[Unit Logo]
UNIT CORPORATION
NOTICE OF THE ANNUAL MEETING OF OUR STOCKHOLDERS
AND
PROXY STATEMENT
Meeting Date........... Wednesday, May 7, 2003
Meeting Time........... 11:00 a.m.
Meeting Place.......... Tulsa Room - Ninth Floor
Bank of Oklahoma Tower
One Williams Center
Tulsa, Oklahoma 74172
Dear Stockholder:
On behalf of the board of directors and management, I would like to invite
you to attend our Annual Meeting of Stockholders to be held on Wednesday, May 7,
2003 at 11:00 a.m. This year's meeting will be held in the Tulsa Room on the
ninth floor of the Bank of Oklahoma Tower, One Williams Center, Tulsa, Oklahoma.
By attending the meeting you will have an opportunity to hear a report on
our operations and to meet our directors and officers.
Information about the meeting, including the various matters on which you
as a stockholder will act, may be found in the attached Notice of Annual Meeting
of Stockholders and Proxy Statement.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. Please sign, date and return the
enclosed proxy in the envelope provided.
If you have any further questions concerning the annual meeting or any of
the proposals, please contact our investor relations department at (918)
493-7700. For questions regarding your stock ownership, you may contact our
transfer agent, Mellon Investor Services LLC at:
(800) 851-9677
TDD for Hearing Impaired: (800) 231-5469
Foreign Shareholders: (201) 329-8660
TDD Foreign Shareholders: (201) 329-8354
Web Site Address: www.melloninvestor.com
I look forward to your participation and thank you for your continued
support.
Dated this 21st day of March, 2003.
Sincerely,
King P. Kirchner
Chairman of the Board
UNIT CORPORATION
1000 Kensington Tower I
7130 South Lewis
Tulsa, Oklahoma 74136
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 7, 2003
-------------------------------------------------------------------------------
Unit Corporation, a Delaware corporation, will hold its Annual Meeting of
Stockholders in the Tulsa Room on the ninth floor of the Bank of Oklahoma Tower,
One Williams Center, Tulsa, Oklahoma, on Wednesday, May 7, 2003 at 11:00 a.m.,
central time. At the meeting we will:
. elect two directors for a three-year term expiring in 2006 (Item No. 1
on the Proxy);
. ratify the selection of PricewaterhouseCoopers LLP, Tulsa, Oklahoma, as
our independent auditors for our fiscal year 2003 (Item No. 2 on the
Proxy); and
. transact such other business as may properly come before the meeting or
any adjournment(s) of the meeting.
Only stockholders of record at the close of business on March 9, 2003, the
record date, are entitled to notice of and to vote at the meeting or any
adjournment(s) of the meeting. A complete list of stockholders entitled to vote
will be open for examination by any stockholder for any purpose germane to the
meeting at our office at 1000 Kensington Tower I, 7130 South Lewis, Tulsa,
Oklahoma 74136, for a period of ten days prior to the meeting.
Most stockholders have three options for submitting their vote:
. via the Internet at http://www.eproxy.com/unt,
. by phone (please see your proxy card for instructions), and
. by mail, using the paper proxy.
Our Proxy Statement and Annual Report are submitted with this notice.
Dated this 21st day of March, 2003.
By Order of the Board of Directors,
Mark E. Schell
Senior Vice President,
Secretary and
General Counsel
YOUR VOTE IS IMPORTANT
Whether or not you plan to attend the meeting, we urge you to vote.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 2003
-------------------------------------------------------------------------------
This Proxy Statement and the accompanying proxy card are being mailed to our
stockholders in connection with the solicitation of proxies by the board of
directors for the 2003 Annual Meeting of Stockholders. Mailing of this Proxy
Statement commenced on or about March 21, 2003.
Table of Contents
Page
-------------------------------------------------------------------------------
Questions and Answers.........................................................1
Item 1: Election of Directors.................................................3
Board and Committee Information...............................................5
Directors' Compensation and Benefits..........................................6
Ownership of Our Common Stock By Beneficial Owners and Management.............6
Executive Compensation........................................................9
Termination of Employment and Change in Control Arrangements.................11
Report of The Compensation Committee.........................................13
Report of The Audit Committee................................................15
Compensation Committee Interlocks and Insider Participation..................16
Performance Graph............................................................17
Item 2: Ratification of Appointment of Auditors..............................18
Other Matters................................................................18
Appendices:
A...............Audit Committee Charter
B...............Compensation Committee Charter
C...............Nominating & Governance Committee Charter
QUESTIONS AND ANSWERS
===============================================================================
Q: Who Can Vote?
A: You can vote if you were a stockholder at the close of business on the record
date, March 9, 2003. On that date, there were 43,514,317 shares outstanding
and entitled to vote at the annual meeting.
Q: Who Can Attend The Meeting?
A: All stockholders can attend.
Q: What Am I Voting On?
A: You are voting on:
. The election of two nominees as directors for terms that expire in 2006.
The board of directors' nominees are John G. Nikkel and John S. Zink.
. The ratification of the appointment of PricewaterhouseCoopers LLP as
independent auditors for 2003.
The two nominees for director who receive the most votes will be elected.
For the other proposal to be approved, more votes must be cast for it than
against it.
Q: How Will The Proxies Vote On Any Other Business Brought Up At The Meeting?
A: By submitting your proxy, you authorize the proxies to use their judgment to
determine how to vote on any other matter brought before the annual meeting.
We do not know of any other business to be considered at the annual meeting.
The proxies' authority to vote according to their judgment applies only to
shares you own as a stockholder of record.
Q: How Do I Cast My Vote?
A: If you hold your shares as a stockholder of record, you can vote in person at
the annual meeting or you can vote by mail, telephone or the Internet. If you
are a street-name stockholder, you will receive instructions from your bank,
broker or other nominee describing how to vote your shares.
The enclosed proxy contains instructions for mail voting or for voting by
way of telephone or the Internet. The proxies identified on the back of the
proxy will vote the shares of which you are the stockholder of record in
accordance with your instructions. If you submit a proxy without giving
specific voting instructions, the proxies will vote those shares as
recommended by the board of directors.
Q: How Does The Board Recommend I Vote On The Proposals?
A: The board recommends you vote for each of the proposals.
Q: Can I Revoke My Proxy?
A: Yes. You can revoke your proxy by:
. Submitting a new proxy;
. Giving written notice before the meeting to our secretary stating that
you are revoking your proxy; or
. Attending the meeting and voting your shares in person.
Q: Who Will Count The Vote?
A: Mellon Investor Services LLC, our transfer agent, will count the vote.
Representatives of Mellon Investor Services LLC will act as the inspectors
of election.
1
Q: What Is A "Quorum"?
A: A quorum is the number of shares that must be present to hold the annual
meeting. The quorum requirement for the annual meeting is a majority of the
outstanding shares as of the record date, present in person or represented by
proxy. If you submit a valid proxy or attend the annual meeting, your shares
will be counted to determine whether there is a quorum.
Abstentions and broker non-votes count toward the quorum. "Broker non-votes"
occur when nominees (such as banks and brokers) that hold shares on behalf of
beneficial owners do not receive voting instructions from the beneficial
owners by ten days before the meeting and do not have discretionary voting
authority to vote those shares.
Q: Will Broker Non-Votes Or Abstentions Affect The Voting Results?
A: Although abstentions and broker non-votes count for quorum purposes, they do
not count as votes for or against a proposal. As a result, abstentions and
broker non-votes will not affect the voting results on the election of
directors or the ratification of the appointment of auditors.
Q: What Shares Are Included On My Proxy?
A: Your proxy represents all shares registered to your account in the same
social security number and address.
Q: What Does It Mean If I Get More Than One Proxy?
A: Your shares are probably registered in more than one account. You should vote
each proxy you receive. We encourage you to consolidate all your accounts by
registering them in the same name, social security number and address.
Q: How Many Votes Can I Cast?
A: On each matter, including each director position, you are entitled to one
vote per share.
Q: When Are Stockholder Proposals Due For The 2004 Annual Meeting Of
Stockholders?
A: If you want to present a qualified proposal from the floor at the 2004 annual
meeting, you must give us written notice of your proposal no earlier than
January 1, 2004 and no later than January 31, 2004. Your notice should be
sent to the Senior Vice President, General Counsel and Secretary, Unit
Corporation, 1000 Kensington Tower I, 7130 South Lewis, Tulsa, Oklahoma
74136.
If instead of presenting your proposal at the meeting you want your proposal
to be considered for inclusion in next year's proxy statement, you must
submit the proposal in writing to our Senior Vice President, General Counsel
and Secretary so that it is received at the above address by November 20,
2003.
Q: How Is This Proxy Solicitation Being Conducted?
A: We hired Regan & Associates, New York, New York, to assist in the
distribution of proxy materials and solicitation of votes for a fee of $7,000
with all of our out-of-pocket expenses included. We will reimburse brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses for forwarding proxy and solicitation materials to
stockholders. In addition, some of our employees may solicit proxies. Regan &
Associates and our employees may solicit proxies in person, by telephone and
by mail. None of our employees will receive special compensation for these
services, which the employees will perform as part of their regular duties.
2
ITEM 1: ELECTION OF DIRECTORS
===============================================================================
Item 1 is the election of two directors to the board of directors. Our board is
composed of eight members and is divided into three classes with each director
serving for a three-year term. At each annual meeting, the term of one class
expires. The term of service for those directors serving in Class I expires at
this meeting.
We know of no reason why any nominee may be unable to serve as a director. If
any nominee is unable to serve, your proxy may vote for another nominee proposed
by the board, or the board may reduce the number of directors to be elected.
If any director resigns, dies or is otherwise unable to serve out his or her
term, or the board increases the number of directors, the board may fill the
vacancy.
Our Nominating & Governance Committee has recommended, and the board of
directors has approved, the nominees listed below to stand for election.
Information concerning each nominee and each continuing director is provided
below.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF ELECTING THE TWO
NOMINEES.
NOMINEES FOR DIRECTOR
-------------------------------------------------------------------------------
Terms John G. Mr. Nikkel joined Unit in 1983 as its
expiring Nikkel President and a director. On July 1, 2001
at this Age 68 Mr. Nikkel was elected to the additional
annual Director office of Chief Executive Officer. From
meeting since 1976 until January 1982 when he co-founded
(Class I) 1983 Nike Exploration Company, Mr. Nikkel was an
officer and director of Cotton Petroleum
Corporation, serving as the President of Cotton
from 1979 until his departure. Prior to joining
Cotton, Mr. Nikkel was employed by Amoco
Production Company for 18 years, last serving
as Division Geologist for Amoco's Denver Division.
Mr. Nikkel presently serves as President and
a director of Nike Exploration Company. From
August 16, 2000 until August 23, 2002 Mr. Nikkel,
in connection with Unit's investment in the
company, also served as a director of Shenandoah
Resources Ltd., a Canadian company. Shenandoah
Resources Ltd. filed for creditors protection
under The Companies' Creditor Arrangement Act in
April 2002 with the Court of Queen's Bench of
Alberta, Judicial District of Calgary. Mr. Nikkel
received a Bachelor of Science degree in Geology
and Mathematics from Texas Christian University.
John S. Mr. Zink was elected a director of Unit in
Zink May of 1982. For several years, he has been
Age 74 a principal in several privately held
Director companies engaged in the businesses of
since designing and manufacturing equipment used in
1982 the petroleum industry, construction, and
heating and air conditioning services and
installation. He holds a Bachelor of Science
degree in Mechanical Engineering from Oklahoma
State University. He is also a director of Matrix
Service Company, Tulsa, Oklahoma.
3
CONTINUING DIRECTORS
-------------------------------------------------------------------------------
Terms Earle Mr. Lamborn has been actively involved in
expiring Lamborn the oil field for over 50 years, joining
at 2004 Age 68 Unit's predecessor in 1952 prior to its
annual Director becoming a publicly-held corporation. He
meeting since was elected Vice President, Drilling in
(Class II) 1979 1973 and to his current position as Senior
Vice President, Drilling and director in
1979.
William Mr. Morgan was elected a director of Unit
B. Morgan in February 1988. For over 5 years, Mr.
Age 59 Morgan has been Executive Vice President
Director and General Counsel of St. John Health
since System, Inc., Tulsa, Oklahoma, and the
1988 President of its principal for-profit
subsidiary Utica Services, Inc. Before that,
he was a Partner in the law firm of Doerner,
Saunders, Daniel & Anderson, Tulsa, Oklahoma,
for over 20 years.
John H. Mr. Williams was elected a director of Unit
Williams in December 1988. Prior to retiring on
Age 84 December 31, 1978, he was Chairman of the
Director Board and Chief Executive Officer of The
since Williams Companies, Inc., where he
1988 continues to serve as an honorary director.
Mr. Williams also serves as a director of
Apco Argentina, Inc., and Willbros Group,
Inc. In addition, Mr. Williams also serves
as a director of the Gilcrease Museum and is
a member of the Tulsa Performing Arts Center
Trust.
Terms King P. Mr. Kirchner, a co-founder of Unit, has
expiring Kirchner been the Chairman of the Board and a
at 2005 Age 75 director since 1963. He served as the
annual Director Company's President until November 1983 and
meeting since as its Chief Executive Officer until June
(Class III) 1963 30, 2001. Mr. Kirchner is a Registered
Professional Engineer within the State of
Oklahoma, having received degrees in
Mechanical Engineering from Oklahoma State
University and in Petroleum Engineering,
with honors, from the University of
Oklahoma. Following graduation, he was
employed by Lufkin Manufacturing as a
development engineer for hydraulic pumping
units. Prior to co-founding Unit he served
in the U.S. Army during the Korean War and
after that as Vice President Engineering and
Operations for Woolaroc Oil Company.
Don Cook Mr. Cook has served as a director of Unit
Age 78 since Unit's inception. He is a Certified
Director Public Accountant and was a partner in the
since accounting firm of Finley & Cook, Shawnee,
1963 Oklahoma, from 1950 until 1987, when he
retired.
J. Michael Mr. Adcock was elected a director of Unit in
Adcock December 1997. He is an attorney and currently
Age 54 manages a private trust that deals in real
Director estate, oil and gas properties and other equity
since investments. He is Chairman of the Board of
1997 Arvest Bank, Shawnee, and a director of Community
Health Partners, Inc., formerly Mid America
Healthcare, Inc. Between 1997 and September, 1998
he was the Chairman of the Board of Ameribank and
President and Chief Executive Officer of
American National Bank and Trust Company of
Shawnee, Oklahoma, and Chairman of AmeriTrust
Corporation, Tulsa, Oklahoma. Prior to holding
these positions, he was engaged in the private
practice of law and served as General Counsel
for Ameribank Corporation.
4
BOARD AND COMMITTEE INFORMATION
===============================================================================
The board held ten meetings during 2002. No director attended fewer than 75% of
the board meetings and the meetings of committees on which he served during the
year.
The board has standing Audit, Compensation and Nominating & Governance
Committees. The Nominating & Governance Committee was established on December
18, 2001 to be effective on January 1, 2002 and was renamed the Nominating &
Governance Committee on January 8, 2003. The board determines the membership
of each committee from time to time.
Only directors who are independent under the NYSE rules serve on the committees.
The following table identifies the membership of the Audit, Compensation and
Nominating & Governance Committees and the number of committee meetings held
during 2002. A summary of each committee's responsibilities follows the table.
Nominating
&
Director Audit Compensation Governance
-------------------------- ----- ------------ ----------
John S. Zink x x*
William B. Morgan x x*
John H. Williams x x
Don Cook x* x
J. Michael Adcock x x x
Number of meetings in 2002 3 1 1
-------------------
* Current Chairman of the committee.
Each committee has adopted a written charter that identifies its
responsibilities and obligations. A copy of each charter is attached as an
Appendix to this proxy statement. Although each committee's charter fully sets
out the committee's duties, a short summary is as follows:
The Audit Committee:
. Selects the independent auditors.
. Approves all audit engagement fees and terms.
. Pre-approves all audit and non-audit services to be rendered by the
independent auditors.
. Reviews our annual and quarterly financial statements.
. Consults with our personnel and the independent auditors to determine the
adequacy of internal accounting controls.
. Oversees our relationship with our independent auditors.
. Oversees our internal audit functions.
The Compensation Committee:
. Approves the compensation of the Chief Executive Officer and our other
officers.
. Administers our stock option plans.
. Reviews and, in some cases, administers our various benefit plans.
5
The Nominating & Governance Committee:
. Responsible for advising the board as a whole on corporate governance
matters.
. Advises the board on the size and composition of the board.
. Reviews possible candidates for board membership.
. Recommends a slate of nominees for election to the board.
DIRECTORS' COMPENSATION AND BENEFITS
===============================================================================
Only non-employee directors receive compensation for serving as a director.
Cash Compensation:
. $18,000 annual retainer payable quarterly
. $2,000 annual fee for service on each committee
. $1,000 board meeting attendance fee
. $500 committee meeting attendance fee
Expenses:
. We reimburse all non-employee directors for travel expenses incurred
attending stockholder, board and committee meetings.
Stock Options:
. Each non-employee director automatically receives an option to purchase
3,500 shares of common stock on the first business day following each
annual meeting of our stockholders. The option exercise price is the
fair market value of our common stock on such date. Payment of the
exercise price may be made in cash or in shares of common stock that
have been held by the director for at least one year. No stock option
may be exercised during the first six months of its term except in the
case of death. Each option has a ten-year term. In 2002 stock options
were granted for an aggregate of 21,000 shares at $20.10 per share. An
aggregate of 62,000 shares are subject to currently outstanding
options.
OWNERSHIP OF OUR COMMON STOCK BY BENEFICIAL OWNERS AND MANAGEMENT
===============================================================================
The following table sets forth information concerning the beneficial ownership
of our common stock by each director, each executive officer named in the
Summary Compensation Table and by all directors and executive officers as a
group. Except as otherwise noted, all shares are directly owned.
6
STOCK OWNED BY OUR DIRECTORS AND EXECUTIVE OFFICERS AS OF MARCH 9, 2003
-------------------------------------------------------------------------------
Aggregate Number of Percent of Outstanding
Beneficially Common Stock
Name of Beneficial Owner Owned Shares (1)
------------------------ ------------------- ----------------------
King P. Kirchner 577,128 (3)(4) 1.32
Don Cook 31,118 (4) *
Earle Lamborn 236,923 (2)(3)(6) *
William B. Morgan 20,400 (4) *
John G. Nikkel 437,034 (2)(3)(6) 1.00
John H. Williams 8,000 (4) *
John S. Zink 5,600 (4) *
J. Michael Adcock 497,291 (4)(5) 1.14
Philip M. Keeley 116,696 (2)(6) *
Larry D. Pinkston 64,066 (2)(6) *
Mark E. Schell 65,005 (2)(6) *
All Directors and
Executive Officers
as a Group (11
individuals) 2,059,261 (2)-(6) 4.71
---------------------
* Less than one percent
Notes to table:
---------------
(1) The number of shares includes the shares presently issued and outstanding
plus the number of shares that any owner has the right to acquire within 60
days after March 9, 2003. For purposes of calculating the percentage of the
common stock outstanding held by each owner, the total number of shares
excludes the shares which all other persons have the right to acquire
within 60 days after March 9, 2003, pursuant to the exercise of outstanding
stock options.
(2) Includes shares of common stock held under our 401(k) thrift plan as of
March 9, 2003 for the account of: Earle Lamborn, 14,603; John G. Nikkel,
32,307; Philip M. Keeley, 12,616; Larry D. Pinkston, 3,491; Mark E. Schell
30,894; and directors and officers as a group, 93,911.
(3) Of the shares listed as being beneficially owned, the following individuals
disclaim any beneficial interest in shares held by spouses or for the
benefit of family members: King P. Kirchner, 22,108; John G. Nikkel,
76,000; and Earle Lamborn, 137,172.
(4) Includes shares subject to unexercised stock options under the Company's
Non-Employee Directors' Stock Option Plan to each of the following which
may be exercised at the discretion of the holder: Don Cook, 25,500; William
B. Morgan, 12,000; John S. Zink, 3,500; John H. Williams, 7,000; King P.
Kirchner, 3,500; and J. Michael Adcock, 10,500; all non-Employee Directors
as a group, 62,000.
(5) Of the shares listed as being beneficially owned, 485,791 shares are owned
by a trust of which Mr. Adcock is one of three trustees.
7
(6) Includes shares subject to unexercised stock options under our stock option
plan to each of the following which may be exercised within 60 days at the
discretion of the holder: Earle Lamborn, 9,000; John G. Nikkel, 82,500;
Philip M. Keeley, 9,000; Larry D. Pinkston, 20,100; Mark E. Schell, 20,100;
and executive officers as a group, 140,700.
The following table sets forth information concerning the beneficial ownership
of our common stock by stockholders who own at least five percent of our common
stock.
STOCKHOLDERS WHO OWN AT LEAST 5% OF OUR COMMON STOCK
-------------------------------------------------------------------------------
Amount and Nature
of Beneficial Percent
Name and Address Ownership (1) of Class
---------------- ------------- --------
Royce & Associates, LLC
1414 Avenue of The Americas 2,596,000 5.97
New York, New York 10019
Forstmann-Leff Associates, LLC
590 Madison Avenue 5,750,711 13.22
New York, New York 10022
Kaiser Francis Charitable
Income Trust B
Mr. Frederic Dorwart, Trustee
Frederic Dorwart, Lawyers 6,819,748 15.67
Old City Hall
124 East Fourth Street
Tulsa, Oklahoma 74103
Notes to Table:
---------------
(1) Beneficial ownership is based on the Schedule 13G most recently filed by
the stockholder or other information provided to us. Beneficial ownership
may under certain circumstances include both voting power and investment
power. Information is provided for reporting purposes only and should not
be construed as an admission of actual beneficial ownership.
8
EXECUTIVE COMPENSATION
===============================================================================
The following Summary Compensation Table shows compensation information for the
Chief Executive Officer and each of our other four most highly compensated
executive officers for services in all capacities in 2000, 2001 and 2002.
SUMMARY COMPENSATION TABLE
-------------------------------------------------------------------------------
Long Term Compensation
---------------------------
Annual Compensation (1) Awards Payouts
-------------------------------- ------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securi-
Other Restrict- ties All
Annual ed Underly- Other
Name and Compen- Stock ing LTIP Compen-
Principal Salary Bonus sation Award(s) Options Payout sation
Position(s) Year ($) ($) ($)(2) ($) (#) ($) ($)(3)
----------- ---- -------- -------- --------- --------- --------- ----- --------
John G.
Nikkel
CEO, 2002 315,000 148,333 7,332 0 20,000 0 12,000
President 2001 297,500 121,666 7,239 0 50,000 0 10,500
and COC 2000 265,000 108,333 9,644 0 20,000 0 10,405
Earle
Lamborn 2002 190,000 118,333 4,909 0 5,695(4) 0 11,000
Sr. V. P.- 2001 190,000 80,000 4,213 0 20,000 0 10,500
Drilling 2000 179,000 71,666 2,733 0 10,000 0 10,500
Philip M.
Keeley
Sr. V. P.-
Exploration 2002 190,000 98,333 8,247 0 5,695(4) 0 12,000
& 2001 190,000 80,000 8,600 0 17,000 0 10,500
Production 2000 179,000 71,666 7,481 0 10,000 0 10,500
Larry D.
Pinkston
Exec. V. P., 2002 142,000 69,000 4,136 0 0 0 11,000
CFO and 2001 142,000 50,666 4,173 0 25,000 0 10,497
Treasurer 2000 133,000 39,000 5,134 0 7,500 0 7,377
Mark E.
Schell
Sr. V. P.,
Secretary 2002 132,000 68,333 7,399 0 0 0 11,000
and General 2001 132,000 46,666 6,788 0 25,000 0 10,500
Counsel 2000 N/A N/A N/A N/A N/A N/A N/A
Notes to Table:
---------------
(1) Compensation deferred at the election of an executive is included in the
year earned.
(2) The amount listed under the Other Annual Compensation column represents the
dollar value associated with the use of a company vehicle by the named
executive officer.
(3) Represents Unit's matching contributions to Unit's 401(k) thrift plan for
the named executive officer.
9
(4) Represents the number of shares received under a stock option, exercised
during 1999, the receipt of which were deferred until 2002.
Stock Options
The following table shows options that the named officers exercised during 2002
and the number of shares and the value of options outstanding as of December 31,
2002 for each named officer.
AGGREGATE OPTION EXERCISES IN 2002 AND FISCAL YEAR END OPTION VALUES
-------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)(2)
Shares Value ---------------------- ---------------------
Acquired on Realized Exercis- Unexercis- Exercis- Unexercis-
Name Exercise (#) ($)(1) able able able able
------ ------------ ---------- -------- ---------- --------- ----------
John G.
Nikkel 20,000 254,800 95,000 45,000 1,255,625 145,750
Earle
Lamborn 0 0 48,500 14,000 567,925 57,825
Philip M.
Keeley 0 0 42,500 14,000 477,625 57,825
Larry D.
Pinkston 0 0 20,100 14,400 226,192 45,626
Mark E.
Schell 0 0 20,100 14,400 226,192 45,626
Notes to Table:
---------------
(1) Value realized equals fair market value of the stock on date of exercise,
less the exercise price, times the number of shares acquired.
(2) The value of unexercised in-the-money options at year end assumes a fair
market value for the Company's common stock of $18.80, the average of the
high and low prices of the Company's common stock on the New York Stock
Exchange on December 31, 2002. Value is calculated on the basis of the
difference between $18.80 and the option exercise price multiplied by the
number of shares of common stock underlying the options.
10
OPTIONS GRANTED IN 2002
-------------------------------------------------------------------------------
Potential
Realizable
Value at Assumed
Annual Rate
of Stock Price
Appreciation for
Individual Grants (1) Option Terms (3)
------------------------------------------------- ----------------
Percent
of
Total
Number of Options
Securities Granted to
Underlying Employees
Options In Exercise Expiration
Name Granted (#) 2002 (2) Price ($/Sh) Date 5% ($) 10% ($)
------- ----------- ---------- ------------ ---------- ------- -------
John G.
Nikkel 25,000 15.63 19.04 12/17/12 299,354 758,621
Earle
Lamborn 10,000 6.25 19.04 12/17/12 119,742 303,449
Philip M.
Keeley 10,000 6.25 19.04 12/17/12 119,742 303,449
Larry D.
Pinkston 7,500 4.69 19.04 12/17/12 89,806 227,586
Mark E.
Schell 7,500 4.69 19.04 12/17/12 89,806 227,586
--------------------
(1) All options were granted on December 17, 2002 at an exercise price equal
to the closing market price of the common stock on that date. The options
of Messrs. Nikkel, Pinkston and Schell vest in 20% annual increments
commencing 12 months after their date of grant. The options of Messrs.
Lamborn and Keeley vested 50% on December 31, 2002 and 50% will vest on
December 31, 2003. All options vest immediately in the event of a "change
in control," as defined in the plan.
(2) Based on a total of 160,000 options being granted to certain employees
during fiscal 2002.
(3) Caution is recommended in interpreting the financial significance of
these figures. They are calculated by multiplying the number of options
granted by the difference between a future hypothetical stock price and
the option exercise price and are shown pursuant to rules of the
Securities and Exchange Commission. They assume the value of the Company
Common Stock appreciates 5% and 10% each year, compounded annually, for
ten years (the life of each option). They are not intended to forecast
possible future appreciation, if any, of such stock price or to establish
a present value of options. Also, if appreciation does not occur at the
5% or 10% per year rate, the amounts shown would not be realized by the
year 2012. Depending on inflation rates, these amounts may be worth
significantly less in 2012, in real terms, than their value today.
Long Term Performance Plans and Pension Plans
We do not currently have any long term performance plans or pension plans.
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
===============================================================================
Stock Option Plan
Our stock option plan contains a provision vesting all stock options in the
event of a "change-in-control" of us. A "change-in-control" is deemed to have
occurred at such time
11
as any person or group, other than Unit or an Exempt Person, is or becomes the
beneficial owner, directly or indirectly, of our securities representing 50% or
more of the combined voting power of our then outstanding securities. An Exempt
Person is generally defined to be any person (or estate or trust of such person)
who, on the date of the plan, owned securities representing more than 20% of the
combined voting power of our then outstanding securities, and any spouse, parent
or issue of such person.
Separation Benefit Plan
On December 20, 1996, effective as of January 1, 1997, the board adopted the
Separation Benefit Plan of Unit Corporation and Participating Subsidiaries (the
"Plan"). The Plan is generally applicable to all of our full time salaried
employees and to the employees of our two principal subsidiaries, excluding any
employees who are also our directors, who have been with their employer for at
least one year. Subject to the terms of the Plan, any eligible employee whose
employment is terminated is entitled to receive a separation benefit in an
amount calculated by dividing the eligible employee's average annual base salary
in effect immediately prior to such employee's separation by 52 to determine a
weekly separation benefit amount. The number of weekly separation benefit
payments then payable to an eligible employee is calculated based on the
employee's years of service in accordance with a schedule set forth in the Plan.
Employees who voluntarily leave their employment are not entitled to receive a
separation benefit unless they have completed at least 20 years of service. Any
eligible employee who has completed 20 years of service or more is vested in his
or her separation benefit, subject to fulfilling the other requirements of the
Plan. Separation benefit payments are limited to a maximum of 104 weekly
payments. The Plan also provides that, unless otherwise provided by our board of
directors prior to a "change-in-control" of us, as defined in the Plan, all
eligible employees shall be vested in their separation benefit as of the date of
such "change-in-control" based on their years of service. As a condition to
receiving the separation benefits, employees must sign a separation agreement
waiving any claims the employee may have against our subsidiaries or us.
Senior Management Separation Benefit Plan
On October 28, 1997, the board adopted the Separation Benefit Plan for Senior
Management. This plan is similar in terms to the benefits and requirements
described above for the Separation Benefit Plan, with the exception that the
compensation committee determines who will participate in this plan. In
addition, the committee is given the authority to increase (up to a maximum of
104) the number of weekly separation benefit payments a participant would
otherwise be entitled to receive under the plan if the participant is
involuntarily terminated. Currently, only Messrs. Kirchner, Lamborn and Nikkel
are participants in this plan.
Change of Control Arrangements
We have entered into key employee change of control contracts with Messrs.
Nikkel, Lamborn, Keeley, Pinkston and Schell. These severance contracts have an
initial three-year term that is automatically extended for one year upon each
anniversary, unless a notice not to extend is given by us. If a change of
control of the company (as defined below) occurs during the term of the
severance contract, then the contract becomes operative for a fixed three-year
period. The severance contracts generally provide that the executive's terms and
conditions of employment (including position, work location, compensation and
benefits) will not be adversely changed during the three-year period after a
change of control. If the executive's employment is terminated by the company
(other than for cause, death or disability), the executive terminates for good
reason during such three-year period, or the executive terminates employment for
any reason during the 30-day period following the first anniversary of the
change of control, and upon certain terminations prior to a change of control or
in connection with or in anticipation of a change of control, the executive is
generally entitled to receive the following payment and benefits:
12
. earned but unpaid compensation;
. up to 2.9 times the executive's base salary plus annual bonus (based
on historic annual bonus); and
. the company matching contributions that would have been made had the
executive continued to participate in the company's 401(k) plan for up
to an additional three years.
In addition, the severance contract provides for a continuation of various
medical, dental, disability and life insurance plans and financial counseling
for a period of up to three years, outplacement services and the payment of all
legal fees and expenses incurred by the executive in enforcing any right or
benefit provided by the severance contracts. The severance contract provides
that the executive is entitled to receive a payment in an amount sufficient to
make the executive whole for any excise tax on excess parachute payments imposed
under Section 4999 of the Code. As a condition to receipt of these severance
benefits, the executive must remain in the employ of the company and render
services commensurate with his position. The executive must also agree to retain
in confidence any and all confidential information known to him concerning the
company and its business so long as the information is not otherwise publicly
disclosed. As of the date of this proxy statement, no amounts have been paid
under the severance contracts.
For purposes of the severance contracts, a change of control is generally
defined as:
(1) Any individual, entity or group acquiring beneficial ownership of 15% or
more of either the outstanding shares of the company's common stock or the
combined voting power of the outstanding voting securities of the company
entitled to vote generally for the election of directors;
(2) Individuals who constitute the board on the date hereof cease to constitute
a majority of the board, provided that an individual whose election or
nomination as a director is approved by a vote of at least a majority of the
directors as of the date hereof will be deemed a member of the incumbent board;
(3) Approval by the company's stockholders of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the company or the acquisition of assets of another entity, unless
following the business combination:
. all or substantially all of the beneficial owners of the company's
outstanding common stock prior to the business combination own more
than 60% of the outstanding common stock of the corporation resulting
from the business combination;
. no person, entity or group owns 15% or more of the outstanding voting
securities of the corporation resulting from the
business combination; and,
. at least a majority of the board of the corporation resulting from the
business combination were members of the company's board prior to the
business combination; or
(4) Approval by the company's stockholders of a complete liquidation or
dissolution of the company.
REPORT OF THE COMPENSATION COMMITTEE
================================================================================
The following report of the Compensation Committee shall not be incorporated by
reference into any of our prior filings under the Securities Act of 1933 or the
Securities Exchange Act of 1934 that incorporated future filings or portions
thereof (including this proxy statement or the "Executive Compensation" section
of this proxy statement), except to the
13
extent that we specifically incorporate this information by reference.
The Compensation Committee is responsible for setting and overseeing the
compensation of our executive officers. The committee is composed entirely of
independent outside directors. There are no interlocking relationships between
any of our executive officers and any entity whose directors or executive
officers serve on the committee.
Objectives and Considerations
The objectives of the committee in determining executive compensation are to
retain and reward qualified individuals serving as our executive officers. To
achieve these objectives, the committee relies primarily on salary, annual
bonuses (awardable either in stock or cash) and awards under our stock option
plan. In making its decisions, the committee takes into account the conditions
within our industry, our income and cash flow and the attainment of any
designated business objectives. Individual performances are also reviewed,
taking into account the individual's responsibilities, experience and potential,
his or her period of service and current salary and the individual's
compensation level as compared to similar positions at other companies. The
committee's evaluation of these considerations is, for the most part, subjective
and, to date, it has not established any specific written compensation plans or
formulas pursuant to which the executive officers' annual compensation is
determined.
Base Salary
We do not currently have an employment agreement with any of our executive
officers. In determining the base salaries for the executive officers for 2002,
the committee relied primarily on its evaluation of the compensation being paid
to individuals holding comparable positions in the industry. In doing so, the
committee relied, to a large extent, on the results of the Mercer Energy
Compensation Survey, which surveyed the compensation and benefit programs of a
number of oil and gas related companies, one of which was us. It was the
committee's objective to set the executives' base salary at approximately the
competitive mid-range reflected in the survey. Within this range, the committee
then made any adjustments based on individual performance evaluations. Taking
these factors into consideration, the committee, with the exception of Mr.
Nikkel, decided to maintain the 2002 salaries of the named executive officers at
their 2001 level.
Bonuses
Executive officers are eligible to earn annual bonuses either in cash or in
stock. Stock bonuses are awarded pursuant to the bonus plan approved by our
stockholders on May 1, 1985 and, as amended, on May 3, 1995. The amount and type
of any bonuses awarded to executive officers is determined solely at the
subjective discretion of the committee. The committee does not base its
decisions on predetermined formulas, choosing instead to rely on its evaluation
of the various considerations set forth above. In addition, when appropriate,
bonuses are awarded to recognize short-term individual performance.
Stock Options
Stock options are granted under the stock option plan approved by our
stockholders on May 2, 1984 and, as amended, on May 3, 1989 and May 3, 1995. The
committee believes that stock options provide an incentive for the executive
officers to maximize long-term stockholder value. Stock option grants are made
at 100% of the market price on the date of grant. Generally, options become
exercisable in annual 20% increments after one year and have a ten-year life.
The number of options that are granted to an executive officer is based on the
individual's performance and level of responsibility. Option awards will vary in
size based on position level (more senior managers receive a higher multiple).
Stock options are granted to the executive officers at the discretion of the
committee. The committee's decisions with respect to awarding stock options are
generally made late each year thus allowing the committee to evaluate our annual
results as part of its decision making process.
14
Chief Executive Officer
Mr. Nikkel's salary and bonus are determined by the committee substantially in
accordance with the policies described above relating to all executive officers.
Based on its review, the committee chose to raise Mr. Nikkel's 2002 salary by
5.9%.
1993 OBRA - Executive Compensation Tax Deductibility
The Internal Revenue Code, Section 162(m), limits our ability to deduct, for
federal income tax purposes, certain non-performance based compensation in
excess of $1 million per year paid to individual officers named in the
Summary Compensation Table. Based on the amount of compensation paid to each of
the named officers in fiscal 2002, it does not appear that Section 162(m) will
have a significant impact on us in the near term. However, the committee will
continue to monitor whether its executive compensation plans should be amended
to meet the deductibility requirements of the tax law.
Members of the Compensation Committee:
John S. Zink - Chairman
Don Cook
John H. Williams
J. Michael Adcock
REPORT OF THE AUDIT COMMITTEE
===============================================================================
The following report of the Audit Committee shall not be incorporated by
reference into any of our prior filings under the Securities Act of 1933 or the
Securities Exchange Act of 1934 that incorporated future filings or portions
thereof, except to the extent that we specifically incorporate this information
by reference.
The Securities and Exchange Commission rules now require that we include in our
proxy statement a report from the Audit Committee of the board. The following
report concerns the committee's activities regarding oversight of our financial
reporting and auditing process.
In accordance with its written charter, the Audit Committee of the board assists
the board in fulfilling its responsibility for oversight of the quality and
integrity of our accounting, auditing and financial reporting practices. During
the current year, the committee met three times. The committee chair, as
representative of the committee, discussed the interim financial information
contained in each quarterly earnings announcement and Form 10-Q with the CFO and
independent auditors prior to public release.
The board and the Audit Committee believe that the Audit Committee's current
member composition satisfies the rule of the New York Stock Exchange that
governs audit committee composition, including the requirement that audit
committee members all be "independent directors" as that term is defined by
applicable NYSE rule.
Management has the primary responsibility for the financial statements and the
reporting process including the systems of internal controls. In fulfilling its
oversight responsibilities, the committee reviewed the audited financial
statements in the Annual Report with management including a discussion of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of disclosures in the
financial statements.
The committee reviewed with the independent auditors, who are responsible for
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles, their judgments as to the
quality, not just the acceptability, of our accounting principles and such other
matters as are required to be discussed with the committee under generally
accepted auditing standards, including Statement on Auditing Standards No. 61.
15
The committee has discussed with the independent auditors the auditors'
independence from management, including the implications of the SEC regulations
regarding the provisions of non-audit services by the independent auditors and
determined that the provisions of the non-audit services were not inconsistent
with the independent auditors' status as independent auditors. In addition, the
committee received the written disclosures and letter from the independent
auditors required by the Independence Standards Board, Standard No. 1.
Based on the above-mentioned review and discussions with management and the
independent auditors, the committee recommended to the board that our audited
financial statements be included in its Annual Report on Form 10-K for the year
ended December 31, 2002, for filing with the Securities and Exchange Commission.
The following table sets forth the aggregate fees billed to us for the fiscal
year ended December 31, 2002 by our principal accounting firm,
PricewaterhouseCoopers L.L.P.
Principal Accountant Fees and Services
Aggregate fees for professional services rendered for us by
PricewaterhouseCoopers LLP as of or for the years ended December 31, 2002 and
2001, were:
2002 2001
---- ----
Audit.................... $113,530 $ 85,925
Audit Related............ 29,500 33,345
Tax...................... 46,670 32,577
All Other................ - 13,615
-------- --------
Total.................... $189,700 $165,462
The Audit fees for the years ended December 31, 2002 and 2001 were for
professional services rendered for the audits of our consolidated financial
statements, limited reviews of interim financial statements, issuance of
consents and assistance with review of documents filed with the SEC.
The Audit Related fees as of the years ended December 31, 2002 and 2001 were
primarily for assurance and related services to our employee benefit plans.
The Tax fees as of the years ended December 31, 2002 and 2001 were for services
related to review of federal and state income tax returns and research and
consultation on various federal and state tax matters.
All Other fees as of the year ended December 31, 2001 were for employee benefit
plan advisory services.
Members of the Audit Committee:
Don Cook - Chairman
J. Michael Adcock
William B. Morgan
John S. Zink
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
===============================================================================
During 2002, the following directors (none of whom was or had been an officer or
employee of the company or any of its subsidiaries) served on the Compensation
Committee: John S. Zink, Don Cook, John Williams and J. Michael Adcock. There
are no committee interlocks with other companies within the meaning of the
Securities and Exchange Commission's rules during 2002.
16
PERFORMANCE GRAPH
===============================================================================
The performance graph and the related disclosure contained in this section of
the Proxy Statement shall not be incorporated by reference into any of our prior
filings under the Securities Act of 1933 or the Securities Exchange Act of 1934
that incorporated future filings or portions thereof (including this proxy
statement or the "Executive Compensation" section of this proxy statement),
except to the extent that we specifically incorporate this information by
reference.
The following graph reflects a comparison of the cumulative total return (change
in stock price plus reinvested dividends, assuming $100 invested on December 31,
1997) in our common stock during the five-year period from December 31, 1998
through December 31, 2002, with the Standard & Poor's 500 Composite Index, the
S&P 600 Oil & Gas Exploration and Production Index and a Unit determined peer
group index. Our peer group index consists of Grey Wolf Inc., Patterson-UTI
Energy Inc., Pioneer Drilling Co., and TMBR/SHARP Drilling Inc. The comparisons
in this table are required by the Securities and Exchange Commission and,
therefore, are not intended to forecast or be indicative of possible future
performance of our stock.
DOLLAR VALUE OF $100 INVESTMENT AT DECEMBER 31,
-----------------------------------------------------------------------------
1998 1999 2000 2001 2002
-------- -------- -------- -------- --------
Unit 43.51 79.87 196.75 134.03 192.73
S&P 500 128.58 155.63 141.46 124.66 97.10
S&P 600
Oil & Gas 60.47 75.78 149.76 127.55 134.14
Peer Group 16.82 56.85 138.76 82.59 106.80
17
ITEM 2: RATIFICATION OF APPOINTMENT OF AUDITORS
===============================================================================
Our Audit Committee has unanimously selected PricewaterhouseCoopers LLP as our
independent auditors for our 2003 fiscal year. We are asking you to ratify and
approve this action. A representative of PricewaterhouseCoopers LLP, will attend
the annual meeting, will have the opportunity to make a statement if he or she
desires to do so and will be available to answer appropriate questions.
Although the law does not require such ratification, the Audit Committee
believes that you should be given the opportunity to express your views on this
matter. However, even if you ratify the selection, the Audit Committee may still
appoint new independent auditors at any time if it believes that such change
would be in the best interest of the company and its stockholders. Failure to
ratify such selection is not binding on the Audit Committee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL,
WHICH VOTE WILL ACT TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP.
OTHER MATTERS
===============================================================================
Certain Transactions Between the Company and Its Officers, Directors, Nominees
for Directors and Their Associates
Since 1984, one of our subsidiaries, or its predecessor, has formed
employee-limited partnerships for investment by certain of our employees and
directors. The limited partnerships participate with Unit Petroleum Company, a
subsidiary of ours, in its exploration and production operations.
Certain of our officers and directors have invested in these employee programs.
The following table shows their investments in the 2002 and 2003 employee
programs.
Aggregate of Direct or Indirect Investment
------------------------------------------
2002 Employee 2003 Employee
Officer/Director Program($) Program($)
---------------- ------------- -------------
John G. Nikkel................... 200,000 140,000
King P. Kirchner................. 100,000 40,000
Don Cook......................... 2,000 2,000
J. Michael Adcock................ 56,000 48,000
Philip M. Keeley................. 40,000 20,000
With respect to their review and approval of any material transactions between
us and any related party, including, if applicable, those discussed above, our
board considers the terms that are or would be available to us in similar
transactions with non-affiliated parties dealing at arm's-length.
18
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors and officers and persons who own more than 10% of a registered class
of our equity securities to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. These persons are required by Securities and Exchange
Commission regulation to furnish us with copies of all Section 16(a) forms they
file.
Based solely on our review of the forms received by us with respect to fiscal
2002, or written representations from certain reporting persons, we believe that
each of our directors, officers and greater than 10% owners have complied with
all Section 16(a) filing requirements.
Matters Which May Come Before the Meeting
The board does not intend to bring any other matters before the meeting, nor do
we know of any matters that other persons intend to bring before the meeting.
However, should other matters not mentioned in this proxy statement properly
come before the meeting, the persons named in the accompanying proxy card will
vote on them in accordance with their best judgment.
2004 Stockholder Proposals or Nominations
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, stockholder
proposals intended to be included in the company's 2004 proxy statement must be
submitted in writing to the Senior Vice President, General Counsel and Secretary
of the company at 1000 Kensington Tower I, 7130 South Lewis, Tulsa, Oklahoma
74136 no later than November 20, 2003.
Under our Bylaws, a proposal or a nomination that the stockholder does not seek
to include in the company's proxy statement pursuant to Rule 14a-8 or a
nomination for director may be submitted in writing to us for the 2004 annual
stockholders' meeting no later than January 31, 2004 or earlier than January 1,
2004. The stockholder's submission must include certain specified information
concerning the proposal or nominee, as the case may be, and information as to
the stockholder's ownership of common stock of the company. Proposals or
nominations not meeting these requirements will not be entertained at the annual
meeting. Stockholders should contact the Senior Vice President, General Counsel
and Secretary of the company in writing at 1000 Kensington Tower I, 7130 South
Lewis, Tulsa, Oklahoma 74136 to make any submission or to obtain additional
information as to the proper form and content of submissions.
Communication With Us
From time to time, we receive calls from stockholders asking how they can
communicate with us. The following communication options are available.
. If you would like to receive information about Unit:
Our home page on the Internet, located at http://www.unitcorp.com, gives
you access to certain information regarding the company. This site
contains our press releases, financial information and stock quotes, as
well as our SEC filings. An online version of this proxy statement is
also located on the site.
19
. If you would like to contact us, please call Unit's Investor Relations at
(918) 493-7700, or send your correspondence to the following address:
Linda Swanson
Unit Corporation
1000 Kensington Tower I
7130 South Lewis
Tulsa, Oklahoma 74136
Form 10-K Annual Report to the Securities and Exchange Commission
COPIES OF OUR ANNUAL REPORT (FORM 10-K) FOR THE FISCAL YEAR ENDED DECEMBER 31,
2002, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, MAY BE OBTAINED
WITHOUT CHARGE BY WRITING TO: MARK E. SCHELL, SECRETARY, UNIT CORPORATION, P. O.
BOX 702500, TULSA, OKLAHOMA 74170.
20
APPENDIX A
OUR AUDIT COMMITTEE CHARTER
Purpose
-------
The Audit Committee is appointed by and amongst the Board to assist the
Board in monitoring
(1) the integrity of the financial statements of the Company,
(2) the independent auditor's qualifications and independence,
(3) the performance of the Company's internal audit function and
independent auditors, and
(4) the compliance by the Company with legal and regulatory requirements.
The Audit Committee shall prepare the audit committee report required by
the rules of the Securities and Exchange Commission to be included in the
Company's annual proxy statement.
Committee Membership
--------------------
The Audit Committee shall consist of no fewer than three members. The
members of the Audit Committee shall meet the independence requirements of the
New York Stock Exchange.
At least one member of the Audit Committee shall, in the judgment of the
Board, have an accounting background or be a financial management expert in
accordance with the rules and regulations of the Securities and Exchange
Commission.
At least one member of the Audit Committee (who may also serve as the
financial expert), shall, in the judgment of the Board, have accounting or
related financial management expertise in accordance with the New York Stock
Exchange listing standards.
The members of the Audit Committee shall be appointed by the Board on the
recommendation of the Nominating & Governance Committee. Audit Committee members
may be replaced by the Board.
Committee Authority and Responsibilities
----------------------------------------
The Audit Committee
. will have the sole authority to appoint or replace the independent
auditor (subject, if applicable, to shareholder ratification);
. will approve all audit engagement fees and terms and all significant
non-audit engagements with the independent auditors;
. will pre-approve all audit and permitted non-audit services to be
performed by the public accounting firm, or delegate the authority to
pre-approve such services to one or more members of the Audit
Committee, who shall report any decision to pre-approve any services
to the full Audit Committee at its regularly-scheduled meetings;
. will consult with management but shall not delegate these
responsibilities;
. will meet as often as it determines is necessary to fulfill its
obligations;
. may form and delegate authority to subcommittees when appropriate;
. will have the authority, to the extent it deems necessary or
appropriate, to retain special legal, accounting or other consultants
to advise the Committee;
. may request any officer or employee of the Company or the Company's
outside counsel or independent auditor to attend a meeting of the
Committee or to meet with any members of, or consultants to, the
Committee;
A-1
. may also, to the extent it deems necessary or appropriate, meet with
the Company's investment bankers or financial analysts who follow the
Company;
. will make regular reports to the Board;
. will review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval; and
. will annually review the Audit Committee's own performance.
Financial Statement and Disclosure Matters
------------------------------------------
The Audit Committee, to the extent it deems necessary or appropriate, will:
1. Review and discuss with management and the independent auditor the
annual audited financial statements, including disclosures made in management's
discussion and analysis, and recommend to the Board whether the audited
financial statements should be included in the Company's Form 10-K.
2. Review and discuss with management and the independent auditor the
Company's quarterly financial statements prior to the filing of its Form 10-Q,
including the results of the independent auditors' reviews of the quarterly
financial statements.
3. Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with the preparation
of the Company's financial statements, including any significant changes in the
Company's selection or application of accounting principles, any major issues as
to the adequacy of the Company's internal controls, the development, selection
and disclosure of critical accounting estimates, and analyses of the effect of
alternative assumptions, estimates or GAAP methods on the Company's financial
statements.
4. Discuss with management the Company's earnings press releases, including
the use of "pro forma" or "adjusted" non-GAAP information, as well as financial
information and earnings guidance provided to analysts and rating agencies.
5. Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet structures on
the Company's financial statements.
6. Discuss with management the Company's major financial risk exposures and
the steps management has taken to monitor and control such exposures, including
the Company's risk assessment and risk management policies.
7. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the conduct of
the audit. In particular, discuss:
(a) The adoption of, or changes to, the Company's significant auditing
and accounting principles and practices as suggested by the independent
auditor, internal auditors or management.
(b) The management letter provided by the independent auditor and the
Company's response to that letter.
(c) Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
requested information, and any significant disagreements with management.
Oversight of the Company's Relationship with the Independent Auditor
--------------------------------------------------------------------
8. Review the experience and qualifications of the senior members of the
independent auditor team.
9. Obtain and review a report from the independent auditor at least
annually regarding
(a) the auditor's internal quality-control procedures,
A-2
(b) any material issues raised by the most recent quality-control
review, or peer review, of the firm, or by any inquiry or investigation by
governmental or professional authorities within the preceding five years
respecting one or more independent audits carried out by the firm,
(c) any steps taken to deal with any such issues, and
(d) all relationships between the independent auditor and the Company.
Evaluate the qualifications, performance and independence of the
independent auditor, including considering whether the auditor's quality
controls are adequate and the provision of non-audit services is compatible with
maintaining the auditor's independence, and taking into account the opinions of
management and the internal auditor. The Audit Committee shall present its
conclusions to the Board and, if so determined by the Audit Committee, recommend
that the Board take additional action to satisfy itself of the qualifications,
performance and independence of the auditor.
10. Consider whether, in order to assure continuing auditor independence,
it is appropriate to adopt a policy of rotating the lead audit partner or even
the independent auditing firm itself on a regular basis.
11. Recommend to the Board policies for the Company's hiring of employees
or former employees of the independent auditor who were engaged on the Company's
account.
12. Meet with the independent auditor prior to the audit to discuss the
planning and staffing of the audit.
Oversight of the Company's Internal Audit Function
--------------------------------------------------
13. Review the appointment and replacement of the senior internal auditing
executive.
14. Review the significant reports to management prepared by the internal
auditing department and management's responses.
15. Discuss with the independent auditor the internal audit department
responsibilities, budget and staffing and any recommended changes in the planned
scope of the internal audit.
Compliance Oversight Responsibilities
-------------------------------------
16. Obtain from the independent auditor assurance that Section 10A of the
Securities Exchange Act of 1934 has been complied with.
17. Obtain reports from management, the Company's senior internal auditing
executive and the independent auditor that the Company and its
subsidiary/foreign affiliated entities are in conformity with applicable legal
requirements and the Company's Code of Business Conduct and Ethics. Review
reports and disclosures of insider and affiliated party transactions. Advise the
Board with respect to the Company's policies and procedures regarding compliance
with applicable laws and regulations and with the Company's Code of Business
Conduct and Ethics.
18. Discuss with management and the independent auditor any correspondence
with regulators or governmental agencies and establish and maintain procedures
for the confidential and anonymous receipt, retention and treatment of any
employee complaints or published reports which raise material issues regarding
the Company's financial statements or accounting policies.
19. Discuss with the Company's General Counsel legal matters that may have
a material impact on the financial statements or the Company's compliance
policies.
Limitation of Audit Committee's Role
------------------------------------
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements and disclosures
are complete and accurate and are in accordance with generally accepted
accounting principles and applicable rules and regulations. These are the
responsibilities of management and the independent auditor.
A-3
APPENDIX B
OUR COMPENSATION COMMITTEE CHARTER
Purpose
-------
The Compensation Committee is appointed by the Board of Directors to
discharge the Board's responsibilities relating to compensation of the Company's
directors and officers. The Committee has overall responsibility for approving
and evaluating the director and officer compensation plans, policies and
programs of the Company.
The Compensation Committee is also responsible for producing an annual
report on executive compensation for inclusion in the Company's proxy statement.
Committee Membership
--------------------
The Compensation Committee shall consist of no fewer than three members.
The members of the Compensation Committee
. will meet the requirements that he/she is a "non-employee
director" for purposes of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended;
. will satisfy the requirements of an "outside director" for
purposes of Section 162(m) of the Internal Revenue Code;
. will meet the independence requirements of the New York Stock
Exchange;
. will be appointed by the Board on the recommendation of the
Nominating & Governance Committee; and
. may be replaced by the Board.
Committee Authority and Responsibilities
----------------------------------------
1. The Compensation Committee shall have the sole authority to retain and
terminate any compensation consultant to be used to assist in the evaluation of
director, CEO or senior executive compensation and shall have sole authority to
approve the consultant's fees and other retention terms. The Compensation
Committee shall also have authority to obtain advice and assistance from
internal or external legal, accounting or other advisors.
2. The Compensation Committee shall annually review and approve corporate
goals and objectives relevant to CEO compensation, evaluate the CEO's
performance in light of those goals and objectives, and recommend to the Board
the CEO's compensation levels based on this evaluation. In determining the
long-term incentive component of CEO compensation, the Compensation Committee
will consider the Company's performance and relative shareholder return, the
value of similar incentive awards to CEOs at comparable companies, and the
awards given to the CEO in past years.
3. The Compensation Committee shall annually review and make
recommendations to the Board with respect to the compensation of all directors,
officers and other key executives, including incentive-compensation plans and
equity-based plans.
4. The Compensation Committee shall annually review and approve, for the
CEO and the senior executives of the Company, (a) the annual base salary level,
(b) the annual incentive opportunity level, (c) the long-term incentive
opportunity level, (d) employment agreements, severance arrangements, and change
in control agreements/provisions, in each case as, when and if appropriate, and
(e) any special or supplemental benefits.
5. The Compensation Committee may form and delegate authority to
subcommittees when appropriate.
6. The Compensation Committee shall make regular reports to the Board.
7. The Compensation Committee shall review and reassess the adequacy of
this Charter annually and recommend any proposed changes to the Board for
approval.
8. The Compensation Committee shall annually review its own performance.
B-1
APPENDIX C
OUR NOMINATING & GOVERNANCE COMMITTEE CHARTER
Purpose
-------
The Nominating & Governance Committee is appointed by the Board of
Directors
. to assist the Board by identifying individuals qualified to
become Board members, and to recommend to the Board the director
nominees for the next annual meeting of shareholders;
. to recommend to the Board our Corporate Governance Guidelines;
. to lead the Board in its annual review of the Board's
performance; and
. to recommend to the Board director nominees for each committee.
Committee Membership
--------------------
The Nominating & Governance Committee
. will consist of no fewer than three members;
. will meet the independence requirements of the New York Stock
Exchange; and
. will be appointed and replaced by the Board.
Committee Authority and Responsibilities
----------------------------------------
The Nominating & Governance Committee
. will have the sole authority to retain and terminate any search
firm to be used to identify director candidates and shall have
sole authority to approve the search firm's fees and other
retention terms;
. will have authority to obtain advice and assistance from
internal or external legal, accounting or other advisors;
. will actively seek individuals qualified to become board members
for recommendation to the Board;
. will review candidates recommended by our shareholders;
. will receive comments from all directors and report annually to
the Board with an assessment of the Board's performance, to be
discussed with the full Board following the end of each fiscal
year;
. will monitor and recommend the functions of the various
committees of the Board;
. will review and reassess the adequacy of the Corporate
Governance Guidelines of the Company and recommend any proposed
changes to the Board for approval;
. may form and delegate authority to subcommittees when
appropriate;
. will make regular reports to the Board;
. will review and reassess the adequacy of this Charter annually
and recommend any proposed changes to the Board for approval;
. will annually review its own performance; and
. will consider and resolve questions of possible conflicts of
interest of Board members and of the Company's Senior
Executives.
C-1
CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 2003
THIS PROXY IS SOLICITED ON BEHALF OF UNIT CORPORATION'S
BOARD OF DIRECTORS
The undersigned hereby appoints John G. Nikkel and Mark E. Schell, and each of
them, proxies for the undersigned, with full power of substitution, to vote all
shares of Unit Corporation Common Stock which the undersigned may be entitled to
vote at the Annual Meeting of Stockholders of Unit Corporation, Tulsa, Oklahoma,
on Wednesday, May 7, 2003 at 11:00 A.M., or at any adjournment thereof, upon the
matters set forth on the reverse side and described in the accompanying Proxy
Statement and upon such other business as may properly come before the meeting
or any adjournment thereof.
Please mark this proxy as indicted on the reverse side to vote on any item. If
you wish to vote in accordance with the Board of Directors' recommendation,
please sign the reverse side; no boxes need to be checked.
(Continued, and to be marked, dated & signed on reverse side.)
Address Change/Comments (Mark the corresponding box on the reverse side.)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
The Board of Directors recommends a vote FOR Items 1 through 2
Please
Mark Here [ ]
for Address
Change or
Comments
SEE REVERSE SIDE
Item 1 - Election of Directors Item 2 - Ratification of Auditors
FOR WITHHOLD FOR AGAINST ABSTAIN
the nominees AUTHORITY [ ] [ ] [ ]
listed below to vote for
(except as marked) all nominee(s) PLEASE MARK THIS BOX IF YOU
to the contrary listed below PLAN TO ATTEND THE MEETING [ ]
[ ] [ ]
Nominees: 01 John G. Nikkel, 02 John S. Zink
Withheld for: (Write that nominee's Receipt is hereby acknowledged of the
name in the space provided below.) Unit Corporation Notice of Meeting and
Proxy Statement.
------------------------------------
By checking the box to the right,
I consent to future access of the
Annual Report, Proxy Statements, [ ]
prospectuses and other
communications electronically
via the Internet. I understand
that the Company may no longer
distribute printed materials to
me for any future shareholder
meeting until such consent is
revoked. I understand that I may
revoke my consent at any time by
contacting the Company's transfer
agent, Mellon Investor Services,
Ridgefield Park, NJ and that costs
normally associated with
electronic access, such as usage
and telephone charges, will be my
responsibility. Please disregard
if you have previously provided
your consent decision.
Signature __________________ Signature __________________ Date _______________
Note: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
................................................................................
FOLD AND DETACH HERE
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:00 P.M. Eastern Time
the day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and returned
your proxy card.
Telephone
1-800-435-6710
Internet Use any touch- Mail
http://www.eproxy.com/unt tone telephone to Mark, sign and
Use the Internet to vote vote your proxy. date
your proxy. Have your Have your proxy your proxy card
proxy card in hand when OR card in hand when OR and
you access the web site. you call. You return it in the
You will be prompted to will be prompted enclosed postage-
enter your control to enter your prepaid
number, located in the control number, envelope.
box below, to create and located in the
submit an electronic box below, and
ballot. then follow the
directions given.
If you vote your Proxy by Internet or by Telephone,
you do NOT need to mail back your proxy card.
You can view the Annual Report and Proxy Statement
on the Internet at www.unitcorp.com