioned Shares will continue
to vest in accordance with the Vesting Schedule and this Option may be exercised
as a nonqualified stock option. For purposes of these Terms and Conditions,
"retire" means to retire either under a Company-sponsored retirement plan or
with the consent of the Company.
(d) IF THE OPTIONEE TERMINATES EMPLOYMENT WITH THE COMPANY FOR ANY REASON
OTHER THAN DEATH, PERMANENT AND TOTAL DISABILITY, RETIREMENT OR CAUSE (WHETHER
OR NOT IN BREACH OF LOCAL LABOR LAWS), the Optioned Shares will cease to vest as
of the close of business on the last day of Optionee's active employment, and
this Option may be exercised up to the sooner of (i) three (3) months following
the last day of Optionee's active employment and (ii) the Expiration Date but
only for the number of Optioned Shares exercisable as of the Optionee's last day
of employment pursuant to the Vesting Schedule. For the purposes of these Terms
and Conditions, "cause" means the Optionee's (w) failure to satisfactorily
perform the duties of his or her job or negligence in carrying out the Company's
legal obligations, (x) refusal to carry out any lawful order of the Company, (y)
breach of any legal duty to the Company; or (z) conduct constituting moral
turpitude or conviction of a crime which may diminish Optionee's ability to
effectively act on the Company's behalf or with or on behalf of others.
For the purposes of these Terms and Conditions, the continuous employment of the
Optionee with the Company will not be interrupted, and the Optionee will not be
deemed to cease to be an employee of the Company, by reason of the transfer of
his or her employment among the Company and its affiliates or an approved leave
of absence. The administrator shall have the exclusive discretion to determine
when the Optionee is no longer actively employed for purposes of this Option
grant.
7. MANDATORY NOTICE BY OPTIONEE OF TRANSFER OF SHARES. If the Optionee sells,
exchanges, makes a gift of or transfers in any other way any of the Optioned
Shares either within two (2) years of the Date of Grant or within one (1) year
from the date shares are transferred to the Optionee following exercise of this
Option, the Optionee must notify the Company of the transfer within thirty (30)
days from the date of the transfer. The notice must state the principal terms of
the transfer, including the date of the transfer and the type and amount of
consideration received by the Optionee for the shares. The Optionee understands
that a transfer of shares within the periods specified in the first sentence of
this Section 7, including a "cashless" exercise to acquire the shares, will
result in the Optionee's loss of the tax benefits associated with an incentive
stock option.
8. ACCELERATION OF OPTION. If a Change in Control Event as defined in the Plan
occurs, this Option shall become immediately exercisable for the full number of
Optioned Shares unless prior to the occurrence of the Change in Control Event,
the Administrator, as provided in Section 6.1 of the Plan, determines that such
Event will not accelerate this Option or that acceleration will occur for only
part of this Option or at a different time. Any such determination by the
Administrator is binding on the Optionee.
9. NO EMPLOYMENT CONTRACT. Nothing in these Terms and Conditions confers upon
the Optionee any right with respect to continued employment by the Company, nor
limits in any manner the right of the Company to terminate the employment or
adjust the compensation of the Optionee.
10. TAXES AND WITHHOLDING. If the Company must withhold any federal, state,
local or foreign tax in connection with the exercise of this Option, the
Optionee must pay the tax or make provisions that are satisfactory to the
Company for the payment thereof. The Optionee may satisfy all or any part of any
such withholding obligation by surrendering to the Company or any agent
designated by the Company to administer grants made under the Plan, Common
Shares that satisfy the requirements of Section 5(b)(ii) or a portion of the
Common Shares that are issued or transferred to the Optionee upon the exercise
of this Option. Any Common Shares so surrendered by the Optionee shall be
credited against the Optionee's withholding obligation at their Fair Market
Value on the date of exercise.
11. COMPLIANCE WITH LAW. The Company will make reasonable efforts to comply
with all applicable federal, state and foreign securities laws; however, this
Option is not exercisable if its exercise would result in a violation of any
such law.
3
12. ADJUSTMENTS. The Option Price and the number or kind of shares of stock
covered by this Option may be adjusted as the Administrator determines pursuant
to Section 6.2 of the Plan in order to prevent dilution or expansion of the
Optionee's rights under these Terms and Conditions as a result of events such as
stock dividends, stock splits, or other change in the capital structure of
Occidental, or any merger, consolidation, spin-off, liquidation or other
corporate transaction or event having a similar effect. If any such adjustment
occurs, the Company will give the Optionee written notice of the adjustment
containing an explanation of the nature of the adjustment.
13. RELATION TO OTHER BENEFITS. The benefits received by the Optionee under
these Terms and Conditions will not be taken into account in determining any
benefits to which the Optionee may be entitled under any profit sharing,
retirement or other benefit or compensation plan maintained by the Company,
including the amount of any life insurance coverage available to any beneficiary
of the Optionee under any life insurance plan covering employees of the Company.
The grant of this option does not create any contractual or other right to
receive future grants of options, or benefits in lieu of Options, even if
Optionee has a history of receiving Options or other stock awards.
14. AMENDMENTS. Any amendment to the Plan will be deemed to be an amendment to
these Terms and Conditions to the extent it is applicable to these Terms and
Conditions; however, no amendment will adversely affect the rights of the
Optionee under these Terms and Conditions without the Optionee's consent.
15. SEVERABILITY. If one or more of the provisions of these Terms and
Conditions is invalidated for any reason by a court of competent jurisdiction,
the invalidated provisions shall be deemed to be separable from the other
provisions of these Terms and Conditions, and the remaining provisions of these
Terms and Conditions will continue to be valid and fully enforceable.
16. RELATION TO PLAN; INTERPRETATION. These Terms and Conditions are subject to
the terms and conditions of the Plan. In the event of any inconsistent
provisions between these Terms and Conditions and the Plan, the provisions of
the Plan control. Capitalized terms used in these Terms and Conditions without
definition have the meanings assigned to them in the Plan. References to
Sections are to Sections of these Terms and Conditions unless otherwise noted.
17. ADMINISTRATIVE PROCEDURES. The Administrator, directly or through its
agent, reserves the right to adopt procedures with respect to the exercise of
this Option. In the event of any inconsistent provisions between such
procedures, these Terms and Conditions and the Plan, the provisions of the Plan
control.
18. SUCCESSORS AND ASSIGNS. Subject to Section 4, the provisions of these Terms
and Conditions shall be for the benefit of, and be binding upon, the successors,
administrators, heirs, legal representatives and assigns of the Optionee, and
the successors and assigns of the Company.
19. GOVERNING LAW. The laws of the State of Delaware govern the interpretation,
performance, and enforcement of these Terms and Conditions.
20. NOTICES. Except as the Company may otherwise direct for exercise notices,
any notice to the Company provided for in this Agreement will be given to its
Secretary at 10889 Wilshire Boulevard, Los Angeles, California 90024, and any
notice to the Optionee will be addressed to the Optionee at his or her address
currently on file with the Company. Except as provided in Section 5 for exercise
notices, any written notice will be deemed to be duly given when received if
delivered personally or sent by telecopy, e-mail, or the United States mail,
first class registered mail, postage and fees prepaid, and addressed as provided
in this paragraph. Any party may change the address to which notices are to be
given by written notice to the other party as specified in the preceding
sentence.
21. PRIVACY RIGHTS. The Company and the Optionee's employer hold or may receive
from any agent designated by the Company or any broker involved in the exercise
or sale of shares covered by this Option certain personal information about the
Optionee, including, but not limited to, the Optionee's name, home address and
telephone number, date of birth, social insurance number or other identification
number, salary, nationality, job title, any shares of stock or directorships
held in Occidental, details of all Options or any other entitlement to shares of
stock awarded, canceled, exercised, vested, unvested or
4
outstanding in the Optionee's favor, for the purpose of implementing,
administering and managing the Plan, including complying with applicable tax and
securities laws ("Data"). Data may be transferred to any third parties assisting
in the implementation, administration and management of the Plan. These
recipients may be located in the Optionee's country or elsewhere, and may have
different data privacy laws and protections than the Optionee's country. By
accepting these Terms and Conditions, the Optionee authorizes the recipients to
receive, possess, use, retain and transfer the Data, in electronic or other
form, for the purposes described above, including transfer of such Data as may
be required to a broker or other third party with whom the Optionee may elect to
deposit any Common Shares acquired upon exercise of the Option. The Optionee
may, at any time, view Data, request additional information about the storage
and processing of Data, require any necessary amendments to Data or refuse or
withdraw the consents herein, in any case without cost, by contacting the
Administrator in writing. Refusing or withdrawing consent may affect the
Optionee's ability to participate in the Plan.
22. ELECTRONIC DELIVERY. The Company may, in its sole discretion, decide to
deliver any documents related to this Option granted under the Plan or any
future options that may be granted under the Plan (if any) by electronic means
or to request the Optionee's consent to participate in the Plan by electronic
means. The Optionee hereby consents to receive such documents by electronic
delivery and, if requested, to participate in the Plan through an on-line or
electronic system established and maintained by the Company or another third
party designated by the Company.
23. OPTIONEE'S REPRESENTATIONS AND RELEASES. By accepting the award, the
Optionee acknowledges that the Optionee has read these Terms and Conditions and
understands that the (i) grant of this Option is made voluntarily by Occidental
in its discretion with no liability on the part of any of its direct or indirect
subsidiaries and that, if the Optionee is not an employee of Occidental, the
Optionee is not, and will not be considered, an employee of Occidental but the
Optionee is a third party (employee of a subsidiary) to whom this Option is
granted; (ii) the future value of the Optioned Shares cannot be predicted and
Occidental does not assume liability in the event the Option has no value in the
future or of any loss to the Optionee from this Option or the Optioned Shares;
and, (iii) subject to the terms of any tax equalization agreement between the
Optionee and the entity employing the Optionee, the Optionee will be solely
responsible for the payment or nonpayment of taxes imposed or threatened to be
imposed by any authority of any jurisdiction.
In consideration of the grant of this Option, no claim or entitlement to
compensation or damages shall arise from termination of this Option or
diminution in value of this Option or Common Shares purchased through exercise
of this Option resulting from termination of the Optionee's employment by the
Company or the Optionee's employer (for any reason whatsoever and whether or not
in breach of local labor laws) and the Optionee irrevocably releases the Company
and, if not Occidental, the Optionee's employer from any such claim that may
arise; if, notwithstanding the foregoing, any such claim is found by a court of
competent jurisdiction to have arisen, then, by accepting these Terms and
Conditions, the Optionee shall be deemed irrevocably to have waived his or her
entitlement to pursue such claim.
*FOR OPTIONEES WHO RECEIVE BOTH AN INCENTIVE STOCK OPTION GRANT AND A
NON-QUALIFIED STOCK OPTION GRANT ON THE DATE OF GRANT, THE VESTING SCHEDULES FOR
THE COMBINED GRANTS WILL RESULT IN THE VESTING OF 33 1/3 PERCENT OF THE TOTAL
GRANTED OPTIONS ON EACH ANNIVERSARY, AS STATED IN THE VESTING SCHEDULE. HOWEVER,
EACH GRANT INDIVIDUALLY MAY NOT VEST 33 1/3 PERCENT PER YEAR, DUE TO REGULATORY
RESTRICTIONS REGARDING INCENTIVE STOCK OPTIONS. PURSUANT TO THE CODE, TO THE
EXTENT THAT THE AGGREGATE FAIR MARKET VALUE OF STOCK WITH RESPECT TO WHICH
INCENTIVE STOCK OPTIONS (UNDER ALL PLANS OF OCCIDENTAL), ARE EXERCISABLE FOR THE
FIRST TIME DURING A CALENDAR YEAR EXCEEDS $100,000, SUCH OPTIONS SHALL BE
TREATED AS A NON-QUALIFIED STOCK OPTIONS. THIS RULE IS APPLIED BY TAKING OPTIONS
INTO ACCOUNT IN THE ORDER IN WHICH THEY WERE GRANTED AND DETERMINING THE FAIR
MARKET VALUE OF THE STOCK AT THE TIME THE OPTION WAS GRANTED. YOU MAY VIEW
ONLINE A SPECIFIC VESTING SCHEDULE FOR YOUR GRANT BY SELECTING THE "GRANT
SUMMARY" SCREEN, CLICK ON THE GRANT DATE AND SELECT THE "VIEW DETAIL & HISTORY"
BUTTON.
5
EXHIBIT 10.4
OCCIDENTAL PETROLEUM CORPORATION
2001 INCENTIVE COMPENSATION PLAN
NONQUALIFIED STOCK OPTION
TERMS AND CONDITIONS
Date of Grant: July 16, 2003
Number of Optioned Shares: See "Shares Granted/Awarded" (Grant Acknowledgement
screen)
Option Price: $31.13
Expiration Date: July 16, 2013
Vesting Schedule:* 1st Anniversary 33 1/3 Percent of Number of
Optioned Shares
2nd Anniversary 33 1/3 Percent of Number of
Optioned Shares
3rd Anniversary 33 1/3 Percent of Number of
Optioned Shares
The following TERMS AND CONDITIONS (these "Terms and Conditions") are set forth
as of the Date of Grant between OCCIDENTAL PETROLEUM CORPORATION, a Delaware
corporation ("Occidental") and, with its subsidiaries, (the "Company"), and the
Eligible Employee receiving this grant (the "Optionee").
1. GRANT OF STOCK OPTION. Occidental grants to the Optionee as of the Date of
Grant a stock option (this "Option") to purchase up to the number of Optioned
Shares at the Option Price, from time to time, in accordance with these Terms
and Conditions and the Occidental Petroleum Corporation 2001 Incentive
Compensation Plan, as amended from time to time (the "Plan"). This Option shall
not be an "incentive stock option" within the meaning of that term under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or any
successor provision thereto.
2. TERM OF OPTION. The term of this Option begins on the Date of Grant and
expires on the tenth anniversary of the Date of Grant (the "Expiration Date")
unless it is terminated earlier as provided in Section 6.
3. RIGHT TO EXERCISE. Unless this Option has expired, terminated, or
accelerated, on each anniversary of the Date of Grant the amount of Optioned
Shares indicated above in the Vesting Schedule for such anniversary will become
exercisable on a cumulative basis until this Option is fully exercisable. In the
event that the Vesting Schedule results in fractional shares, the fractional
shares will be rounded to the nearest whole share as follows: for Optioned
Shares vesting on the first anniversary, the fraction will be rounded up to the
nearest whole number; for Optioned shares vesting on the third anniversary, the
fraction will be rounded down to the nearest whole number; and for Optioned
Shares vesting on the second anniversary, the fraction will be rounded up or
down to the nearest whole number as necessary so that the sum of the three
tranches of Optioned Shares will equal the total number of Optioned Shares. This
Option may be exercised, in whole or in part, only for the number of Optioned
Shares that are vested on the date of exercise. The last date to exercise this
Option is the New York Stock Exchange trading day prior to the earlier of the
date this Option terminates and the Expiration Date.
4. OPTION NONTRANSFERABLE. This Option may not be transferred nor assigned by
the Optionee other than to a beneficiary designated on a form approved by the
Company, by will or, if the Optionee dies without designating a beneficiary or a
valid will, by the laws of descent and distribution. During the Optionee's
lifetime, only the Optionee, or in the event of his or her legal incapacity, a
properly appointed guardian or legal representative, may exercise this Option.
5. NOTICE OF EXERCISE; PAYMENT.
(a) To exercise this Option, the Optionee must give oral or written notice
to Occidental or any agent designated by Occidental to administer grants made
under the Plan. If Occidental has designated
an agent, notice must be given to the agent to be effective. The notice of
exercise must state the number of Optioned Shares for which this Option is being
exercised and the manner of payment. The date the notice is received is the
exercise date unless (i) notice is received after the close of trading on the
New York Stock Exchange or on a day which is not a New York Stock Exchange
trading day, in which case the exercise date is the next trading day on the New
York Stock Exchange, or (ii) if limit orders are permitted by the Administrator
or any agent designated by Occidental and the notice contains a limit order in
accordance with the procedures established by the Administrator or the agent,
then the exercise date is the trading date on the New York Stock Exchange during
the limit order period on which the price of the Common Stock traded on the New
York Stock Exchange reaches the price specified in the notice and there is a
single buyer willing to purchase the total number of shares specified in the
notice. The Optionee understands that limit orders will be processed in the
order received and there can be no assurances that there will be sufficient
buyers to process all limit orders received. If requested, any oral notice of
exercise shall be confirmed in writing the same day before the close of trading
on the New York Stock Exchange.
(b) Payment equal to the aggregate Option Price of the Optioned Shares
must be:
(i) in cash in the form of a certified or cashiers check or wire
transfer,
(ii) by actual or constructive transfer to Occidental of
nonforfeitable, nonrestricted Common Shares acquired by the
Optionee more than six (6) months prior to the date of exercise,
or
(iii) by any combination of the foregoing methods of payment.
Common Shares that are transferred by the Optionee in payment of all or any part
of the Option Price shall be valued on the basis of their Fair Market Value on
the date of exercise. The requirement to pay cash shall be satisfied if the
Optionee makes arrangements with a broker that is a member of the National
Association of Securities Dealers, Inc. to sell a sufficient number of the
Optioned Shares, so that the net proceeds of the sale transaction will at least
equal the amount of the aggregate Option Price plus the amount of any taxes
required to be withheld, and pursuant to which the broker undertakes to deliver
the amount of the aggregate Option Price plus the amount of any taxes required
to be withheld, not later than the date on which the sale transaction will
settle in the ordinary course of business.
(c) If pursuant to the Occidental Petroleum Corporation Deferred Stock
Program (the "Deferral Program") the Optionee has elected to defer any gain
realized upon exercise of this Option, exercise of this Option will be made
pursuant to the terms and conditions of the Deferral Program.
6. TERMINATION OF RIGHT TO EXERCISE. The right to exercise this Option
terminates automatically and without further notice on the date the Optionee
ceases to be an employee of the Company for any reason whatsoever, except as
follows:
(a) IF THE OPTIONEE DIES, the Optioned Shares will vest immediately as of
the date of the Optionee's death for the full number of Optioned Shares, and
this Option may be exercised up to the Expiration Date by a transferee
acceptable under Section 4.
(b) IF THE OPTIONEE BECOMES PERMANENTLY AND TOTALLY DISABLED, the Optioned
Shares will continue to vest in accordance with the Vesting Schedule, and this
Option may be exercised up to the Expiration Date. For purposes of these Terms
and Conditions, "to be permanently and totally disabled" means to be unable to
engage in any substantial gainful activity by reason of an impairment which can
be expected to result in death or which has lasted, or can be expected to last
for a continuous period of at least twelve (12) months.
(c) IF THE OPTIONEE RETIRES, the Optioned Shares will continue to vest in
accordance with the Vesting Schedule, and this Option may be exercised up to the
Expiration Date. For purposes of these Terms and Conditions, "retire" means to
retire either under a Company-sponsored retirement plan or with the consent of
the Company.
2
(d) IF THE OPTIONEE TERMINATES EMPLOYMENT WITH THE COMPANY FOR ANY REASON
OTHER THAN DEATH, PERMANENT AND TOTAL DISABILITY, RETIREMENT OR CAUSE (WHETHER
OR NOT IN BREACH OF LOCAL LABOR LAWS), the Optioned Shares will cease to vest as
of the close of business on the last day of Optionee's active employment, and
this Option may be exercised up to the sooner of (i) three (3) months following
the last day of Optionee's active employment and (ii) the Expiration Date but
only for the number of Optioned Shares exercisable as of the Optionee's last day
of employment pursuant to the Vesting Schedule. For the purposes of these Terms
and Conditions, "cause" means the Optionee's (w) failure to satisfactorily
perform the duties of his or her job or negligence in carrying out the Company's
legal obligations, (x) refusal to carry out any lawful order of the Company, (y)
breach of any legal duty to the Company; or (z) conduct constituting moral
turpitude or conviction of a crime which may diminish Optionee's ability to
effectively act on the Company's behalf or with or on behalf of others.
For the purposes of these Terms and Conditions, the continuous employment of the
Optionee with the Company will not be interrupted, and the Optionee will not be
deemed to cease to be an employee of the Company, by reason of the transfer of
his or her employment among the Company and its affiliates or an approved leave
of absence. The Administrator shall have the exclusive discretion to determine
when the Optionee is no longer actively employed for purposes of this Option
grant.
7. ACCELERATION OF OPTION. If a Change in Control Event as defined in the Plan
occurs, this Option shall become immediately exercisable for the full number of
Optioned Shares unless prior to the occurrence of the Change in Control Event,
the Administrator, as provided in Section 6.1 of the Plan, determines that such
Event will not accelerate this Option or that acceleration will occur for only
part of this Option or at a different time. Any such determination by the
Administrator is binding on the Optionee.
8. NO EMPLOYMENT CONTRACT. Nothing in these Terms and Conditions confers upon
the Optionee any right with respect to continued employment by the Company, nor
limits in any manner the right of the Company to terminate the employment or
adjust the compensation of the Optionee.
9. TAXES AND WITHHOLDING. If the Company must withhold any federal, state,
local or foreign tax in connection with the exercise of this Option, the
Optionee must pay the tax or make provisions that are satisfactory to the
Company for the payment thereof. The Optionee may satisfy all or any part of any
such withholding obligation by surrendering to the Company or any agent
designated by the Company to administer grants made under the Plan, Common
Shares that satisfy the requirements of Section 5(b)(ii) or a portion of the
Common Shares that are issued to the Optionee upon the exercise of this Option.
Any Common Shares so surrendered by the Optionee shall be credited against the
Optionee's withholding obligation at their Fair Market Value on the date of
exercise.
10. COMPLIANCE WITH LAW. The Company will make reasonable efforts to comply
with all applicable federal, state and foreign securities laws; however, this
Option is not exercisable if its exercise would result in a violation of any
such law.
11. ADJUSTMENTS. The Option Price and the number or kind of shares of stock
covered by this Option may be adjusted as the Administrator determines pursuant
to Section 6.2 of the Plan in order to prevent dilution or expansion of the
Optionee's rights under these Terms and Conditions as a result of events such as
stock dividends, stock splits, or other change in the capital structure of
Occidental, or any merger, consolidation, spin-off, liquidation or other
corporate transaction or event having a similar effect. If any such adjustment
occurs, the Company will give the Optionee written notice of the adjustment
containing an explanation of the nature of the adjustment.
12. RELATION TO OTHER BENEFITS. The benefits received by the Optionee under
these Terms and Conditions will not be taken into account in determining any
benefits to which the Optionee may be entitled under any profit sharing,
retirement or other benefit or compensation plan maintained by the Company,
including the amount of any life insurance coverage available to any beneficiary
of the Optionee under any life insurance plan covering employees of the Company.
The grant of this option does not create any contractual or other right to
receive future grants of options, or benefits in lieu of Options, even if
Optionee has a history of receiving Options or other stock awards.
3
13. AMENDMENTS. Any amendment to the Plan will be deemed to be an amendment to
these Terms and Conditions to the extent it is applicable to these Terms and
Conditions; however, no amendment will adversely affect the rights of the
Optionee under these Terms and Conditions without the Optionee's consent.
14. SEVERABILITY. If one or more of the provisions of these Terms and
Conditions is invalidated for any reason by a court of competent jurisdiction,
the invalidated provisions shall be deemed to be separable from the other
provisions of these Terms and Conditions, and the remaining provisions of these
Terms and Conditions will continue to be valid and fully enforceable.
15. RELATION TO PLAN; INTERPRETATION. These Terms and Conditions are subject to
the terms and conditions of the Plan. In the event of any inconsistent
provisions between these Terms and Conditions and the Plan, the provisions of
the Plan control. Capitalized terms used in these Terms and Conditions without
definition have the meanings assigned to them in the Plan. References to
Sections are to Sections of these Terms and Conditions unless otherwise noted.
16. ADMINISTRATIVE PROCEDURES. The Administrator, directly or through its
agent, reserves the right to adopt procedures with respect to the exercise of
this Option. In the event of any inconsistent provisions between such
procedures, these Terms and Conditions and the Plan, the provisions of the Plan
control.
17. SUCCESSORS AND ASSIGNS. Subject to Section 4, the provisions of these Terms
and Conditions shall be for the benefit of, and be binding upon, the successors,
administrators, heirs, legal representatives and assigns of the Optionee, and
the successors and assigns of the Company.
18. GOVERNING LAW. The laws of the State of Delaware govern the interpretation,
performance, and enforcement of these Terms and Conditions.
19. NOTICES. Except as the Company may otherwise direct for exercise notices,
any notice to the Company provided for in these Terms and Conditions will be
given to its Secretary at 10889 Wilshire Boulevard, Los Angeles, California
90024, and any notice to the Optionee will be addressed to the Optionee at his
or her address currently on file with the Company. Except as provided in Section
5 for exercise notices, any written notice will be deemed to be duly given when
received if delivered personally or sent by telecopy, e-mail, or the United
States mail, first class registered mail, postage and fees prepaid, and
addressed as provided in this paragraph. Any party may change the address to
which notices are to be given by written notice to the other party as specified
in the preceding sentence.
20. PRIVACY RIGHTS. The Company and the Optionee's employer hold or may receive
from any agent designated by the Company or any broker involved in the exercise
or sale of shares covered by this Option certain personal information about the
Optionee, including, but not limited to, the Optionee's name, home address and
telephone number, date of birth, social insurance number or other identification
number, salary, nationality, job title, any shares of stock or directorships
held in Occidental, details of all Options or any other entitlement to shares of
stock awarded, canceled, exercised, vested, unvested or outstanding in the
Optionee's favor, for the purpose of implementing, administering and managing
the Plan, including complying with applicable tax and securities laws ("Data").
Data may be transferred to any third parties assisting in the implementation,
administration and management of the Plan. These recipients may be located in
the Optionee's country or elsewhere, and may have different data privacy laws
and protections than the Optionee's country. By accepting these Terms and
Conditions, the Optionee authorizes the recipients to receive, possess, use,
retain and transfer the Data, in electronic or other form, for the purposes
described above, including transfer of such Data as may be required to a broker
or other third party with whom the Optionee may elect to deposit any Common
Shares acquired upon exercise of the Option. The Optionee may, at any time, view
Data, request additional information about the storage and processing of Data,
require any necessary amendments to Data or refuse or withdraw the consents
herein, in any case without cost, by contacting the Administrator in writing.
Refusing or withdrawing consent may affect the Optionee's ability to participate
in the Plan.
21. ELECTRONIC DELIVERY. The Company may, in its sole discretion, decide to
deliver any documents related to this Option granted under the Plan or any
future options that may be granted under the Plan (if any) by electronic means
or to request the Optionee's consent to participate in the Plan by electronic
4
means. The Optionee hereby consents to receive such documents by electronic
delivery and, if requested, to participate in the Plan through an on-line or
electronic system established and maintained by the Company or another third
party designated by the Company.
22. SUPPLEMENTAL INFORMATION FOR CHILE AND COLOMBIA. Additional information
regarding laws in effect in Chile and Colombia follow in Supplement #1 (Chile)
and Supplement #2 (Colombia), and should be reviewed by Optionees residing in
these countries.
23. OPTIONEE'S REPRESENTATIONS AND RELEASES. By accepting the award, the
Optionee acknowledges that the Optionee has read these Terms and Conditions and
understands that the (i) grant of this Option is made voluntarily by Occidental
in its discretion with no liability on the part of any of its direct or indirect
subsidiaries and that, if the Optionee is not an employee of Occidental, the
Optionee is not, and will not be considered, an employee of Occidental but the
Optionee is a third party (employee of a subsidiary) to whom this Option is
granted; (ii) the future value of the Optioned Shares cannot be predicted and
Occidental does not assume liability in the event the Option has no value in the
future or of any loss to the Optionee from this Option or the Optioned Shares;
and, (iii) subject to the terms of any tax equalization agreement between the
Optionee and the entity employing the Optionee, the Optionee will be solely
responsible for the payment or nonpayment of taxes imposed or threatened to be
imposed by any authority of any jurisdiction.
In consideration of the grant of this Option, no claim or entitlement to
compensation or damages shall arise from termination of this Option or
diminution in value of this Option or Common Shares purchased through exercise
of this Option resulting from termination of the Optionee's employment by the
Company or the Optionee's employer (for any reason whatsoever and whether or not
in breach of local labor laws) and the Optionee irrevocably releases the Company
and, if not Occidental, the Optionee's employer from any such claim that may
arise; if, notwithstanding the foregoing, any such claim is found by a court of
competent jurisdiction to have arisen, then, by accepting these Terms and
Conditions, the Optionee shall be deemed irrevocably to have waived his or her
entitlement to pursue such claim.
*FOR OPTIONEES WHO RECEIVE BOTH AN INCENTIVE STOCK OPTION GRANT AND A
NON-QUALIFIED STOCK OPTION GRANT ON THE DATE OF GRANT, THE VESTING SCHEDULES FOR
THE COMBINED GRANTS WILL RESULT IN THE VESTING OF 33 1/3 PERCENT OF THE TOTAL
GRANTED OPTIONS ON EACH ANNIVERSARY, AS STATED IN THE VESTING SCHEDULE. HOWEVER,
EACH GRANT INDIVIDUALLY MAY NOT VEST 33 1/3 PERCENT PER YEAR, DUE TO REGULATORY
RESTRICTIONS REGARDING INCENTIVE STOCK OPTIONS. PURSUANT TO THE CODE, TO THE
EXTENT THAT THE AGGREGATE FAIR MARKET VALUE OF STOCK WITH RESPECT TO WHICH
INCENTIVE STOCK OPTIONS (UNDER ALL PLANS OF OCCIDENTAL), ARE EXERCISABLE FOR THE
FIRST TIME DURING A CALENDAR YEAR EXCEEDS $100,000, SUCH OPTIONS SHALL BE
TREATED AS NON-QUALIFIED STOCK OPTIONS. THIS RULE IS APPLIED BY TAKING OPTIONS
INTO ACCOUNT IN THE ORDER IN WHICH THEY WERE GRANTED AND DETERMINING THE FAIR
MARKET VALUE OF THE STOCK AT THE TIME THE OPTION WAS GRANTED. YOU MAY VIEW
ONLINE A SPECIFIC VESTING SCHEDULE FOR YOUR GRANT BY SELECTING THE "GRANT
SUMMARY" SCREEN, CLICK ON THE GRANT DATE AND SELECT THE "VIEW DETAIL & HISTORY"
BUTTON.
SUPPLEMENT #1
OCCIDENTAL PETROLEUM CORPORATION 2001 INCENTIVE COMPENSATION PLAN
EMPLOYEE INFORMATION SUPPLEMENT - CHILE
This supplement is based on the laws in effect in Chile as of May 2003. Such
laws are often complex and subject to change. As a result, the information
contained in the supplement may be out of date at the time you exercise your
option or sell shares acquired under the Plan.
5
In addition, the supplement is general in nature. It may not apply to your
particular situation, and the Company is not in a position to assure you of any
particular result. Accordingly, please seek appropriate professional advice if
you have any questions about your specific situation.
If you are a citizen or resident of another country for local law purposes, the
information contained in the supplement may not be applicable to you.
OPTION TERMS AND CONDITIONS
- ---------------------------
If the Formal Exchange Market is not used (see below), we recommend that you
keep a copy of these Terms and Conditions. You should keep these Terms and
Conditions in the event that the Chilean tax authorities request evidence
regarding the grant date and Option price. You should also retain as evidence
any certificates and/or reports with respect to the grant and exercise of the
Options and the sale of shares received from Occidental or its U.S. broker/Plan
administrator in order to evidence the number of shares purchased and sold and
the purchase and sale price of the shares, as applicable.
SECURITIES LAW NOTIFICATION
- ---------------------------
Pursuant to Ruling No. 99 of 2000 issued by the Chilean Superintendence of
Securities (the "CSS"), neither Occidental nor the shares issuable upon the
exercise of Options will be registered under the Registry of Securities or under
the control or supervision of the CSS.
EXCHANGE CONTROL NOTIFICATION
- -----------------------------
To participate in the Plan, you must comply with exchange control requirements
and reporting obligations in Chile. These obligations may require use of the
Formal Exchange Market. Generally speaking, Chapter XII of the Foreign Exchange
Regulations of the Central Bank of Chile governs the transfer of funds in excess
of US$10,000 out of Chile for the purpose of making investments, deposits or
granting loans abroad. It is your responsibility to comply with the applicable
exchange control regulation and to register any investments when necessary with
the Chilean Internal Revenue Service (the "CIRS"). Such registration is one of
the requirements that will allow you to claim a credit against Chilean income
taxes for any U.S. withholding taxes paid abroad.
If you exercise your Options with cash and remit funds in excess US$10,000, the
remittance must be made through the Formal Exchange Market (i.e., a commercial
bank or registered foreign exchange office). In such case, you must sign an
affidavit, being Annex 1 of the Manual of Chapter XII of the Foreign Exchange
Regulations ("Annex 1"), which can be obtained from the individual bank or be
downloaded from the Central Bank's website at www.bcentral.cl. The commercial
bank or registered foreign exchange office will notify the Central Bank of the
transaction and submit a copy of the affidavit within one banking day of the
remittance.
For investments made abroad using cash in an amount equal to or less than
US$10,000, you are not required to submit any type of report or filing to the
Central Bank in connection with the exercise of Options.
If you exercise your Options using the cashless exercise method, you must sign
an affidavit in the form of Annex 1 and file it directly with the Central Bank
within 10 days of the exercise date where the total Option price exceeds
US$10,000. This exchange control notification requirement will be applicable
because, in exercising your Options using the cashless method of exercise, you
dispose of funds outside of Chile to make an investment in shares of Occidental
in an amount in excess of US$10,000.
You are not required to repatriate funds obtained from the sale of shares or the
receipt of dividends. If you freely elect to repatriate such funds, you must do
it through the Formal Exchange Market if the funds are in an amount in excess of
US$10,000. In connection with such repatriation, you must report the payment to
a commercial bank or registered foreign exchange office receiving the funds, and
you are required to complete and sign Annex 1. The commercial bank or registered
foreign exchange office will submit this form to the Central Bank within a day
of receipt of the foreign currency.
6
If you register your investment in shares of Occidental acquired upon the
exercise of the Options with the CIRS, you will likely be subject to capital
gains tax only on the difference between the sales proceeds and the Option
price. If you do not register your investment with the CIRS, you will likely be
subject to capital gains tax on the entire sale proceeds, unless you can provide
enough documentary evidence of the acquisition cost as described in the Option
Agreement paragraph above. It is likely that you will be able to register your
investment in shares of Occidental with the CIRS only if the shares were
acquired with funds remitted through the Formal Exchange Market (i.e., if
transfer of funds was in excess of US$10,000 and your Options were exercised
with cash). If your remittance of funds is equal to or less than US$10,000,
though you are not required to, we recommend that you use the Formal Exchange
Market to remit the funds. Officers of the CIRS have indicated that you may
register your investment in shares with the CIRS, provided you are able to show
to the CIRS that the remittance was made through the Formal Exchange Market. In
this regard, a letter issued by the relevant commercial bank or exchange office
or a copy of Annex 1 filed in connection with the remittance should allow
registration of the investment with the CIRS. As mentioned below, registration
of the investment with the CIRS is one of the requirements to claim the tax
credit in Chile for income taxes paid in the U.S. on dividends paid or capital
gains realized from the sale of Occidental shares.
To register your investment with the CIRS, you will be required to file a sworn
statement in the prescribed form with the CIRS before the end of the calendar
month following the date on which the investment was made, enclosing a copy of
the affidavit (Annex 1) used to report the transaction to the Central Bank or,
for remittances equal to or less than US$10,000, a letter issued by the
commercial bank or exchange office showing that the remittance was made through
the Formal Exchange Market.
If you have remitted funds equal to or less than US$10,000 or used the cashless
exercise method to exercise Options such that the shares will not be registered
with the CIRS, Occidental may (but is not obligated to) provide you with
evidence of the cost of your investment under the Plan. Such evidence must be
issued outside of Chile, duly notarized and consularized subsequently properly
legalized in Chile.
Where your aggregate investments held outside of Chile exceed US$100,000
(including any investments made with respect to your Options), you must report
the investments to the Central Bank within 90 days of the end of each calendar
year. Annex 4 of Chapter XII of the Foreign Exchange Regulations must be used to
file this report.
ANNUAL REPORT TO THE CIRS
- -------------------------
Pursuant to Rulings No. 45 of 2002 and No. 6 of 2003, issued by the CIRS,
taxpayers must report annually to the tax authority (i) investments held abroad
for which the taxpayer participates directly or indirectly in the direction,
control, equity or profits; and (ii) taxes paid abroad that the taxpayer will
use as a credit against Chilean income taxes.
This reporting obligation is effective beginning the 2003 tax year and must be
complied with by completing and submitting to the CIRS before March 15 of each
year a sworn statement--Formulario 1851 to report investments held abroad and
Formulario 1853 to report the taxes paid abroad. The sworn statements or
Formularios can be found on the CIRS web page (www.sii.cl). As of the date of
this supplement, the Formularios must be submitted electronically through the
CIRS web page.
You are advised to seek professional advice as to how tax and other laws in
Chile apply to your specific situation.
SUPPLEMENT #2
OCCIDENTAL PETROLEUM CORPORATION 2001 INCENTIVE COMPENSATION PLAN
EMPLOYEE INFORMATION SUPPLEMENT - COLOMBIA
This supplement is based on the laws in effect in Colombia as of June 2002. Such
laws are often complex and subject to change. As a result, the information
contained in the supplement may be out of date at the time you exercise your
option or sell shares acquired under the Plan.
7
In addition, the supplement is general in nature. It may not apply to your
particular situation, and the Company is not in a position to assure you of any
particular result. Accordingly, please seek appropriate professional advice if
you have any questions about your specific situation.
If you are a citizen or resident of another country for local law purposes, the
information contained in the supplement may not be applicable to you.
EXCHANGE CONTROL NOTIFICATION
- -----------------------------
Colombian residents may hold foreign investments without any government approval
provided certain notifications are made. Investments and assets located abroad
are subject to registration with the Bank of the Republic if the investment is
made through the official foreign exchange market. Remittances made through an
authorized bank (local financial institution) will qualify as an investment made
through the official foreign exchange market. The authorized financial
institution will automatically register the investment with the Bank of the
Republic based on the exchange declaration presented for purposes of making the
investment abroad. Any foreign investment made through an authorized bank must
be repatriated to Colombia upon liquidation. If no funds are remitted from
Colombia to purchase the shares because a cashless for shares exercise method is
used (selling only enough shares to cover the option price and any brokerage
fees), then you will need to register the foreign investment with the Colombia
Bank of the Republic only if you hold assets abroad which exceed the equivalent
of US$500,000. If a cashless for cash exercise method is used to purchase shares
under the Plan, then you do not need to register the investment because no funds
are remitted from Colombia and no shares will be held abroad.
8
EXHIBIT 10.5
OCCIDENTAL PETROLEUM CORPORATION
2001 INCENTIVE COMPENSATION PLAN
RESTRICTED SHARE UNIT AWARD
TERMS AND CONDITIONS
(MANDATORY DEFERRED ISSUANCE OF SHARES)
Date: July 16, 2003
Number of Restricted
Share Units: See "Shares Granted/Awarded" (Grant Acknowledgment
screen)
Vesting Schedule: 1st Anniversary 33 1/3 Percent of Restricted Share
Units
2nd Anniversary 33 1/3 Percent of Restricted Share
Units
3rd Anniversary 33 1/3 Percent of Restricted Share
Units
The following TERMS AND CONDITIONS (these "Terms and Conditions") made as of the
Date of Grant between OCCIDENTAL PETROLEUM CORPORATION, a Delaware corporation
("Occidental") and, with its subsidiaries, (the "Company"), and the Eligible
Employee receiving this Award (the "Grantee").
1. GRANT OF RESTRICTED SHARE UNITS. In accordance with these Terms and
Conditions and the Occidental Petroleum Corporation 2001 Incentive Compensation
Plan, as amended from time to time (the "Plan"), Occidental grants to the
Grantee as of the Date of Grant, the right to receive, at the end of the
Deferral Period in accordance with Grantee's distribution election, Common
Shares equal to the number of Restricted Share Units that vest according to the
schedule set forth above. For the purposes of these Terms and Conditions, (a)
Deferral Period means the period commencing on the date the Restricted Share
Units vest and ending on the earlier of the date the Grantee retires under a
Company-sponsored retirement plan or the date the Grantee's employment with the
Company terminates for any other reason, and (b) Restricted Share Unit means a
bookkeeping entry equivalent to a whole or fractional Common Share. Restricted
Share Units are not shares and have no voting rights or, except as stated in
Section 5, dividend rights.
2. RESTRICTIONS ON TRANSFER. Neither these Terms and Conditions, the
Restricted Share Units nor the right to receive Common Shares may be transferred
or assigned by the Grantee other than (i) to a beneficiary designated on a form
approved by the Company, by will or, if the Grantee dies without designating a
beneficiary or a valid will, by the laws of descent and distribution, or (ii)
pursuant to a domestic relations order (if approved or ratified by the
Administrator).
3. VESTING AND FORFEITURE OF RESTRICTED SHARE UNITS. (a) Subject to Sections
3(b) and (c), on each anniversary of the Date of Grant the amount of Restricted
Share Units indicated above in the Vesting Schedule for such anniversary will
vest and become non-forfeitable if the Grantee remains in the continuous employ
of the Company through such Date. In the event that the Vesting Schedule results
in a fractional share unit, the fractional share unit will be rounded to a whole
share as follows: for Restricted Share Units vesting on the first anniversary,
the fraction will be rounded up to the nearest whole number; for Restricted
Share Units vesting on the third anniversary, the fraction will be rounded down
to the nearest whole number; and for Restricted Share Units vesting on the
second anniversary, the fraction will be rounded up or down to the nearest whole
number as necessary so that the sum of the vested Restricted Share Units will
equal the number of Restricted Share Units indicated above. The continuous
employment of the Grantee will not be deemed to have been interrupted by reason
of the transfer of the Grantee's employment among the Company and its affiliates
or an approved leave of absence.
(b) Notwithstanding Section 3(a), if the Grantee dies or becomes
permanently disabled while in the employ of the Company, retires under a
Company-sponsored retirement plan or with the consent of the Company, or
terminates employment for the convenience of the Company (each of the foregoing,
a "Vesting Event"), then Restricted Share Units that have not vested prior to
the date of the Vesting Event will become fully vested and nonforfeitable as of
such date.
(c) Notwithstanding Section 3(a), if a Change in Control Event occurs
prior to the end of the Vesting Schedule, all of the Restricted Share Units that
have not yet vested shall immediately become fully vested and nonforfeitable.
4. DEFERRAL OF COMMON SHARE PAYOUT. By accepting these Terms and Conditions,
the Grantee has agreed that the receipt of the Common Shares will be deferred in
accordance with the terms and conditions of the Occidental Petroleum Corporation
Deferred Stock Program as such Program may be amended from time to time. The
administration of the Deferred Stock Program is governed by the Executive
Compensation and Human Resources Committee, whose decision on all matters shall
be final. The deferral of receipt of any Common Shares upon the vesting of the
Restricted Share Units is irrevocable and cannot be changed or canceled. As a
result of the deferral, no Common Shares will be issued pursuant to these Terms
and Conditions upon the vesting of the Restricted Share Units, and the
Restricted Share Units will continue to be recorded as a bookkeeping entry.
5. CREDITING AND PAYMENT OF DIVIDEND EQUIVALENTS. With respect to the number
of Restricted Share Units listed above, the Grantee will be credited on the
books and records of Occidental with an amount (the "Dividend Equivalent") equal
to the amount per share of any cash dividends declared by the Board on the
outstanding Common Shares until the shares vest, or, if earlier, up to the date
on which the Grantee forfeits all or any portion of the Restricted Share Units.
Until the Restricted Share Units have vested, Occidental will pay in cash to the
Grantee an amount equal to the Dividend Equivalents credited to such Grantee as
promptly as may be practicable after the Grantee has been credited with a
Dividend Equivalent.
6. NO EMPLOYMENT CONTRACT. Nothing in these Terms and Conditions confers upon
the Grantee any right with respect to continued employment by the Company, nor
limits in any manner the right of the Company to terminate the employment or
adjust the compensation of the Grantee.
7. TAXES AND WITHHOLDING. If the Company must withhold any federal, state,
local or foreign tax in connection with the issuance or vesting of the
Restricted Share Units or other securities or the payment of Dividend
Equivalents pursuant to these Terms and Conditions, the Grantee by accepting
these Terms and Conditions agrees that, so long as the Grantee is an employee of
the Company for tax purposes, all or any part of any such withholding obligation
shall be deducted from the Grantee's regular pay.
8. COMPLIANCE WITH LAW. The Company will make reasonable efforts to comply
with all applicable federal and state securities laws; however, the Company will
not issue any Common Shares or other securities pursuant to these Terms and
Conditions if their issuance would result in a violation of any such law.
9. RELATION TO OTHER BENEFITS. The benefits received by the Grantee under
these Terms and Conditions will not be taken into account in determining any
benefits to which the Grantee may be entitled under any profit sharing,
retirement or other benefit or compensation plan maintained by the Company,
including the amount of any life insurance coverage available to any beneficiary
of the Grantee under any life insurance plan covering employees of the Company.
This grant of Restricted Share Units does not create any contractual or other
right to receive future grants of Restricted Share Units, or benefits in lieu of
Restricted Share Units, even if Grantee has a history of receiving Restricted
Share Units or other stock awards.
10. ADJUSTMENTS. The number or kind of shares of stock covered by this
Restricted Share Unit Award may be adjusted as the Administrator determines
pursuant to Section 6.2 of the Plan in order to prevent dilution or expansion of
the Grantee's rights under these Terms and Conditions as a result of events such
as stock dividends, stock splits, or other change in the capital structure of
Occidental, or any merger, consolidation, spin-off, liquidation or other
corporate transaction or event having a similar effect. If any such adjustment
occurs, the Company will give the Grantee written notice of the adjustment
containing an explanation of the nature of the adjustment.
2
11. AMENDMENTS. Any amendment to the Plan or the Deferred Stock Program will be
deemed to be an amendment to these Terms and Conditions to the extent it is
applicable to these Terms and Conditions or the deferrals made pursuant to these
Terms and Conditions; however, no amendment will adversely affect the rights of
the Grantee under these Terms and Conditions without the Grantee's consent.
12. SEVERABILITY. If one or more of the provisions of these Terms and
Conditions is invalidated for any reason by a court of competent jurisdiction,
the invalidated provisions shall be deemed to be separable from the other
provisions of these Terms and Conditions, and the remaining provisions of these
Terms and Conditions will continue to be valid and fully enforceable.
13. RELATION TO PLAN; INTERPRETATION. These Terms and Conditions are subject to
the terms and conditions of the Plan. In the event of any inconsistent
provisions between these Terms and Conditions and the Plan, the provisions of
the Plan control. Capitalized terms used in these Terms and Conditions without
definition have the meanings assigned to them in the Plan. References to
Sections are to Sections of these Terms and Conditions unless otherwise noted.
14. SUCCESSORS AND ASSIGNS. Subject to Sections 2 and 3, the provisions of
these Terms and Conditions shall be for the benefit of, and be binding upon, the
successors, administrators, heirs, legal representatives and assigns of the
Grantee, and the successors and assigns of the Company.
15. GOVERNING LAW. The laws of the State of Delaware govern the interpretation,
performance, and enforcement of these Terms and Conditions.
16. PRIVACY RIGHTS. The Company and the Grantee's employer hold or may receive
from any agent designated by the Company certain personal information about the
Grantee, including, but not limited to, the Grantee's name, home address and
telephone number, date of birth, social insurance number or other identification
number, salary, nationality, job title, any shares of stock or directorships
held in Occidental, details of this Restricted Share Unit award or any other
entitlement to shares of stock awarded, canceled, exercised, vested, unvested or
outstanding in the Grantee's favor, for the purpose of implementing,
administering and managing the Plan, including complying with applicable tax and
securities laws ("Data"). Data may be transferred to any third parties assisting
in the implementation, administration and management of the Plan. These
recipients may be located in the Grantee's country or elsewhere, and may have
different data privacy laws and protections than the Grantee's country. By
accepting these Terms and Conditions, the Grantee authorizes the recipients to
receive, possess, use, retain and transfer the Data, in electronic or other
form, for the purposes described above. The Grantee may, at any time, view Data,
request additional information about the storage and processing of Data, require
any necessary amendments to Data or refuse or withdraw the consents herein, in
any case without cost, by contacting the Administrator in writing. Refusing or
withdrawing consent may affect the Grantee's ability to participate in the Plan.
17. ELECTRONIC DELIVERY. The Company may, in its sole discretion, decide to
deliver any documents related to this Restricted Share Unit award granted under
the Plan or future awards that may be granted under the Plan (if any) by
electronic means or to request the Grantee's consent to participate in the Plan
by electronic means. The Grantee hereby consents to receive such documents by
electronic delivery and, if requested, to participate in the Plan through an
on-line or electronic system established and maintained by the Company or
another third party designated by the Company.
18. GRANTEE'S REPRESENTATIONS AND RELEASES. By accepting this award, the
Grantee acknowledges that the Grantee has read these Terms and Conditions and
understands that (i) the grant of this Restricted Share Unit award is made
voluntarily by Occidental in its discretion with no liability on the part of any
of its direct or indirect subsidiaries and that, if the Grantee is not an
employee of Occidental, the Grantee is not, and will not be considered, an
employee of Occidental but the Grantee is a third party (employee of a
subsidiary) to whom this Restricted Share Unit award is granted; (ii) the future
value of any Common shares issued pursuant to this Restricted Share Unit award
cannot be predicted and Occidental does not assume liability in the event such
Common Shares have no value in the future; and, (iii) subject to the terms of
any tax equalization agreement between the Grantee and the entity employing the
Grantee, the
3
Grantee will be solely responsible for the payment or nonpayment of taxes
imposed or threatened to be imposed by any authority of any jurisdiction.
In consideration of the grant of this Restricted Share Unit award, no claim or
entitlement to compensation or damages shall arise from termination of this
Restricted Share Unit award or diminution in value of this Restricted Share Unit
award or Common Shares issued pursuant to this Restricted Share Unit award
resulting from termination of the Grantee's employment by the Company or the
Grantee's employer (for any reason whatsoever and whether or not in breach of
local labor laws) and the Grantee irrevocably releases the Company and, if not
Occidental, the Grantee's employer from any such claim that may arise; if,
notwithstanding the foregoing, any such claim is found by a court of competent
jurisdiction to have arisen, then, by accepting these Terms and Conditions, the
Grantee shall be deemed irrevocably to have waived his or her entitlement to
pursue such claim.
4
EXHIBIT 11
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Amounts in thousands, except per-share amounts)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
2003 2002 2003 2002
- ------------------------------------------------------- ---------- ---------- ---------- ----------
BASIC EARNINGS PER SHARE
Income after taxes $ 373,833 $ 241,388 $ 767,438 $ 364,043
Effect of repurchase of Trust Preferred Securities (1) (21) (19) (53)
---------- ---------- ---------- ----------
Income from continuing operations 373,832 241,367 767,419 363,990
Discontinued operations, net -- (928) -- (3,928)
Cumulative effect of changes in
accounting principles, net -- -- (68,430) (94,973)
---------- ---------- ---------- ----------
Earnings applicable to common stock $ 373,832 $ 240,439 $ 698,989 $ 265,089
========== ========== ========== ==========
Basic shares
Weighted average common shares outstanding 381,343 375,792 379,876 375,129
Issued, unvested restricted stock (167) (319) (167) (319)
Vested, unissued restricted stock 197 -- 197 --
Deferred shares 1,191 315 972 268
---------- ---------- ---------- ----------
Basic shares outstanding 382,564 375,788 380,878 375,078
========== ========== ========== ==========
Basic earnings per share
Income from continuing operations $ 0.98 $ 0.64 $ 2.02 $ 0.97
Discontinued operations, net -- -- -- (0.01)
Cumulative effect of changes in
accounting principles, net -- -- (0.18) (0.25)
---------- ---------- ---------- ----------
Basic earnings per common share $ 0.98 $ 0.64 $ 1.84 $ 0.71
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE
Earnings applicable to common stock $ 373,832 $ 240,439 $ 698,989 $ 265,089
========== ========== ========== ==========
Diluted shares
Basic shares outstanding 382,564 375,788 380,878 375,078
Dilutive effect of exercise of options outstanding 3,274 3,021 3,176 2,576
Issued, unvested restricted stock 167 319 167 319
Deferred, restricted stock 726 -- 726 --
---------- ---------- ---------- ----------
Diluted shares 386,731 379,128 384,947 377,973
========== ========== ========== ==========
Diluted earnings per share
Income from continuing operations $ 0.97 $ 0.63 $ 1.99 $ 0.96
Discontinued operations, net -- -- -- (0.01)
Cumulative effect of changes in
accounting principles, net -- -- (0.18) (0.25)
---------- ---------- ---------- ----------
Diluted earnings per common share $ 0.97 $ 0.63 $ 1.81 $ 0.70
======================================================= ========== ========== ========== ==========
EXHIBIT 11 (CONTINUED)
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Amounts in thousands, except per-share amounts)
The following items were not included in the computation of diluted earnings per
share because their effect was antidilutive:
Three Months Ended Six Months Ended
June 30 June 30
--------------------------------------------- ---------------------------------------------
2003 2002 2003 2002
-------------------- -------------------- -------------------- --------------------
STOCK OPTIONS
Number of shares None 6 None 21
Price range per share 29.438 29.062 - 29.438
Expiration range 12/01/07 12/01/07 - 04/29/08
- ------------------------------ -------------------- -------------------- -------------------- --------------------
EXHIBIT 12
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF TOTAL ENTERPRISE RATIOS OF EARNINGS TO FIXED CHARGES
(Amounts in millions, except ratios)
Six Months Ended
June 30 Year Ended December 31
------------------- --------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
- ---------------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from continuing
operations(a) $ 844 $ 446 $ 1,548 $ 1,418 $ 1,785 $ 699 $ 400
-------- -------- -------- -------- -------- -------- --------
Add:
Provision for taxes on
income (other than foreign
and gas taxes) 886 461 428 172 871 306 204
Interest and debt expense(b) 191 159 309 411 540 515 576
Portion of lease rentals
representative of the interest
factor 9 13 6 7 6 31 36
-------- -------- -------- -------- -------- -------- --------
1,086 633 743 590 1,417 852 816
-------- -------- -------- -------- -------- -------- --------
Earnings before fixed charges $ 1,930 $ 1,079 $ 2,291 $ 2,008 $ 3,202 $ 1,551 $ 1,216
======== ======== ======== ======== ======== ======== ========
Fixed charges
Interest and debt expense
including capitalized
interest(b) $ 194 $ 163 $ 321 $ 417 $ 543 $ 522 $ 594
Portion of lease rentals
representative of the interest
factor 9 13 6 7 6 31 36
-------- -------- -------- -------- -------- -------- --------
Total fixed charges $ 203 $ 176 $ 327 $ 424 $ 549 $ 553 $ 630
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 9.51 6.13 7.00 4.74 5.83 2.80 1.93
- ---------------------------------------- ======== ======== ======== ======== ======== ======== ========
(a) Includes (1) minority interest in net income of consolidated subsidiaries
and partnerships having fixed charges and (2) income from
less-than-50-percent-owned equity investments adjusted to reflect only
dividends received.
(b) Includes proportionate share of interest and debt expense of
50-percent-owned equity investments.
EXHIBIT 31.1
CERTIFICATION
I, Ray R. Irani, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Occidental Petroleum
Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: August 5, 2003
/s/ Ray R. Irani
-------------------------------------------------------
Ray R. Irani
Chairman of the Board of Directors and
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Stephen I. Chazen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Occidental Petroleum
Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: August 5, 2003
/s/ Stephen I. Chazen
-------------------------------------------------------
Stephen I. Chazen
Executive Vice President - Corporate Development and
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Occidental Petroleum
Corporation (the "Company") for the quarterly period ending June 30, 2003, as
filed with the Securities and Exchange Commission on August 5, 2003 (the
"Report"), Ray R. Irani, as Chief Executive Officer of the Company, and Stephen
I. Chazen, as Chief Financial Officer of the Company, each hereby certifies,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Ray R. Irani
- --------------------------------------------------
Name: Ray R. Irani
Title: Chairman of the Board of Directors and Chief Executive Officer
Date: August 5, 2003
/s/ Stephen I. Chazen
- --------------------------------------------------
Name: Stephen I. Chazen
Title: Executive Vice President - Corporate Development and Chief Financial
Officer
Date: August 5, 2003
A signed original of this written statement required by Section 906 has been
provided to Occidental Petroleum Corporation and will be retained by Occidental
Petroleum Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.