-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JW5Uio0ApKbYgOMoOk+joDLNNHoW4ViS9lVY0aGNhs0CIRUCl+3dyue8mARSHuI7 SyBoc/cUngU0FF70SCfDqg== 0000798949-97-000033.txt : 19971106 0000798949-97-000033.hdr.sgml : 19971106 ACCESSION NUMBER: 0000798949-97-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971105 SROS: NASD SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIT CORP CENTRAL INDEX KEY: 0000798949 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731283193 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09260 FILM NUMBER: 97707994 BUSINESS ADDRESS: STREET 1: 1000 KENSINGTON CENTRE STREET 2: 7130 SOUTH LEWIS CITY: TULSA STATE: OK ZIP: 74136 BUSINESS PHONE: 9184937700 10-Q 1 Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File Number 1-9260 UNIT CORPORATION (Exact name of registrant as specified in its charter) Delaware 73-1283193 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1000 Kensington Tower I, 7130 South Lewis, Tulsa, Oklahoma 74136 (Address of principal executive offices) (Zip Code) (918) 493-7700 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.20 par value 24,190,234 Class Outstanding at November 1, 1997 UNIT CORPORATION INDEX Page PART I. Financial Information: Number Item 1 - Financial Statements (Unaudited) Consolidated Condensed Balance Sheets September 30, 1997 and December 31, 1996 2 Consolidated Condensed Statements of Operations Three and Nine Months Ended September 30, 1997 and 1996 3 Consolidated Condensed Statements of Cash Flows Nine Months Ended September 30, 1997 and 1996 4 Notes to Consolidated Condensed Financial Statements 5 Report of Review by Independent Accountants 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. Other Information: Item 1 - Legal Proceedings 12 Item 2 - Changes in Securities 12 Item 3 - Defaults Upon Senior Securities 12 Item 4 - Submission of Matters to a Vote of Security Holders 12 Item 5 - Other Information 12 Item 6 - Exhibits and Reports on Form 8-K 12 Signatures 13 1 Item 1. Financial Statements UNIT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS September 30, December 31, 1997 1996 ASSETS ---------- ---------- - ------ (Unaudited) Current Assets: (In thousands) Cash and cash equivalents $ 994 $ 547 Accounts receivable 14,795 15,842 Other 5,102 3,766 ---------- ---------- Total current assets 20,891 20,155 ---------- ---------- Property and Equipment: Total cost 321,317 293,917 Less accumulated depreciation, depletion, amortization and impairment 188,090 176,211 ---------- ---------- Net property and equipment 133,227 117,706 ---------- ---------- Other Assets 369 132 ---------- ---------- Total Assets $ 154,487 $ 137,993 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Current portion of natural gas purchaser prepayments (Note 2) $ 372 $ - Accounts payable 9,685 6,893 Accrued liabilities 5,678 5,816 ---------- ---------- Total current liabilities 15,735 12,709 ---------- ---------- Natural Gas Purchaser Prepayments (Note 2) 1,487 2,276 ---------- ---------- Long-Term Debt 42,500 40,600 ---------- ---------- Deferred Income Taxes 8,609 4,198 ---------- ---------- Shareholders' Equity: Preferred stock, $1.00 par value, 5,000,000 shares authorized, none issued - - Common stock $.20 par value, 40,000,000 shares authorized, 24,192,597 and 24,157,312 shares issued, respectively 4,839 4,831 Capital in excess of par value 63,198 62,735 Retained earnings 18,178 10,751 Treasury stock, at cost, 9,863 and 28,755 shares, respectively (59) (107) ---------- ---------- Total shareholders' equity 86,156 78,210 ---------- ---------- Total Liabilities and Shareholders' Equity $ 154,487 $ 137,993 ========== ========== The accompanying notes are an integral part of the consolidated condensed financial statements. 2 UNIT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- (In thousands except per share amounts) Revenues: Contract drilling $ 11,936 $ 7,420 $ 33,250 $ 20,216 Oil and natural gas 9,647 9,682 32,452 29,867 Other 2 184 11 181 ---------- ---------- ---------- ---------- Total revenues 21,585 17,286 65,713 50,264 ---------- ---------- ---------- ---------- Expenses: Contract drilling: Operating costs 8,854 5,999 26,161 17,328 Depreciation 1,122 735 3,037 2,105 Oil and natural gas: Operating costs 3,295 3,111 9,998 9,937 Depreciation, depletion and amortization 3,085 2,574 9,148 7,803 General and administrative 1,100 943 3,418 3,072 Interest 720 828 2,024 2,442 ---------- ---------- ---------- ---------- Total expenses 18,176 14,190 53,786 42,687 ---------- ---------- ---------- ---------- Income Before Income Taxes 3,409 3,096 11,927 7,577 ---------- ---------- ---------- ---------- Income Tax Expense: Current 30 21 89 48 Deferred 1,258 1,176 4,411 2,822 ---------- ---------- ---------- ---------- Total income taxes 1,288 1,197 4,500 2,870 ---------- ---------- ---------- ---------- Net Income $ 2,121 $ 1,899 $ 7,427 $ 4,707 ========== ========== ========== ========== Net Income Per Common Share: Primary $ .09 $ .08 $ .30 $ .21 ========== ========== ========== ========== Fully diluted $ .09 $ .08 $ .30 $ .21 ========== ========== ========== ========== Weighted Average Shares Outstanding: Primary 24,600 23,708 24,561 22,322 ========== ========== ========== ========== Fully diluted 24,651 23,708 24,647 22,326 ========== ========== ========== ========== The accompanying notes are an integral part of the consolidated condensed financial statements. 3 UNIT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 1997 1996 ---------- ---------- Cash Flows From Operating Activities: (In thousands) Net Income $ 7,427 $ 4,707 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 12,436 10,150 Deferred income tax expense 4,548 2,822 Other-net 212 33 Changes in operating assets and liabilities increasing (decreasing) cash: Accounts receivable 1,047 (1,605) Accounts payable 3,506 (2,939) Natural gas purchaser prepayments (Note 2) (417) (102) Other-net (1,474) (203) ---------- ---------- Net cash provided by operating activities 27,285 12,863 ---------- ---------- Cash Flows From (Used In) Investing Activities: Capital expenditures (29,223) (23,352) Proceeds from disposition of assets 591 871 Other-net (237) 210 ---------- ---------- Net cash used in investing activities (28,869) (22,271) ---------- ---------- Cash Flows From (Used In) Financing Activities: Net borrowings (payments) under line of credit 1,900 (3,400) Net payments of notes payable and long-term debt - (20) Proceeds from stock options and warrants 172 12,772 Other-net (41) - ---------- ---------- Net cash provided by financing activities 2,031 9,352 ---------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents 447 (56) Cash and Cash Equivalents, Beginning of Year 547 534 ---------- ---------- Cash and Cash Equivalents, End of Period $ 994 $ 478 ========== ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the nine months ended September 30, for: Interest $ 2,066 $ 2,472 Income taxes $ 102 $ 50 The accompanying notes are an integral part of the consolidated condensed financial statements. 4 UNIT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PREPARATION AND PRESENTATION - ---------------------------------------------- In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary (all adjustments are of a normal recurring nature) to present fairly the financial position of Unit Corporation as of September 30, 1997 and the results of its operations for the three and nine month periods ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 1996. Results for the three and nine months ended September 30, 1997 are not necessarily indicative of the results to be realized during the full year. The year end consolidated condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. The condensed financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1996. NOTE 2 - NATURAL GAS PURCHASER PREPAYMENTS - ------------------------------------------- In March 1988, the Company entered into a settlement agreement with a natural gas purchaser. During early 1991, the Company and the natural gas purchaser superseded the original agreement with a new settlement agreement effective retroactively to January 1, 1991. Under these settlement agreements, the Company has a prepayment balance of $1.9 million at September 30, 1997 representing proceeds received from the purchaser as prepayment for natural gas. This amount is net of natural gas recouped and net of certain amounts disbursed to other owners (such owners, collectively with the Company are referred to as the "Committed Interest") for their proportionate share of the prepayments. The September 30, 1997 prepayment balance is subject to recoupment in volumes of natural gas for a period ending the earlier of recoupment or December 31, 1997 (the "Recoupment Period"). During 1997, the purchaser is obligated to make monthly payments on behalf of the Committed Interest in an amount calculated as a percentage of the Committed Interest's share of the deliverability of the wells subject to the settlement agreement, up to a maximum of $156,000 or a minimum of $80,000 per month. At December 31, 1997, the Committed Interest's prepayment balance, if any, that has not been fully recouped in natural gas is subject to a cash repayment limited to a maximum of $3 million to be made in equal payments over a five year period, with the first payment due June 1, 1998. The prepayment amounts subject to recoupment from future production by the purchaser are being recorded as liabilities and are reflected in revenues as recoupment occurs. As a result, one fifth of the prepayment balance at September 30, 1997 is reported as a short-term liability. The gas purchaser reduced its takes in June 1997 and elected not to take natural gas under the settlement agreement during the months of July through October 1997. The purchaser has elected to start taking natural gas under the settlement agreement in November 1997. Whether the balance in the liability account increases of decreases before the Recoupment Period ends at December 31, 1997 will depend on the election of the purchaser during the balance of 1997. At the end of the Recoupment Period, the terms of the settlement agreement and the natural gas purchase contracts which are subject to the settlement agreement will terminate. 5 NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS - -------------------------------------- In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share ("FAS 128"). FAS 128 will change the computation, presentation and disclosure requirements for earnings per share. FAS 128 requires the presentation of "basic" and "diluted" earnings per share, as defined, for all entities with complex capital structures. FAS 128 is effective for financial statements for periods ending after December 15, 1997, and requires restatement of all prior period earnings per share amounts. The Company has not yet determined the impact that FAS 128 will have on its earnings per share when adopted. 6 REPORT OF REVIEW BY INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders Unit Corporation We have reviewed the accompanying consolidated condensed balance sheet of Unit Corporation and subsidiaries as of September 30, 1997, and the related consoli- dated condensed statements of operations for the three and nine month periods ended September 30, 1997 and 1996 and cash flows for the nine month periods ended September 30, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Unit Corporation and subsidiaries at December 31, 1996, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended (not presented herein); and our report dated February 18, 1997 expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet at December 31, 1996, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. COOPERS & LYBRAND L. L. P. Tulsa, Oklahoma October 27, 1997 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------- FINANCIAL CONDITION - ------------------- The Company's bank loan agreement (the "Credit Agreement") provides for a total commitment of $75 million, consisting of a revolving credit facility through August 1, 1999 and a term loan thereafter, maturing on August 1, 2003. Borrowings under the revolving credit facility are limited to a borrowing base which is subject to a semi-annual redetermination. The latest borrowing base determination indicated $52 million of the commitment is available to the Company. At September 30, 1997 borrowings under the Credit Agreement totaled $42.5 million. The average interest rate in the third quarter of 1997 was 7.2 percent compared to the average interest rate of 8.0 percent in the third quarter of 1996. A 1/2 of 1 percent facility fee is charged for any unused portion of the borrowing base. The Company's shareholders' equity at September 30, 1997 was $86.2 million resulting in a ratio of long-term debt-to-equity of .49 to 1. The Company's primary source of liquidity and capital resources in the near- and long-term will consist of cash flow from operating activities and available borrowings under the Company's Credit Agreement. Net cash provided by operating activities for the first nine months of 1997 was $27.3 million as compared to $12.9 million for the first nine months of 1996. The increase in 1997, as compared to 1996, was primarily due to higher spot market natural gas prices in the first and third quarters of 1997 along with higher drilling dayrates and drilling utilization throughout the first nine months of 1997 combined with decreases in accounts receivable and increases in accounts payable. During the first nine months of 1997, the Company had capital expenditures of $28.5 million. Approximately 67 percent of the expenditures were for oil and natural gas exploration and development drilling and the remainder were for the Company's contract drilling operations. The Company plans to continue its focus on development drilling during the remainder of 1997. Depending, in part, on commodity pricing, the Company anticipates it will spend approximately $28 million on its exploration capital expenditures program in 1997. These expenditures are anticipated to be within the constraints of available cash to be provided by operating activities and the Company's existing Credit Agreement. Since a large portion of the Company's capital expenditures are discretionary and directed toward increasing reserves and future growth, current operations are not dependent on the Company's ability to obtain funds outside of the Company's cash provided by operating activities and its current Credit Agreement. On September 16, 1997, the Company announced that it had signed a letter of intent to acquire Hickman Drilling Company a privately-owned western Oklahoma and Texas panhandle contract drilling company, for approximately 1,300,000 shares of Unit common stock and $5.0 million in cash, with the cash and applicable interest based on the Chase Prime Rate being payable over a five-year period. Included in the acquisition are nine drilling rigs, spare drilling equipment and approximately $2.0 million in working capital. Consummation of this proposed acquisition is subject to a number of conditions and requirements. The closing of this acquisition is anticipated to occur early in November 1997. 8 The Company continued to receive monthly payments on behalf of itself and other parties (collectively the "Committed Interest") from a natural gas purchaser pursuant to a settlement agreement, as amended (the "Settlement Agreement"). As a result of the Settlement Agreement, the September 30, 1997 prepayment balance of $1.9 million paid by the purchaser for natural gas not taken (the "Prepayment Balance") is subject to recoupment in volumes of natural gas through a period ending on the earlier of recoupment or December 31, 1997 (the "Recoupment Period"). During 1997, the purchaser is obligated to make monthly payments on behalf of the Committed Interest based on their share of the natural gas deliverability of the wells subject to the Settlement Agreement, up to a maximum of $156,000 or a minimum of $80,000 per month. The monthly payments will end at the end of 1997. If natural gas is taken during a month, the value of such natural gas is credited toward the monthly amount the purchaser is required to pay. In the event the purchaser takes volumes of natural gas valued in excess of its monthly payment obligations, the value taken in excess is applied to reduce any then outstanding Prepayment Balance. At the end of the Recoupment Period, the Settlement Agreement and the natural gas purchase contracts which are subject to the Settlement Agreement will terminate. If the Prepayment Balance is not fully recouped in natural gas by December 31, 1997 then the unrecouped portion is subject to cash repayment, limited to a maximum of $3 million, payable in equal annual installments over a five year period with the first payment due June 1, 1998. The gas purchaser reduced its takes in June 1997 and elected not to take natural gas under the settlement agreement during the months of July through October 1997. The purchaser has elected to start taking natural gas under the Settlement Contract in November 1997. The price per Mcf under the Settlement Agreement is substantially higher than current spot market prices. The impact of the higher price received under the Settlement Agreement increased pre-tax income approximately $414,000 and $360,000 in the first nine months of 1997 and 1996, respectively. The average oil price of $17.52 received by the Company in the third quarter of 1997 was $3.67 per barrel lower than the average oil price received in the third quarter of 1996 while the average spot market natural gas price of $2.11 was $.11 per Mcf higher than the average spot market natural gas prices received in the same quarter of 1996. Oil prices within the industry remain largely dependent upon world market developments for crude oil. Prices for natural gas are influenced by weather conditions and supply imbalances, particularly in the domestic market, and by world wide oil price levels. Since natural gas comprises approximately 82 percent of the Company's reserves, large drops in spot market natural gas prices have a significant adverse effect on the value of the Company's reserves . Such declines could cause the Company to reduce the carrying value of its oil and natural gas properties and also adversely effect the Company's cash flow due to reduced oil and natural gas revenues and if continued over an extended period would adversely impact demand for the Company's contract drilling rigs. Declines in natural gas and oil prices could also adversely effect the semi-annual borrowing base determination under the Company's current Credit Agreement since this determination is calculated on the value of the Company's oil and natural gas reserves. The Company's ability to utilize its full complement of drilling rigs is restricted due to the lack of qualified labor and certain supporting equipment not only within the Company but in the industry as a whole. The Company's ability to utilize its drilling rigs at any given time is dependent on a number of factors, including but not limited to, the price of both oil and natural gas, the availability of labor and the Company's ability to supply the type of equipment required. The Company's management expects that these factors will continue to influence the Company's rig utilization throughout 1997 and into 1998. 9 In the third quarter of 1994, the Company's Board of Directors authorized the Company to purchase up to 1,000,000 shares of the Company's outstanding common stock on the open market. Since that time, 125,100 shares have been repurchased at prices ranging from $2.50 to $8.275 per share. During the first quarter of 1997 and 1996, 23,892 and 44,686 of the purchased shares, respectively, were used as the Company's matching contribution to its 401(K) Employee Thrift Plan. At September 30, 1997 9,863 treasury shares were held by the Company. SAFE HARBOR STATEMENT - --------------------- With the exception of historical information many of the matters discussed in this report are forward looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties and actual results could differ materially from those discussed. Generally, these statements relate to projections involving the anticipated revenues to be received from the Company's oil and natural gas production, the utilization rate of its drilling rigs, growth of its oil and natural gas reserves and well performance and the Company's anticipated bank debt. As with any forward looking statement, these statements are subject to a number of factors that may tend to influence the accuracy of the statements and the projections upon which the statements are based. All phases of the Company's operations are subject to a number of influences outside the control of the Company, any one of which, or a combination of which, could materially affect the results of the Company's operations. A more thorough discussion of some of these factors and their possible impact on the Company is provided in the Company's Annual Report on Form 10-K for the year ended December 31, 1996 filed with the Securities and Exchange Commission. RESULTS OF OPERATIONS - --------------------- Third Quarter 1997 versus Third Quarter 1996 - ---------------------------------------------- The Company reported net income of $2,121,000 in the third quarter of 1997 as compared to net income of $1,899,000 for the third quarter of 1996. Increases in contract drilling dayrates and drilling rig utilization were partially offset by increases in the Company's depreciation depletion and amortization of oil and natural gas properties combined with decreases in production of oil and prices received for oil between the comparative quarters. Oil and natural gas revenues decreased by less than 1 percent in the third quarter of 1997 as compared to the third quarter of 1996. Natural gas production increased 4 percent and oil production decreased 10 percent between the two quarters while average natural gas prices received by the Company increase 5 percent and oil prices received decreased 17 percent. Oil production declines were due primarily from the Company's focus on drilling natural gas wells during the first nine months of 1997 and slow growth in natural gas production resulted primarily from the Company's development drilling program being adversely affected by the unavailability of service equipment to drill and complete wells during the first six months of 1997. Since the purchaser, under the Settlement Agreement which provides for prices higher than current spot market prices, elected to not take natural gas production from wells covered by the Settlement Agreement in both the respective third quarters, the increase in natural gas prices resulted from a rise in the average spot market price received by the Company, 10 Oil and natural gas operating margins (revenues less operating costs) decreased from 68 percent to 66 percent between the comparative quarters. Total operating costs increased 6 percent. Depreciation, depletion and amortization ("DD&A") increased 20 percent as the Company's average DD&A rate for the third quarter of 1997 was $4.63 compared with $3.90 in the third quarter of 1996. Contract drilling revenues increased 61 percent for the comparative quarters due to increases in both rig utilization and dayrates. Rig utilization averaged 20.1 rigs in the third quarter of 1997 and averaged 14.5 rigs in the third quarter of 1996. Contract drilling operating margins (revenues less operating costs) were 26 percent in the third quarter of 1997 as compared to 19 percent in the third quarter of 1996. General and administrative expense increased 17 percent in the third quarter of 1997 when compared with the third quarter of 1996 as employee benefit costs, and certain outside service costs increased. Interest expense decreased 13 percent as the average long-term bank debt outstanding decreased 5 percent between the comparative quarters. The average interest rate incurred by the Company dropped from 8.0 to 7.2 percent. Nine Months 1997 versus Nine Months 1996 - ------------------------------------------------- Net income for the first nine months of 1997 was $7,427,000 as compared to $4,707,000 for the first nine months of 1996. Higher natural gas prices in the first and third quarters of 1997 along with increased natural gas production, contract drilling dayrates and drilling rig utilization throughout the nine month period all contributed to the increase in net income between the periods. Oil and natural gas revenues increased 9 percent in the first nine months of 1997 as compared to the first nine months of 1996. Natural gas production increased 5 percent while oil production decreased 15 percent between the comparative periods. Average natural gas prices received by the Company increased 13 percent during the first nine months while average oil prices received by the Company decreased less than 1 percent during the first nine months. The increase in natural gas prices was caused by a $.28 climb in average spot market prices and by an increase in production from wells covered by the Settlement Agreement, which provides for prices higher than current spot market prices, as discussed above. The impact of the higher price received under the Settlement Agreement increased pre-tax income by approximately $414,000 and $360,000 in the first nine months of 1997 and 1996, respectively. Oil and natural gas operating margins (revenues less operating costs) improved from 67 percent in the first nine months of 1996 to 69 percent in the first nine months of 1997. Total operating costs increased less than 1 percent. Depreciation, depletion and amortization ("DD&A") increased 17 percent, primarily from an increase in the Company's average DD&A rate from $3.81 in the first nine months of 1996 to $4.44 for the first nine months of 1997. Contract drilling revenues increased 64 percent for the comparative nine month periods as rig utilization increased from an average of 14.1 rigs operating in the first nine months of 1996 to 19.6 rigs in the first nine months of 1997. Contract drilling operating margins (revenue less operating costs) were 21 percent in the first nine months of 1997 as compared to 14 percent in the first nine months of 1996. 11 General and administrative expense increased 11 percent during the comparative nine month periods as employee benefit costs, certain insurance expenses and outside service costs increased. Interest expense decreased 17 percent due to a 11 percent decrease in the average long-term bank debt outstanding in the first nine months of 1997 compared to the first nine months of 1996. The average interest rate incurred by the Company also dropped from 7.8 to 7.2 percent. PART II. OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- Not applicable Item 2. Changes in Securities - ------------------------------ Not applicable Item 3. Defaults Upon Senior Securities - ---------------------------------------- Not applicable Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- Not applicable Item 5. Other Information - -------------------------- Not applicable Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits: 15 Letter re:Unaudited Interim Financial Information 10.2.32 Unit Corporation Separation Benefit Plan for Senior Management 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended September 30, 1997. 12 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. UNIT CORPORATION Date: November 5, 1997 By: /s/ John G. Nikkel -------------------------- ------------------------- JOHN G. NIKKEL President, Chief Operating Officer and Director Date: November 5, 1997 By: /s/ Larry D. Pinkston -------------------------- ------------------------- LARRY D. PINKSTON Vice President, Chief Financial Officer and Treasurer 13 EX-10 2 UNIT CORPORATION SEPARATION BENEFIT PLAN FOR SENIOR MANAGEMENT 1 UNIT CORPORATION SEPARATION BENEFIT PLAN INDEX Introduction . . . . . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE ONE Definitions . . . . . . . . . . . . . . . . . . . . . . . .1 1.1 "Administrative Committee" . . . . . . . . . . . . . .1 1.2 "Base Salary". . . . . . . . . . . . . . . . . . . . .1 1.3 "Beneficiary". . . . . . . . . . . . . . . . . . . . .1 1.4 "Board of Directors" . . . . . . . . . . . . . . . . .1 1.5 "Bonus". . . . . . . . . . . . . . . . . . . . . . . .1 1.6 "Change in Control". . . . . . . . . . . . . . . . . .2 1.7 "Code" . . . . . . . . . . . . . . . . . . . . . . . .3 1.8 "Company". . . . . . . . . . . . . . . . . . . . . . .3 1.9 "Comparable Position". . . . . . . . . . . . . . . . .3 1.10 "Completed Year of Service". . . . . . . . . . . . . .3 1.11 "Discharge for Cause". . . . . . . . . . . . . . . . .3 1.12 "Employing Company". . . . . . . . . . . . . . . . . .4 1.13 "ERISA". . . . . . . . . . . . . . . . . . . . . . . .4 1.14 "Participant". . . . . . . . . . . . . . . . . . . . .4 1.15 "Plan" . . . . . . . . . . . . . . . . . . . . . . . .4 1.16 "Separation Benefit" . . . . . . . . . . . . . . . . .4 1.17 "Separation Period". . . . . . . . . . . . . . . . . .4 1.18 "Termination of Employment". . . . . . . . . . . . . .4 1.19 "Years of Service" . . . . . . . . . . . . . . . . . .5 ARTICLE TWO Benefits. . . . . . . . . . . . . . . . . . . . . . . . . .5 2.1 Participants . . . . . . . . . . . . . . . . . . . . .5 2.2 Separation Benefit . . . . . . . . . . . . . . . . . .5 2.3 Separation Benefit Amount. . . . . . . . . . . . . . .5 2.4 Separation Benefit Limitation. . . . . . . . . . . . .7 2.5 Withholding Tax. . . . . . . . . . . . . . . . . . . .7 2.6 Reemployment of a Participant . . . . . . . . . . . .8 2.7 Integration with Disability Benefits . . . . . . . . .8 2.8 Plan Benefit Offset. . . . . . . . . . . . . . . . . .8 2.9 Recoupment . . . . . . . . . . . . . . . . . . . . . .8 2.10 Completion of Twenty Years of Service. . . . . . . . .9 2.11 Change in Control. . . . . . . . . . . . . . . . . . .9 2 ARTICLE THREE Method of Payment . . . . . . . . . . . . . . . . . . . . .9 3.1 Separation Benefit Payment . . . . . . . . . . . . . .9 3.2 Forfeiture of Separation Benefit Payments By Competition . . . . . . . . . . . . . . . . . . .9 3.3 Death Subsequent to Termination of Employment. . . . 10 ARTICLE FOUR Waiver and Release of Claims. . . . . . . . . . . . . . . 10 ARTICLE FIVE Funding . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE SIX Administration. . . . . . . . . . . . . . . . . . . . . . 11 6.1 Named Fiduciary. . . . . . . . . . . . . . . . . . . 11 6.2 Fiduciary Responsibilities . . . . . . . . . . . . . 11 6.3 Specific Fiduciary Responsibilities. . . . . . . . . 11 6.4 Allocations and Delegations of Responsibility. . . . 12 6.5 Advisors . . . . . . . . . . . . . . . . . . . . . . 12 6.6 Plan Determination . . . . . . . . . . . . . . . . . 12 6.7 Claims Review Procedure. . . . . . . . . . . . . . . 13 6.8 Modification and Termination . . . . . . . . . . . . 14 6.9 Indemnification. . . . . . . . . . . . . . . . . . . 14 6.10 Successful Defense . . . . . . . . . . . . . . . . . 15 6.11 Unsuccessful Defense . . . . . . . . . . . . . . . . 15 6.12 Advance Payments . . . . . . . . . . . . . . . . . . 16 6.13 Repayment of Advance Payments. . . . . . . . . . . . 16 6.14 Right of Indemnification . . . . . . . . . . . . . . 16 ARTICLE SEVEN Effective Date and Plan Year. . . . . . . . . . . . . . . 16 ARTICLE EIGHT Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 17 8.1 Assignment . . . . . . . . . . . . . . . . . . . . . 17 8.2 Governing Law. . . . . . . . . . . . . . . . . . . . 17 8.3 Employing Company Records. . . . . . . . . . . . . . 17 8.4 Employment Non-Contractual . . . . . . . . . . . . . 17 8.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 17 8.6 Binding Effect . . . . . . . . . . . . . . . . . . . 18 8.7 Entire Agreement . . . . . . . . . . . . . . . . . . 18 3 UNIT CORPORATION SEPARATION BENEFIT PLAN FOR SENIOR MANAGEMENT Introduction The purpose of The Unit Corporation Separation Benefit Plan for Senior Management is to provide certain officers and key executives of Unit Corporation or its subsidiaries with appropriate assurances of continued income and other benefits for a reasonable period of time in the event that the individual's employment ceases under the circumstances described herein. The Administrative Committee shall, in its absolute discretion select the individuals to be covered by this Plan from time to time. The Administrative Committee may notify each selected individual of his or her selection and provide him or her with a copy of this Plan. Participation in the Plan shall not in any respect be deemed to grant the Participant either a right to continued participation in the Plan or a right to continued employment and such employment and participation remains terminable at will by either the Employing Company or the Participant at any time for any reason or for no reason. ARTICLE ONE Definitions 1.1 "Administrative Committee" means the Compensation Committee established and appointed by the Board of Directors. 1.2 "Base Salary" means the regular basic cash remuneration before deductions for taxes and other items withheld, and without regard to any salary reduction pursuant to any plans maintained by an Employing Company under Section 401(k) or 125 of the Code, payable to a Participant for services rendered to an Employing Company, but not including pay for Bonuses, incentive compensation, special pay, awards or commissions. 1.3 "Beneficiary" means the person designated by a the Participant in a written instrument filed with the Administrative Committee to receive benefits under this Plan. 1.4 "Board of Directors" means the board of directors of the Company. 1.5 "Bonus" means any annual incentive compensation paid to a Participant over and above Base Salary earned and paid in cash or otherwise. 1 1.6 "Change in Control" of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied: (i) On the close of business on the tenth day following the time the Company learns of the acquisition by any individual entity or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 15% or more of either (i) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of Directors (the "Outstanding Company Voting Securities"); excluding, however, the following: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company); (B) any acquisition by the Company; (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; and (D) any acquisition by any corporation pursuant to a transaction with complies with clauses (i), (ii) and (iii) of subsection (iii) of this definition; (ii) individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a Director of the Company subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the Directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a Director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall not be deemed a member of the Incumbent Board; (iii) approval by the stockholders of the company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction"); excluding, however, a Corporate Transaction pursuant to which (i) all or substantially all of the individuals or entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 70% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of Directors, as the case 2 may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than: the Company; the corporation resulting from such Corporate Transaction; and any Person which beneficially owned, immediately prior to such Corporate Transaction, directly or indirectly, 25% or more of the Outstanding Company Common Stock or the Outstanding Voting Securities, as the case may be) will beneficially own, directly or indirectly, 25% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of Directors and (iii) individuals who were members of the Incumbent Board will constitute a majority of the members of the Board of Directors of the corporation resulting from such Corporate Transaction; or (iv) approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company. 1.7 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 1.8 "Company" means Unit Corporation, the sponsor of this Plan. 1.9 "Comparable Position" means a job with an Employing Company or successor company at the same or higher Base Salary as a Participant's current job and at a work location within reasonable commuting distance from a Participant's home, as determined by such Participant's Employing Company. 1.10 "Completed Year of Service" means the period of time beginning with a Participant's date of hire or the anniversary of such date of hire and ending twelve months thereafter. 1.11 "Discharge for Cause" means termination of a Participant's employment by the Employing Company due to: (i) the willful failure of the Participant to perform the Participant's prescribed duties to the Employing Company (other than any such failure resulting from the Participant's incapacity due to physical or mental illness); or (ii) the willful commission by the Participant of a wrongful act that caused or was reasonably likely to cause damage to the Employing Company; or 3 (iii) an act of gross negligence, fraud, unfair competition, dishonesty or misrepresentation in the performance of the Participant duties on behalf of the Employing Company; or (iv) the conviction of or the entry of a plea of nolo contendere by the Participant to any felony or the conviction of or the entry of a plea of nolo contendere to any offense involving dishonesty, breach of trust or moral turpitude; or (v) a breach of the Participant's fiduciary duty involving personal profit; or (vi) similar actions. 1.12 "Employing Company" with respect to a Participant, shall mean either the Company or, if applicable, the subsidiary of the Company which employs the Participant. 1.13 "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended, and all regulations and rulings issued thereunder by governmental administrative bodies. 1.14 "Participant" means an individual who is designated as such pursuant to section 2.1. 1.15 "Plan" means the Unit Corporation Separation Benefit Plan for Senior Management, as set forth herein and as hereafter amended from time to time. 1.16 "Separation Benefit" means the benefit provided for under this Plan as determined under Article 2. 1.17 "Separation Period" means the period of time over which a Participant receives Separation Benefits under the Plan in semimonthly or other installment payments. 1.18 "Termination of Employment" means a Participant's separation from the service of an Employing Company determined by the Employing Company, provided that a Termination of Employment does not include any separation from service resulting from: (i) Discharge for Cause, (ii) court decree or government action or recommendation having an effect on an Employing Company operations or manpower involving rationing or price control or any other similar type cause beyond the control of an Employing Company, (iii) an offer to the Participant of a position with an Employing Company or affiliate, 4 (iv) termination pursuant to which a Participant accepts any benefits under an incentive retirement plan or other severance or separation plan, or (v) termination of a Participant who has a written employment contract which contains severance provisions. Temporary work cessations due to strikes, lockouts or similar reasons shall not be considered a Termination of Employment. An Participant's separation from service in connection with the divestiture of any business of an Employing Company shall not constitute a Termination of Employment if the Participant is offered a Comparable Position by the purchaser or successor of such business, an affiliate thereof, or an affiliate of an Employing Company. A separation from service by an Participant who is offered a Comparable Position arranged for or secured by an Employing Company does not constitute a Termination of Employment. A Termination or Employment shall be effective on the date specified by the Employing Company (the "Termination Date"). 1.19 "Years of Service" means the sum of the number of continuous Completed Years of Service as an employee of an Employing Company during the Participant's period of employment beginning with the Participant's most recent hire date and ending with the Participant's most recent termination date. ARTICLE TWO Benefits 2.1 Participants Each individuals named on Schedule I hereto shall be a Participant in the Plan. Schedule I may be amended by the Administrative Committee from time to time to add individuals as a Participant. 2.2 Separation Benefit A Separation Benefit shall be provided for a Participant under the provisions of this Article 3. 2.3 Separation Benefit Amount The Separation Benefit payable to a Participant under the Plan shall be based, in part, on his/her Years of Service with the Company, or Employing Company. The formula for determining a Participant's Separation Benefit payment shall be calculated by dividing the Participant's annual Base 5 Salary in effect immediately prior to the date of Termination of Employment by 52 to calculate the weekly separation benefit (the "Weekly Separation Benefit"). The amount of the Separation Benefit payable to the Participant shall then be determined in accordance with the following applicable provision: 2.3.1 Involuntary separation - In the event the Termination of Employment is the result of an Employing Company terminating the employment of the Participant, the Separation Benefit shall be determined according to the following schedule: Involuntary Separation Schedule of Separation Benefits Number of Weekly Number of Weekly Years of Separation Benefit Years of Separation Benefit Service Payments: Service Payments: -------- ------------------ -------- ------------------ 1 4 14 56 2 8 15 60 3 12 16 64 4 16 17 68 5 20 18 72 6 24 19 76 7 28 20 80 8 32 21 84 9 36 22 88 10 40 23 92 11 44 24 96 12 48 25 100 13 52 26 or more 104 The Administrative Committee reserves the right, in its sole and absolute discretion and on a case by case basis, to increase the number of Weekly Separation Benefit Payments a Participant may otherwise be entitled to receive under this Section 2.3.1. 6 2.3.2 Voluntary separation - In the event the Termination of Employment is the result of the Participant's own action (such as by way of example and not limitation, quitting, resignation or retirement) the Separation Benefit shall be determined according to the following Schedule: Voluntary Separation Schedule of Separation Benefits Number of Weekly Years of Separation Benefit Service Payments -------- ------------------ 1-19 0 20 80 21 84 22 88 23 92 24 96 25 100 26 or more 104 Under certain exceptional circumstances the Administrative Committee may, in its sole and absolute discretion, choose to treat a voluntary separation as an involuntary separation and allow a Participant to receive Separation Benefits in accordance with the schedule set forth in section 2.3.1. 2.4 Separation Benefit Limitation Notwithstanding anything in the Plan to the contrary, the Separation Benefit payable to any Participant under this Plan shall never exceed the lesser of (i) 104 Weekly Separation Benefit payments; or (ii) the amount permitted under ERISA to maintain this Plan as a welfare benefit plan. The benefits payable under this Plan shall be inclusive of and offset by any other severance or termination payments made by an Employing Company, including, but not limited to, any amounts paid pursuant to federal, state, local or foreign government worker notification (e.g., Worker Adjustment and Retraining Notification Act) or office closing requirements. 2.5 Withholding Tax The Employing Company shall deduct from the amount of any Separation Benefits payable under the Plan, any amount required to be withheld by the Employing Company by reason of any law or regulation, for the payment of taxes or otherwise to any federal, state, local or foreign government. In 7 determining the amount of any applicable tax, the Employing Company shall be entitled to rely on the number of personal exemptions on the official form(s) filed by the Participant with the Employing Company for purposes of income tax withholding on regular wages. 2.6 Reemployment of a Participant Entitlement to the unpaid balance of any Separation Benefit amount due a Participant under this Plan shall be revoked immediately upon reemployment of the person as an employee of an Employing Company. Such unpaid balance shall not be payable in any future period. However, if the person's re-employment is subsequently terminated and he or she then becomes entitled to a Separation Benefit under this Plan, Years of Service for the period of re-employment shall be added to that portion of his or her prior service represented by the unpaid balance or the revoked entitlement for the prior Separation Benefit. 2.7 Integration with Disability Benefits The Separation Benefit payable to a Participant with respect to any Separation Period shall be reduced (but not below zero) by the amount of any disability benefit payable from any disability plan or program sponsored or contributed to by an employing Company. The amount of any such reduction shall not be paid to the Participant in any future period. 2.8 Plan Benefit Offset The amount of any severance or separation type payment that an Employing Company is or was obligated to pay to a Participant under any law, decree, court award, contract, program or other arrangement because of the Participant's separation from service from an Employing Company shall reduce the amount of Separation Benefit otherwise payable under this Plan. 2.9 Recoupment The Company may deduct from the Separation Benefit any amount owing to an Employing Company from (a) the Participant, or (b) the executor or administrator of the Participant's estate. 8 2.10 Completion of Twenty Years of Service Any Participant who shall complete 20 Years of Service prior to the termination of this Plan shall be vested in his/her Separation Benefit notwithstanding the subsequent termination of this Plan prior to such Participant's Termination of Employment. Any Separation Benefit deemed to have vested pursuant to this section shall be payable upon such Participant's Termination of Employment with the Employing Company and shall be paid in accordance with the greater of (1) the Plan provisions in effect immediately prior to the termination of this Plan, and (2) the Plan provisions in effect on the date the Participant completed 20 Years of Service. 2.11 Change in Control Unless otherwise provided in writing by the Board of Directors prior to a Change in Control of the Company, all Participant shall be vested in his/her Separation Benefit as of the date of the Change in Control based on such Participant's then Years of Service as determined by reference to the schedule set forth in section 2.3.1 of this Plan. Any Separation Benefit deemed to have vested pursuant to this section shall be payable upon the Participant's Termination of Employment with the Employing Company and shall be paid in accordance with the Plan provisions in effect immediately prior to the Change in Control. ARTICLE THREE Method of Payment 3.1 Separation Benefit Payment Separation Benefit payments shall, unless otherwise determined by the Committee, be paid in the same manner as wages were paid to the Participant. 3.2 Forfeiture of Separation Benefit Payments By Competition Any Participant who receives Separation Benefits under section 2.3.2 of this Plan agrees that, in consideration of the benefits provided herein, the Participant will not without the consent of the Company enter into competition with the Company or any of its subsidiaries. For purposes of this paragraph, the Participant shall be deemed to be in competition if the Participant directly or indirectly, whether as consultant, agent, officer, director, employee or otherwise, enters into an association with another business enterprise which then is one of the competitors of the Company or its subsidiaries respecting one or more of the their business activities. The parties agree that one of the essential considerations for benefits provided the Participant hereunder is to protect and preserve the good will of the Company and its subsidiaries and their respective enterprises, and 9 that said good will would be substantially diminished in value if the Participant were to enter into competition with the Company and its subsidiaries during the Separation Period. In the event the Participant is deemed to be in competition contrary to the provisions of this section, thereupon the Participant shall forfeit all rights to any further payments of benefits under this Plan and shall be obligated to repay the Employing Company all benefit payments previously received under this Plan. In the event of a Change in Control, the Participant's obligations under this section shall expire and be canceled, and the Participant shall be entitled to the benefits provided under this Plan in accordance with the terms of this Plan, notwithstanding whether the Participant thereafter engages in competition described in this section. 3.3 Death Subsequent to Termination of Employment If the death of a Participant occurs subsequent to the date of Termination of Employment and before receipt of the full Separation Benefit to which he or she was entitled, the computed lump sum value of the unpaid balance of the Separation Benefit amount shall be paid to such Participant's Beneficiary. If there is no designated living Beneficiary, the computed lump sum value shall be paid to the executor or administrator of the Participant's estate. ARTICLE FOUR Waiver and Release of Claims It is a condition of this Plan that no Separation Benefit shall be paid to or for any Participant except upon due execution and delivery to the Employing Company by that Participant of a Separation Agreement, in substantially the form attached to this Plan as Attachment A (except as may be modified from time to time), by which the Participant waives and releases the Company, its subsidiaries and their officers, directors, agents, employees, and affiliates from all claims arising or alleged to arise out of his or her employment or the termination of employment. Said waiver and release as provided in the Separation Agreement being given in exchange for and in consideration of payment of the Separation Benefit, to which the Participant would not otherwise be entitled. In connection therewith, the following procedures shall be followed (except as modified from time to time): the Participant shall be advised in writing, by receiving the written text of the Separation Agreement so stating, to consult a lawyer before signing the Separation Agreement; the Participant shall be given twenty-one days to consider the Separation Agreement before signing; after signing, the Participant shall have seven days in which to revoke the Separation Agreement; and the Separation Agreement shall not take effect until that seven day period shall have passed. 10 ARTICLE FIVE Funding This Plan is an unfunded employee welfare benefit plan under ERISA established by the Company. Benefits payable to Participants shall be paid out of the general assets of the Employing Company. The Employing Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Separation Benefits under the Plan. ARTICLE SIX Administration 6.1 Named Fiduciary This Plan shall be administered by the Company acting through the Administrative Committee or such other person as may be designated by the Company from time to time. The Administrative Committee shall be the "Administrator" of the Plan and shall be, in its capacity as Administrator, a "Named Fiduciary," as such terms are defined or used in ERISA. 6.2 Fiduciary Responsibilities The named fiduciary shall fulfill the duties and requirements of such a fiduciary under ERISA and is the Plan's agent for service of legal process. The named fiduciary may designate other persons to carry out such fiduciary responsibilities and may cancel such a designation. A person may serve in more than one fiduciary or administrative capacity with respect to this Plan. The named fiduciary shall periodically review the performance of the fiduciary responsibilities by each designated person. 6.3 Specific Fiduciary Responsibilities The Administrative Committee shall be responsible for the general administration and interpretation of the Plan and the proper execution of its provisions and shall have full discretion to carry out its duties. In addition to any powers of the Administrative Committee specified elsewhere in this Plan, the Administrative Committee shall have all discretionary powers necessary to discharge its duties under this Plan, including, but not limited to, the following discretionary powers and duties: 6.3.1 To interpret or construe the terms of the Plan, including eligibility to participate, and resolve ambiguities, inconsistencies and omissions; 6.3.2 To make and enforce such rules and regulations and prescribe the use of such forms as it deems necessary or appropriate for the efficient administration of the Plan; and 11 6.3.3 To decide all questions concerning the Plan and the determination of who shall be a Participate. 6.4 Allocations and Delegations of Responsibility The Board of Directors and the Administrative Committee respectively shall have the authority to delegate, from time to time, all or any part of its responsibilities under this Plan to such person or persons as it may deem advisable and in the same manner to revoke any such delegation of responsibility. Any action of the delegate in the exercise of such delegated responsibilities shall have the same force and effect for all purposes hereunder as if such action had been taken by the Board of Directors or the Administrative Committee. The Company, the Board of Directors and the Administrative Committee shall not be liable for any acts or omissions of any such delegate. The delegate shall report periodically to the Board of Directors or the Administrative Committee, as applicable, concerning the discharge of the delegated responsibilities. The Board of Directors and the Administrative Committee respectively shall have the authority to allocate, from time to time, all or any part of its responsibilities under this Plan to one or more of its members as it may deem advisable, and in the same manner to remove such allocation of responsibilities. Any action of the member to whom responsibilities are allocated in the exercise of such allocated responsibilities shall have the same force and effect for all purposes hereunder as if such action had been taken by the Board of Directors or the Administrative Committee. The Company, the Board of Directors and the Administrative Committee shall not be liable for any acts or omissions of such member. The member to whom responsibilities have been allocated shall report periodically to the Board of Directors or the Administrative Committee, as applicable, concerning the discharge of the allocated responsibilities. 6.5 Advisors The named fiduciary or any person designated by the named fiduciary to carry out fiduciary responsibilities may employ one or more persons to render advice with respect to any responsibility imposed by this Plan. 6.6 Plan Determination The determination of the Administrative Committee as to any question involving the general administration and interpretation or construction of the Plan shall be within its sole discretion and shall be final, conclusive and binding on all persons, except as otherwise provided herein or by law. 12 6.7 Claims Review Procedure Consistent with the requirements of ERISA and the regulations thereunder as promulgated by the Secretary of Labor from time to time, the following claims review procedure shall be followed with respect to the denial of Separation Benefits to any Participant: 6.7.1 Within thirty (30) days from the date of a Participant's Termination of Employment, the Employing Company shall furnish such Participant with an agreement and release offering Separation Benefits under the Plan or notice of such Participant's ineligibility for or denial of Separation Benefits, either in whole or in part. Such notice from the Employing Company will be in writing and sent to the Participant's or the legal representatives of his estate stating the reasons for such ineligibility or denial and, if applicable, a description of additional information that might cause a reconsideration by the Administrative Committee or its delegate of the decision and an explanation for the Plan's claims review procedure. In the event such notice is not furnished within thirty (30) days, any claim for Separation Benefits shall be deemed denied and the Participant shall be permitted to proceed to section 6.7.2 below. 6.7.2 Each Participant may submit a claim for benefits to the Administrative Committee (or to such other person as may be designated by the Administrative Committee) in writing in such form as is permitted by the Administrative Committee. A Participant shall have no right to seek review of a denial of benefits, or to bring any action in any court to enforce a claim for benefits prior to his filing a claim for benefits and exhausting his or her rights to review under this section. When claim for benefits has been filed properly, such claim for benefits shall be evaluated and the Participant shall be notified of the approval or the denial within ninety (90) days after the receipt of such claim unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the Participant prior to the termination of the initial ninety (90) day period which shall specify the special circumstances requiring an extension and the date by which a final decision shall be reached (which date shall not be later than one hundred and eighty (180) days after the date on which the claim was filed). The Participant shall be given a written notice in which the Participant shall be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied by the Administrative Committee, in whole or in part, the Participant shall be given written notice which shall contain (1) the specific reasons for the denial, (2) references to pertinent Plan provisions upon which the denial is based, (3) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, and (4) the Participant's rights to seek review of the denial. 13 6.7.3 If a claim is denied, in whole or in part, the Participant shall have the right to request that the Administrative Committee review the denial, provided that the Participant files a written request for review with the Administrative Committee within sixty (60) days after the date on which the Participant received written notification of the denial. The Participant (or his duly authorized representative) may review pertinent documents and submit issues and comments in writing to the Administrative Committee. Within sixty (60) days after a request for review is received, the review shall be made and the Participant shall be advised in writing of the decision on review, unless special circumstances require an extension of time for processing the review, in which case the Participant shall be given a written notification within such initial sixty (60) day period specifying the reasons for the extension and when such review shall be completed (provided that such review shall be completed within one hundred and twenty (120) days after the date on which the request for review was filed). The decision on review shall be forwarded to the Participant in writing and shall include specific reasons for the decision and references to Plan provisions upon which the decision is based. A decision on review shall be final and binding on all persons. 6.7.4 If a Participant fails to file a request for review in accordance with the procedures herein outlined, such Participant shall have no rights to review and shall have no right to bring action in any court and the denial of the claim shall become final and binding on all persons for all purposes. 6.7.5 The determination whether to grant or to deny any claims for benefits under this Plan shall be made by the Administrative Committee, in its sole and absolute discretion, and all such determinations shall be conclusive and binding on all persons to the maximum extent permitted by law. 6.8 Modification and Termination The Company by action of its Board of Directors may at any time, without notice or consent of any person, terminate or modify this Plan in whole or in part, and such termination or modification shall apply to existing as well as to future Participants, but such actions shall not affect any Separation Benefit that has become payable to an Participant, and such benefit shall continue to be paid in accordance with the Plan provisions in effect on the date of the Termination of Employment. 6.9 Indemnification To the extent permitted by law, the Company shall indemnify and hold harmless the members of the Board of Directors, the Administrative Committee members, and any employee to whom any fiduciary responsibility with respect to this Plan is allocated or delegated to, and against any and 14 all liabilities, costs and expenses incurred by any such person as a result of any act, or omission to act, in connection with the performance of his/her duties, responsibilities and obligations under this Plan, ERISA and other applicable law, other than such liabilities, costs and expenses as may result from the gross negligence or willful misconduct of any such person. The foregoing right of indemnification shall be in addition to any other right to which any such person may be entitled as a matter of law or otherwise. The Company may obtain, pay for and keep current a policy or policies of insurance, insuring the members of the Board of Directors, the Administrative Committee members and any other employees who have any fiduciary responsibility with respect to this Plan from and against any and all liabilities, costs and expenses incurred by any such person as a result of any act, or omission, in connection with the performance of his/her duties, responsibilities and obligations under this Plan and under ERISA. 6.10 Successful Defense A person who has been wholly successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding or claim or demand of the character described in section 6.9 above shall be entitled to indemnification as authorized in such section 6.9. 6.11 Unsuccessful Defense Except as provided in section 6.10 above, any indemnification under section 6.9 above, unless ordered by a court of competent jurisdiction, shall be made by the Company only if authorized in the specific case: 6.11.1 By the Board of Directors acting by a quorum consisting of directors who are not parties to such action, proceeding, claim or demand, upon a finding that the member of the Administrative Committee has met the standard of conduct set forth in section 6.9 above; or 6.11.2 If a quorum under section 6.11.1 above is not obtainable with due diligence: 6.11.2.1 By the Board of Directors upon the opinion in writing of independent legal counsel (who may be counsel to any Employing Company) that indemnification is proper in the circumstances because the standard of conduct set forth in section 6.9 above has been met by such member of the Administrative Committee; or 6.11.2.2 By the shareholders of the Company upon a finding that the member of the Administrative Committee has met the standard of conduct set forth in such section 7.9 above. 15 6.12 Advance Payments Expenses incurred in defending a civil or criminal action or proceeding or claim or demand may be paid by the Company or Employing Company, as applicable, in advance of the final disposition of such action or proceeding, claim or demand, if authorized in the manner specified in section 6.11 above, except that, in view of the obligation of repayment set forth in section 6.13 below, there need be no finding or opinion that the required standard of conduct has been met. 6.13 Repayment of Advance Payments All expenses incurred, in defending a civil or criminal action or proceeding, claim or demand, which are advanced by the Company or Employing Company, as applicable, under section 6.12 above shall be repaid in case the person receiving such advance is ultimately found, under the procedures set forth in this Article Six, not to be entitled to the extent the expenses so advanced by the Company exceed the indemnification to which he or she is entitled. 6.14 Right of Indemnification Notwithstanding the failure of the Company or Employing Company, as applicable, to provide indemnification in the manner set forth in sections 6.11 and 6.12 above, and despite any contrary resolution of the Board of Directors or of the shareholders in the specific case, if the member of the Administrative Committee has met the standard of conduct set forth in section 6.9 above, the person made or threatened to be made a party to the action or proceeding or against whom the claim or demand has been made, shall have the legal right to indemnification from the Company or Employing Company, as applicable, as a matter of contract by virtue of this Plan, it being the intention that each such person shall have the right to enforce such right of indemnification against the Company or Employing Company, as applicable, in any court of competent jurisdiction. ARTICLE SEVEN Effective Date and Plan Year This Plan shall be effective on and after October 28, 1997. The Plan Year is the calendar year. The initial Plan Year is the period October 28, 1997 through December 31, 1997. 16 ARTICLE EIGHT Miscellaneous 8.1 Assignment A Participant's right to benefits under this Plan shall not be assigned, transferred, pledged, encumbered in any way or subject to attachment or garnishment, and any attempted assignment, transfer, pledge, encumbrance, attachment, garnishment or other disposition of such benefits shall be null and void and without effect. 8.2 Governing Law To the extent not governed by federal law, this Plan and all action taken under it shall be governed by the laws of the State of Oklahoma. 8.3 Employing Company Records The records of the Employing Company with regard to any person's Participant status, Beneficiary status, employment history, Years of Service and all other relevant matters shall be conclusive for purposes of administration of the Plan. 8.4 Employment Non-Contractual This Plan is not intended to and does not create a contract of employment, express or implied, and an Employing Company may terminate the employment of any employee with or without cause as freely and with the same effect as if this Plan did not exist. Nothing contained in the Plan shall be deemed to qualify, limit or alter in any manner the Employing Company's sole and complete authority and discretion to establish, regulate, determined or modify at all time, the terms and conditions of employment, including, but not limited to, levels of employment, hours of work, the extent of hiring and employment termination, when and where work shall be done, marketing of its products, or any other matter related to the conduct of its business or the manner in which its business is to be maintained or carried on, in the same manner and to the same extent as if this Plan were not in existence. 8.5 Taxes Neither an Employing Company nor any fiduciary of this Plan shall be liable for any taxes incurred by a Participant or Beneficiary for Separation Benefit payments made pursuant to this Plan. 17 8.6 Binding Effect This Plan shall be binding on the Company, any Employing Company and their successors and assigns, and the Participant, Participant's heirs, executors, administrators and legal representatives. As used in this Plan, the term "successor" shall include any person, firm, corporation or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or business of the Company or any Employing Company. 8.7 Entire Agreement This Plan constitutes the entire understanding between the parties hereto and may be modified only in accordance with the terms of this Plan. 18 To receive a Separation Benefit, a participant must sign the following Separation Agreement provided by the Company: SEPARATION AGREEMENT [Name of Employing Company] ("Unit") and _______________________________________ ("Participant") hereby agree as follows: Participant's employment will end on __________________________, 19___. Unit will pay to Participant a Separation Benefit of $_________________ in accordance with and subject to the terms of the Unit Corporation Separation Benefit Plan for Senior Management (the "Plan"). Participant knows that state and federal laws, including the Age Discrimination in Employment Act, prohibit employment discrimination based on age, sex, race, color, national origin, religion, handicap, disability, or veteran status, and that these laws are enforced through the United States Equal Employment Opportunity Commission ("EEOC"), United States Department of Labor, and State Human Rights Agencies. PARTICIPANT HAS BEEN ADVISED TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. PARTICIPANT HAS TWENTY-ONE DAYS AFTER RECEIVING THIS AGREEMENT TO CONSIDER WHETHER TO SIGN IT. AFTER SIGNING THIS AGREEMENT, PARTICIPANT HAS ANOTHER SEVEN DAYS IN WHICH TO REVOKE IT, AND IT DOES NOT TAKE EFFECT UNTIL THOSE SEVEN DAYS HAVE ENDED. In exchange for the Separation Benefit described above, to which Participant is not otherwise entitled, Participant forever releases and discharges Unit Corporation, and its subsidiaries, their officers, directors, agents, employees, and affiliates from all claims, liabilities, and lawsuits arising out of Participant's employment or the termination of that employment and agrees not to assert any such claim, liability, or lawsuit. This includes any claim under the Age Discrimination in Employment Act or under any other federal, state, or local statute or regulation relating to employment discrimination. It also includes any claim under any other statute or regulation or common law rule relating to Participant's employment or the termination of that employment. This Agreement does not have any effect with respect to acts or events occurring 19 after the date upon which Participant signs it. This Agreement does not limit any benefits to which Participant is entitled under any retirement plans, if any. As further consideration for the payment of the Separation Benefit described above, Participant agrees that if Participant's Separation Benefit is received pursuant to section 2.3.2 "Voluntary Separation" of the Plan, Participant will not without the consent of Unit enter into competition with Unit Corporation or any of its subsidiaries. For purposes of this paragraph, Participant shall be deemed to be in competition if Participant directly or indirectly, whether as consultant, agent, officer, director, employee or otherwise, enters into an association with another business enterprise which then is one of the competitors of Unit Corporation or any of its subsidiaries respecting one or more of Unit Corporation or any of its subsidiaries business activities. The parties agree that one of the essential considerations for benefits provided Participant hereunder is to protect and preserve the good will of Unit Corporation or any of its subsidiaries, and that said good will would be substantially diminished in value if the Participant were to enter into competition with Unit Corporation or any of its subsidiaries during the period of time over which Participant is receiving payments or benefits under this Plan. In the event Participant is deemed to be in competition contrary to the provisions hereof, thereupon Participant shall forfeit all rights to any further payments of benefits under the Plan and shall be obligated to repay Unit all benefit payments previously received under the Plan. In the event of a Change in Control (as defined in the Plan), Participant's obligations under this Paragraph shall expire and be canceled, and Participant shall be entitled to the benefits provided under the Plan in accordance with the terms of the Plan, notwithstanding whether Participant thereafter engages in competition described in this Paragraph. Participant has carefully read and fully understands all the provisions of this Agreement. This is the entire Agreement between the parties and is legally binding and enforceable. Participant has not relied upon any representation or statement, written or oral, not set forth in this Agreement. This Agreement shall be governed and interpreted under federal law and the laws of Oklahoma. Participant knowingly and voluntarily signs this Agreement. Date Delivered to Participant: [Name of Employing Company] ___________________________________ By: ______________________________ Date signed by Participant: Title: ______________________________ 20 ___________________________________ Date: ______________________________ Participant Signature: Seven-Day Revocation Period Ends: ___________________________________ ____________________________________ ___________________________________ (Print Participant's Name) 21 SCHEDULE I Dated as of October 28, 1997 Name of Participants -------------------- King P. Kirchner O. Earle Lamborn John G. Nikkel 22 EX-15 3 Exhibit 15 ---------- November 4, 1997 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 RE: Unit Corporation Registration on Form S-8 We are aware that our report dated October 27, 1997 on our review of interim financial information of Unit Corporation for the three and nine month periods ended September 30, 1997 and 1996 and included in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1997 is incorporated by reference in the Company's registration statements on Form S-8 (File No.'s 33- 19652, 33-44103, 33-49724, 33-64323 and 33-53542). Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. COOPERS & LYBRAND L. L. P. EX-27 4
5 The schedule contains summary financial information extracted from the Consolidated Condensed Financial Statements of Unit Corporation and Subsidiaries under cover of Form 10-Q for the nine months ended September 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000798949 UNIT CORPORATION 1,000 9-MOS DEC-31-1997 SEP-30-1997 994 0 14,795 0 0 20,891 321,317 188,090 154,487 15,735 0 0 0 4,839 81,317 154,487 0 65,713 0 48,344 3,418 0 2,024 11,927 4,500 7,427 0 0 0 7,427 .30 .30 Accounts Receivable is presented net in the Consolidated Condensed Balance Sheet. Inventory is presented as a portion of Other Current Assets in the Consolidated Condensed Balance Sheet.
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