UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
| Preliminary Proxy Statement | ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |||
| Definitive Proxy Statement | |||||
¨ | Definitive Additional Materials | |||||
¨ | Soliciting Material Pursuant to §240.14a-12 |
Unit Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| x | No fee required. |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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| (2) | Aggregate number of securities to which the transaction applies: |
| (3) | Per unit price or other underlying value of the transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| (4) | Proposed maximum aggregate value of the transaction: |
| (5) | Total fee paid: |
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UNIT CORPORATION
NOTICE OF THE ANNUAL MEETING OF OUR STOCKHOLDERS
AND
PROXY STATEMENT
| Meeting Date | Wednesday, May | |||
| Meeting Time | 11:00 a.m., Central Time | |||
| 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 likeit is my pleasure to invite you to attend our Annual Meeting of Stockholders to be held on Wednesday, May 3, 20062, 2007 at 11:00 a.m., Central Time. 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. There will also be time for questions.
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.proxy statement.
WhetherWe hope that you will be able to attend the Annual Meeting. However, whether or not you plan to attend the meeting in person, it is important that your shares be represented. Please vote your shares using one of the methods available to you.
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 LLCAmerican Stock Transfer & Trust Company at:
Toll Free Number: (800) 710-0929
TDD for Hearing Impaired: (800) 231-5469937-5449
Foreign Shareholders: (201) 680-6579Stockholders: (718) 921-8283
TDD Foreign Shareholders: (201) 680-6610
Web Site Address: www.melloninvestor.com/isdwww.amstock.com
AST Customer Service Representatives are also available to help you through AST’s “Live Help” Internet service weekdays from 8:00 a.m. - 5:00 p.m. Eastern Time.
I look forward to your participation and thank you for your continued support.
Dated this 30 15thday of March, 2006.2007.
Sincerely,
|
 |
John G. Nikkel
Chairman of the Board
7130 S. Lewis, Suite 1000, Tulsa, OK 74136 •· PO Box 702500, Tulsa, OK 74170
Phone: (918) 493-7700 ** Fax: (918) 493-7711 or (918) 493-7714
UNIT CORPORATION
7130 South Lewis, Suite 1000
Tulsa, Oklahoma 74136
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Time and Date | 11:00 a.m., Central Time, on Wednesday, May | |
Place | Tulsa Room on the ninth floor of the Bank of Oklahoma Tower, One Williams Center, Tulsa, Oklahoma | |
Items of Business | • elect three directors for a three-year term expiring in | |
• ratify the selection of PricewaterhouseCoopers LLP, Tulsa, Oklahoma, as our independent registered public accounting firm for our fiscal year | ||
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• transact any other business that | ||
Record Date | March | |
Voting Options | Most stockholders have four options for submitting their vote:
• via the Internet athttp://
• by phone (please see your proxy card for instructions),
• by mail, using the paper proxy card, and
• in person at the meeting. | |
Date of this Notice | March | |
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 3, 20062, 2007
This Proxy Statementproxy 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 20062007 Annual Meeting of Stockholders. Mailing of this Proxy Statementproxy statement will commence on or about March 30, 2006.15, 2007.
(i)
(ii)
Appendixes:
A – Copy of the Unit Corporation Stock and Incentive Compensation Plan
(iii)
| Q: | Why am I receiving these materials? |
| A: | The board of directors (the |
| Q: | Who can vote? |
| A: | You can vote if you were a stockholder at the close of business on the record date, March |
| Q: | What information is contained in this proxy statement? |
| A: | The information included in this proxy statement relates to the proposals to be voted on at the annual meeting, the voting process, the compensation of our directors and certain executive officers and certain other required information. |
| Q: | Who does the phrase “named executive officers” refer to in this proxy statement? |
| A: | For purposes of this proxy statement, our named executive officers are: |
Larry D. Pinkston our Chief Executive Officer and President
Mark E. Schell our Senior Vice President, General Counsel and Secretary
David T. Merrill our Chief Financial Officer and Treasurer
John Cromling the Executive Vice President of Unit Drilling Company
Bradford J. Guidry the Senior Vice President of Unit Petroleum Company.
| Q: | Can I access the proxy material on the Internet? |
| A: | The proxy material is located on the company’s web sitewww.unitcorp.com. |
| Q: | How may I obtain the company’s 10-K? |
| A: | A copy of our |
Unit Corporation
Attn: Investor Relations
7130 South Lewis, Suite 1000
Tulsa, Oklahoma 74136
(918) 493-7700
http://www.unitcorp.com
The companyWe will also furnish any exhibit to the 20052006 Form 10-K if specifically requested.
| 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 three nominees as directors for terms that expire in 2009.2010. The Board’sboard’s nominees are William B. Morgan, John G. Nikkel, Gary R. ChristopherH. Williams and Robert J. Sullivan, Jr.Larry D. Pinkston.
The ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2006.
2007.
| Q: | What are the voting requirements to elect the directors and to approve |
| A: | Proposal | Vote | Discretionary | |||
| Election of Directors | ||||||
| Ratification of Independent Accountants | ||||||
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| 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 card contains instructions for mail voting or for voting by way of telephone or the Internet. The proxies identified on the back of the proxy card will vote the shares of which you are the stockholder of record in accordance with your instructions. If you submit a proxy card without giving specific voting instructions, the proxies will vote those shares as recommended by the Board.board.
| Q: | How does the |
| A: | The |
| 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 Corporate 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: |
| 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 15 days before the meeting and do not have discretionary voting authority to vote those shares.
| Q: | What is the difference between holding shares as a stockholder of record and as a beneficial owner? |
| A: | Most |
Stockholder of Record:If your shares are registered directly in your name with the company’s transfer agent, Mellon Investor Services LLC, you are considered, with respect to those shares, thestockholder of record, and these proxy materials are being sent directly to you by the company.you. As thestockholder of record, you have the right to grant your voting proxy directly to the company or to vote in person at the meeting. The company has enclosed or sent a proxy card for you to use.
Beneficial Owner:If your shares are held in a brokerage account or by another nominee, you are considered thebeneficial ownerof shares heldin street name, and these proxy materials are being forwarded to you together with a voting instruction card. As the beneficial owner, you have the right to direct your broker, trustee or nominee how to vote and are also invited to attend the annual meeting.
Since a beneficial owner is not thestockholder of record, you may not vote these shares in person at the meeting unless you obtain a “legal proxy” from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting. Your broker, trustee or nominee
has enclosed or provided voting instructions for you to use in directing the broker, trustee or nominee how to vote your shares.
| Q: | Will broker non-votes or abstentions affect the voting results? |
| A: | In tabulating the voting result for any particular proposal, shares that constitute broker non-votes are not considered entitled to vote on that proposal. Thus, broker non-votes will not affect the outcome of any matter being voted on at the meeting, assuming that a quorum is |
| Q: | What shares are included on my |
| A: | Your proxy card represents all shares registered to your account in the same social security number and address. However, the proxy card does not include shares held for participants in the Unit Corporation Employee Thrift Plan. Instead, these participants will receive from the plan trustee separate voting instruction cards covering these shares. If voting instructions are not received from participants in that plan, the plan trustee will vote the shares. |
| Q: | What does it mean if I get more than one |
| A: | Your shares are probably registered in more than one account. You should vote each proxy card 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: | What happens if additional matters are presented at the annual meeting? |
| A: | Other than the |
Larry D. Pinkston and Mark E. Schell, will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting. If for any unforeseen reason any of our nominees is not available as a candidate for director, the persons named as proxy holders will vote your proxy for such other candidate or candidates as may be nominated by the |
| Q: | What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or to nominate individuals to serve as directors? |
| A: | You may submit proposals, including director nominations, for consideration at future stockholder meetings. |
Stockholder Proposals:For a stockholder proposal to be considered for inclusion in the company’sour proxy statement for next year’s annual meeting, the written proposal must be received by our Corporate Secretary at our principal executive offices no later than December 4, 2006.November 29, 2007. If the date of next year’s annual meeting is moved more than 30 days before or after the anniversary date of this year’s annual meeting, the deadline for inclusion of proposals in the company’sour proxy statement is instead a reasonable time before the company begins to print and mail its proxy materials. Such proposals also will need to comply with Securities and Exchange Commission (“SEC”)SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to:
Corporate Secretary
Unit Corporation
7130 South Lewis, Suite 1000
Tulsa, Oklahoma 74136
Fax: (918) 493-7711
For a stockholder proposal that is not intended to be included in the company’sour proxy statement under Rule 14a-8, the stockholder must deliver a proxy statement and form of proxy to holders of a sufficient number of shares of the companyour common stock to approve that
proposal, provide the information required by theour bylaws of the company and give timely notice to theour Corporate Secretary of the company in accordance with the bylaws of the company, which, in general, require that the notice be received by the Corporate Secretary of the company:Secretary:
Not earlier than the close of business on November 20, 2006,January 2, 2008, and
Not later than the close of business on December 20, 2006.February 1, 2008.
If the date of the stockholder meeting is moved more than 30 days before or 70 days after the anniversary of the company’sour annual meeting for the priorprevious year, then notice of a stockholder proposal that is not intended to be included in the company’s proxy statement under Rule 14a-8 must be received no earlier than the close of business 120 days before the meeting and no later than the close of business on the later of the following two dates:
90 days prior tobefore the meeting; and
10 days after public announcement of the meeting date.
Nomination of Director Candidates:You may propose director candidates for consideration by the Board’s Nominating & Governance Committee.board’s nominating and governance committee. Any such recommendations should include the nominee’s name and qualifications for Boardboard membership and should be directed to theour Corporate Secretary of the company at the address of our principal executive offices set forth above. In addition, theour bylaws of the company permit a stockholder to nominate directors for election at an annual stockholder meeting. To nominate a director, thea stockholder must deliver a proxy statement and form of proxy to holders of a sufficient number of shares of the companyour common stock to elect suchthe nominee and provide the information required by theour bylaws, of the company, including a statement by the stockholder identifying (i) the name and address of suchthe stockholder, as they appear on the company’s books, and of such beneficial owner, (ii) the class and number of shares of our capital stock of the company which are owned beneficially and of record
by suchthe stockholder and such beneficial owner, (iii) a representation that the stockholder is a holder of record of our stock of the company entitled to vote at suchthe meeting and intends to appear in person or by proxy at the meeting to propose suchthe nomination, and (iv) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (A) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the company’sour outstanding capital stock required to elect the nominee and/or (B) otherwise to solicit proxies from stockholders in support of suchthe nomination. In addition, the stockholder must give timely notice to theour Corporate Secretary of the company in accordance with theour bylaws, of the company, which, in general, require that the notice be received by the Corporate Secretary of the company within the November 20, 2006January 2, 2008 through December 20, 2006February 1, 2008 time period described above.
Copy of Bylaw Provisions:You may contact the companyour Corporate Secretary at our principal executive offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates. The company’sOur bylaws are also available on the company’sour website athttp://www.unitcorp.com.www.unitcorp.com.
| 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 |
| Q: | How can I obtain the company’s corporate governance information? |
| A: | Our Internet website is located atwww.unitcorp.com. You may also enterwww.unitcorp.com/corpgov.html for a direct link to the following information: |
Our bylaws;
Audit Committee Charter;
Compensation Committee Charter;
Nominating and Governance Committee Charter;
Corporate Governance Guidelines;
Code of Business Conduct and Ethics;
Accounting and Auditing Complaint Procedures; and
Policy and Procedures with respect to Related Person Transactions.
Our corporate governance webpage also has a link for reporting on any accounting, internal controls, or auditing matters that pertain to us.
CORPORATE GOVERNANCE AND BOARD MATTERS
General governance information
We are committed to having sound corporate governance principles. Our Corporate Governance Guidelines and Code of Business Conduct and Ethics are available athttp://www.unitcorp.com/corpgov.html and copies of these documents may also be obtained from our Corporate Secretary. These provisions are applicableapply to our employees, including our principal executive officer, principal financial officer and principal accounting officer. We intend towill post any amendments to or waivers fromto our Code of Business Conduct and Ethics (to the extent applicable to the company’sour chief executive officer, principal financial officer or principal accounting officer) on our website.
The Board has determined that Don Cook, William B. Morgan, John H. Williams, J. Michael Adcock, Gary R. ChristopherEach year, our directors and Robert J. Sullivan, Jr.executive officers are obligated to complete a director and officer questionnaire which requires disclosure of any transactions with us in which the director or executive officer, or any member of his or her immediate family, have noa direct or indirect material relationshipinterest. Our Chief Executive Officer and General Counsel are charged with the company (either directly or as a partner, shareholder or officerresolving any conflict of an organization that has a relationship with the company) and is independent within the meaninginterests not otherwise resolved under one of the company’s director independence standards, which reflect the New York Stock Exchange (“NYSE”) director independence standards, as currently in effect and as they may be changed from time to time. The Board has also determined that each of the members of its various committees has no material relationship with the company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company) and is “independent” within the meaning of the company’s director independence standards.our other policies.
Director Independence Criteriaindependence criteria
The Boardboard has defined an independent director“independent director” as a director who meets all of the following criteria:
is not an employee or member of management of the company or any of its subsidiaries;
no immediate family member is an executive officer of the company;
neither the director ornor an immediate family member receives more than $100,000 per year in compensation from the company, other than director and committee fees or deferred compensation for prior services;
is not affiliated with or employed by, and does not have an immediate family member who is affiliated with or employed by, a present or former external auditor of the company;
has no material relationship with the company (either directly or as a partner, shareholderstockholder or officer of an organization that has a relationship with the company), for this purpose material relationships can, for example, include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships;
has no other relationships with the company or its subsidiaries that would interfere in the exercise of independent judgment as a director;
company except fees received for service as a director; |
is not, and is not affiliated with a company that is, an adviser or consultant to the company or a member of the company’s senior management;
is not an executive officer or an employee, and whose immediate family member(s) is not an executive officer, of a company (A) that accounts for 2 percent or more of the company’s consolidated gross revenues, or (B) for which the company accounts for at least 2 percent or $1 million, whichever is greater, of such company’s consolidated gross revenues;
has no personal services contract(s) with the company, or a member of the company’s senior management;
is not affiliated with a not-for-profit entity that receives significant contributions from the company;
within the last five years, has not had any business relationship with the company (other than service as a director) for which the company has been required to make disclosure under Regulation S-K of the SEC; and
is not employed by a public company at which an executive officer of the company serves as a director.
Disqualifying relationshipsrelationships:
Any person who, or whose immediate family member(s), has within the priorlast five years had any of the following relationships with the company does not qualify as an independent“independent director.”
Former employees. A person who, or whose immediate family member(s) is, a former employee of the company or its subsidiaries, or who is affiliated with such an employee, cannot be an “independent director” until five years after the end of the employment or affiliation.affiliation;
Significant Customerscustomers and Vendors.vendors. A person who is an executive officer or an employee, or whose immediate family member(s) is an executive officer, of a company (A) that accounts for 2 percent or more of the company’s consolidated gross revenues, or (B) for which the company accounts for at least 2 percent or $1 million, whichever is greater, of such other company’s consolidated gross revenues, cannot be an “independent director” until five years after falling below such threshold.
member(s) is an executive officer, of a company (A) that accounts for 2 percent or more of the company’s consolidated gross revenues, or (B) for which the company accounts for at least 2 percent or $1 million, whichever is greater, of such other company’s consolidated gross revenues, cannot be an “independent director” until five years after falling below such threshold; |
Former auditor. A person who, or whose immediate family member(s), is an auditor of the company or its subsidiaries, or who is employed by a present or former auditor of the company or its subsidiaries, or who is affiliated with such auditors, cannot be an “independent director” until five years after the end of the affiliation or the auditing relationship.relationship; and
Interlocking directorships. A person who, or whose immediate family member(s), is employed by a company as to which an executive officer of the company serves as a director and member of the compensation committee for that company cannot be an “independent director” until five years after the end of employment by that company or service by the executive officer on the compensation committee of that company.
Director independence determinations
The board has determined that Don Cook, William B. Morgan, John H. Williams, J. Michael Adcock, Gary R. Christopher and Robert J. Sullivan Jr. have no material relationship with the company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the company) and is independent within the meaning of our director independence standards, which reflect the NYSE director independence standards, as currently in effect. The board has also determined that each of the members of its standing committees has no material relationship with the company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the company) and is
“independent” within the meaning of our director independence standards.
Board Structurestructure and Committee Compositioncommittee composition
As of the date of this proxy statement, our Boardboard has nine directors and the following three standing committees:
audit;
compensation; and
nominating and governance.
Our board is divided into three classes with each class consisting of three directors. Directors serve for a three year term.
The membership during the last fiscal year and the function of each of the committees are described below. Each of the board’s three standing committees operatesoperate under a written charter adopted by the Board. Allboard. The charter of theeach committee charters areis available at our website athttp://www.unitcorp.com/corpgov.html and. In
addition, copies of these charters may also be obtained from our Corporate Secretary.
During 2005,2006, the Boardboard and its committees held 11a total of 20 meetings. Our board met eight times, of which seven were regularly scheduled meetings and one was a special meeting. There were 12 committee meetings held in 2006. All directors attended 100% of all Boardthe board meetings except Mr. AdcockSullivan who missed one Board meeting and Mr. Williams who missed one Board meeting and twoattended 6 of the meetings. Each committee member attended at least 75% of his respective committee meetings. All directors are encouraged to attend our annual meeting of stockholders. All directors except one attended our last annual meeting of stockholders. In addition to its meetings, the Boardboard and its various committees may act, from time to time, by unanimous consent.
The following table identifies the membership of each of the Board’sthree standing committees (as well as the special committee formed in 2006) and the number of meetings each committee meetings held during 2005.2006. A summary of each committee’s responsibilities follows the table.
Director | Audit | Compensation | Nominating & Governance | ||||||||||||||||||
| DIRECTOR | COMMITTEE MEMBERSHIP | ||||||||||||||||||||
| Audit | Compensation | Nominating and Governance | Special | ||||||||||||||||||
Don Cook | x | * | x | x | * | x | x | ||||||||||||||
William B. Morgan | x | x | x | * | x | x | x | * | x | * | |||||||||||
John H. Williams | x | x | x | x | x | ||||||||||||||||
J. Michael Adcock | x1 | x | * | x | x | * | x | ||||||||||||||
Gary R. Christopher | x2 | x | |||||||||||||||||||
Mark E. Monroe3 | x | x | |||||||||||||||||||
Number of meetings in 2005 | 5 | 3 | 1 | ||||||||||||||||||
Robert J. Sullivan Jr. | x | ||||||||||||||||||||
Number of meetings in 2006 | 5 | 3 | 2 | 2 | |||||||||||||||||
| * |
Notes to table:
The Audit Committee:
Selects theour independent registered public accounting firm.firm;
Approves all audit engagement fees and terms.terms;
Pre-approves all audit and non-audit services to be rendered by theour independent registered public accounting firm.firm;
Reviews our annual and quarterly financial statements.statements;
Consults with our personnel and the independent registered public accounting firm to determine the adequacy of our internal accounting controls.controls;
Oversees our relationship with our independent registered public accounting firm.firm;
Oversees our internal audit functions.functions;
| - | the adequacy and effectiveness of our systems of internal controls over financial reporting and any significant changes in those controls; |
| - | our accounting practices, and disclosure controls and procedures; and |
| - | current accounting trends and developments; |
and takes suchany action with respect to these matters as may be deemed appropriate.that it deems appropriate;
Recommends to the Boardour board whether the financial statements should be included in theour annual report on Form 10-K.10-K; and
Reviews our earnings press releases, as well as companyour policies with respect to earnings press releases and financial information.
The Audit Committeeaudit committee has the authority to obtain advice and assistance from, and receive appropriate funding from the company for, outside legal, accounting or other advisors as the committee deems necessary to carry out its duties.
In addition, the audit committee has established procedures for the receipt, retention and treatment (on a confidential basis) of complaints received by the company, the board or the audit committee, regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters. These procedures are described in the Accounting and Auditing Complaint Procedures posted on our website.
The report of the Audit Committeeaudit committee is included on page 30.39.
The Compensation Committee:
Our compensation committee has overall responsibility for approving and evaluating director and officer compensation plans, policies and programs. In carrying out these responsibilities the committee:
Annually reviews and approves any corporate goals and objectives relevant to our Chief Executive Officer’s compensation.compensation, and makes recommendations to the board as to our Chief Executive Officer’s compensation;
Recommends to our Boardboard the compensation of our other executive officers.officers and certain key employees;
Annually reviews the compensation available to our stock compensation plans.Chief Executive Officer and other executive officers, including the annual base salary level, annual incentive opportunity level, long-term incentive opportunity level, employment agreements (if any), severance arrangements, change-in-control agreements and any special or supplemental benefits or plans;
Annually approves and in some cases, administers our various benefit plans.evaluates director and officer compensation plans, policies and programs, and discharges its duties under any of those plans;
Determines directors’director compensation;
Reviews and approves the Compensation Discussion and Analysis for inclusion in our proxy statement; and
Has the authority to retain compensation consultants or other advisors to assist the committee in its evaluation of director, Chief Executive Officer, or executive officer compensation.
The committee has the authority to form and delegate authority to subcommittees and to delegate authority to one or more of its members. For additional information on the operations of the committee, including the role of our executive officers in determining executive and director compensation, see “Compensation discussion and analysis –
Administration of executive compensation program,” page18.
The report of the Compensation Committeecompensation committee is included at page 25.15.
The Nominating &and Governance Committee:
Advises the Boardboard as a whole on corporate governance matters.matters;
Advises the Boardboard on the size and composition of the Board.board;
Recommends a slate of nominees for election to the Board.board;
Identifies individuals qualified to become Boardboard members, consistent with criteria approved by the Board.board;
Identifies best practices and recommends corporate governance principles, including giving proper attention and making effective responses to stockholder concerns regarding corporate governance.governance;
Recommends membership to each Board committee.board committee; and
Defines specific criteria for director independence.
Special Committee:
In addition to the three standing committees mentioned above, the board may, from time to time, form a special committee to act on various other matters. In 2006, in connection with its review and adoption of the Policy and Procedures with respect to Related Persons Transactions, the board formed a special committee composed of William B. Morgan (chairman), Don Cook, John H. Williams, and Robert J. Sullivan Jr. The purpose of this committee was to review our policies and procedures with regard to related party transactions and to submit to the board any further policies (or procedures) that the committee felt should be adopted (or taken). See “Related Person Transactions” on page38 for more information regarding this policy. This committee met two times during 2006. This committee was dissolved in December 2006.
Consideration of Director Nomineesdirector nominees
Stockholder nominees:
The policy of the Nominating & Governance Committeenominating and governance committee is to consider properly-submitted stockholder nominations for candidates for membership on the Boardboard as described below under “Identifying and Evaluating Nominees for Directors.” In evaluating such nominations, the Nominating & Governance Committeecommittee seeks to achieve a balance of knowledge, experience and diversity on the Board.board. Any stockholder nominations proposed for consideration by the Nominating & Governance Committeecommittee should include the nominee’s name and qualifications for Boardboard membership and should be addressed to:
Corporate Secretary
Unit Corporation
7130 South Lewis, Suite 1000
Tulsa, Oklahoma 74136
In addition, our bylaws permit stockholders to nominate directors for consideration at an annual stockholders meeting. For a description of the process for nominating directors in accordance with our bylaws, see “Questions and Answers- What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or to nominate individuals to serve as directors?” on page3.
Director Qualifications:qualifications:
Our Corporate Governance Guidelines contain Boardboard membership criteria that apply to Nominating & Governance Committee-recommendednominating and governance committee-recommended nominees for a position on the company’s Board.board. Under these criteria, members of the Boardboard should meet the Board’sboard’s qualifications as independent (as applicable) and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties. Each director must represent the interests of the company and its stockholders.
Identifying and Evaluating Nomineesevaluating nominees for Directors:directors:
The Nominating & Governance Committeenominating and governance committee uses a variety of methods for identifying and evaluating nominees for director. The Nominating & Governance Committeecommittee regularly assesses the appropriate size of the Board,board, and whether any vacancies on the Boardboard are expected due to retirement or otherwise. In the event that vacancies are anticipated or otherwise arise, the Nominating & Governance Committeecommittee considers various potential candidates for director. Candidates may come to the attention of the Nominating & Governance Committeecommittee through current Boardboard members, professional search firms, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating & Governance Committeecommittee and may be considered at any point during the year. As described above, the Nominating & Governance Committeecommittee considers properly-submitted stockholder nominations for candidates for the Board.board. Following verification of the stockholder status of persons proposing candidates, recommendations are considered by the Nominating & Governance Committee.committee. If any materials are provided by a stockholder in connection with the nomination of a director candidate, suchthose materials are forwarded to the Nominating & Governance Committee.nominating and governance committee. The Nominating & Governance Committeecommittee may also reviewsreview materials provided by a professional search firmsfirm or other partiesparty in connection with a nominee who is not proposed by a stockholder.
Executive sessions of non-management directors are held periodically during the year. The sessions are scheduled and chairedpresided over by Mr. J. Michael Adcock who was elected by the Boardboard to chair each executive session. Meetings are also held from time to time with the Chairmanboard chairman and theour Chief Executive Officer for a general discussion of relevant subjects. Any non-management director can request that an executive session be scheduled.
Any interested party may communicate directly with the presiding director by writing to the following:
Mr. J. Michael Adcock
c/o Corporate Secretary
Unit Corporation
7130 South Lewis, Suite 1000
Tulsa, Oklahoma 74136
Communications with the Boardboard
Individuals may communicate with the Boardboard by submitting an e-mail to the company’s Boardboard in care of the company’s Corporate Secretary atmark.schell@unitcorp.com or sending a letter to: Board of Directors, c/o Corporate Secretary, Unit Corporation, 7130 S. Lewis, Suite 1000, Tulsa, Oklahoma 74136.
The chair of the Nominating & Governance Committeenominating and governance committee has been designated as the person to receive communications directed to non-management directors. Our stockholders may write to the Chairmanchairman of this or any other Boardboard committee or to the outside directors as a group c/o Mark E. Schell, Senior Vice President and General Counsel, Unit Corporation, 7130 South Lewis, Suite 1000, Tulsa, Oklahoma 74136.
Stockholder communications are distributed to the Board,board, or to the appropriate individual director or directors, depending on the facts and circumstances of the communication. However, at the request of the Board,board, certain items that are not related to the duty and responsibilities of the Board beboard are excluded, such as:as advertisements, junk mail, mass mailings, spam and surveys.
Board and Committee Evaluationscommittee evaluations
Each year the Boardboard evaluates its performance and effectiveness. Each director completes a Boardboard evaluation form developed by the Nominating & Governance Committee to solicit feedback on specific aspects of the Board’sboard’s role, organization and meetings. The collective ratings and comments are then compiled by or for the Chairmanchairman of the Nominating & Governance
Committeenominating and governance committee and presented by him to the full Board.board. Additionally, each Board committeeof the three standing board committees conducts an annual self-evaluation of its performance through a Committeecommittee evaluation form.
DIRECTORS’ COMPENSATION AND BENEFITS
Cash Compensation.compensation
Only non-employee directors receive compensation for serving as a director. The following identifies the various components of the cash compensation paid or to be paid to our directors during 2005 and 2006, respectively.
| 2005 | 2006 | |||||
Annual retainer payable quarterly | $ | 24,000 | $ | 30,000 | ||
Annual retainer for each committee a Board member serves on payable quarterly | $ | 2,000 | $ | 2,000 | ||
Each Board meeting attended | $ | 1,000 | $ | 1,500 | ||
Each committee meeting attended | $ | 1,000 | $ | 1,500 | ||
Additional compensation for service as Chairman of the Audit Committee | $ | 5,000 | $ | 7,500 | ||
Additional compensation for service as Chairman for each of the Compensation Committee and Nominating & Governance Committee | $ | 2,000 | $ | 3,500 | ||
Reimbursement for travel expenses incurred attending stockholder, Board and committee meetings | Yes | Yes | ||||
Range of total compensation (excluding travel reimbursement) earned by directors (for the year 2005) | $ | 19,500 - $53,000 | — | |||
The following table shows the total fees (excluding travel reimbursement) received by each of our non-employee directors in 2005:
AMOUNTS RECEIVED IN 2005 BY EACH NON-EMPLOYEE DIRECTORduring 2006 is as follows:
Director | Annual Board/Committee Retainer($) | Board and Business Meeting Fees($) | Committee Meeting Fees($) | Chairman Fees($) | Total($) | |||||
J. Michael Adcock | 30,000 | 10,000 | 5,500 | 2,000 | 47,500 | |||||
Don Cook | 29,500 | 11,000 | 7,000 | 5,000 | 52,500 | |||||
John H. Williams | 29,500 | 10,000 | 2,000 | 0 | 41,500 | |||||
William B. Morgan | 31,500 | 11,000 | 8,500 | 2,000 | 53,000 | |||||
King P. Kirchner | 25,500 | 11,000 | 0 | 0 | 36,500 | |||||
Mark E. Monroe | 21,000 | 9,000 | 4,500 | 0 | 34,500 | |||||
John G. Nikkel | 19,500 | 9,000 | 0 | 0 | 28,500 | |||||
Gary R. Christopher | 14,000 | 6,000 | 1,000 | 0 | 21,000 | |||||
Robert J. Sullivan, Jr. | 13,500 | 6,000 | 0 | 0 | 19,500 | |||||
Totals | 214,000 | 83,000 | 28,500 | 9,000 | 334,500 | |||||
| Annual retainer (payable quarterly) | $30,000 | |
| Annual retainer for each committee a board member serves on (payable quarterly) | $2,000 | |
| Each board meeting attended | $1,500 | |
| Each committee meeting attended | $1,500 | |
| Additional compensation for service as chairman of the audit committee | $7,500 | |
| Additional compensation for service as chairman for each of the compensation committee and nominating and governance committee | $3,500 | |
| Reimbursement for expenses incurred attending stockholder, board and committee meetings | Yes | |
| Range of total cash compensation (excluding expense reimbursement) earned by directors (for the year 2006) | $40,500 - $72,500 | |
Under a plan approved by our stockholders, each non-employee director automatically receives an option to purchase 3,500 shares of our 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 that 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 2005,2006, stock options were granted for an aggregatea total of 24,50028,000 shares at $39.50$62.40 per share. As of March 7, 2006, 92,5005, 2007, 120,500 shares were subject to outstanding options.
The following table shows the outstanding options issued toheld by our current directors as of March 5, 2007:
| OUTSTANDING OPTIONS HELD BY NON-EMPLOYEE DIRECTORS AS OF MARCH 5, 2007 | ||||||
| Director | Date of Option | Shares Subject to Option(#) | Exercise Price($) | |||
J. Michael Adcock | 5/8/03 | 3,500 | 20.46 | |||
| 5/6/04 | 3,500 | 28.23 | ||||
| 5/5/05 | 3,500 | 39.50 | ||||
| 5/4/06 | 3,500 | 62.40 | ||||
Don Cook | 5/6/99 | 2,500 | 6.90 | |||
| 5/4/00 | 3,500 | 12.1875 | ||||
| 5/3/01 | 3,500 | 17.54 | ||||
| 5/2/02 | 3,500 | 20.10 | ||||
| 5/8/03 | 3,500 | 20.46 | ||||
| 5/6/04 | 3,500 | 28.23 | ||||
| 5/5/05 | 3,500 | 39.50 | ||||
| 5/4/06 | 3,500 | 62.40 | ||||
John H. Williams | 5/3/01 | 3,500 | 17.54 | |||
| 5/2/02 | 3,500 | 20.10 | ||||
| 5/8/03 | 3,500 | 20.46 | ||||
| 5/6/04 | 3,500 | 28.23 | ||||
| 5/5/05 | 3,500 | 39.50 | ||||
| 5/4/06 | 3,500 | 62.40 | ||||
William B. Morgan | 5/6/99 | 2,500 | 6.90 | |||
| 5/3/01 | 3,500 | 17.54 | ||||
| 5/2/02 | 3,500 | 20.10 | ||||
| 5/8/03 | 3,500 | 20.46 | ||||
| 5/6/04 | 3,500 | 28.23 | ||||
| 5/5/05 | 3,500 | 39.50 | ||||
| 5/4/06 | 3,500 | 62.40 | ||||
King P. Kirchner | 5/2/02 | 3,500 | 20.10 | |||
| 5/8/03 | 3,500 | 20.46 | ||||
| 5/6/04 | 3,500 | 28.23 | ||||
| 5/5/05 | 3,500 | 39.50 | ||||
| 5/4/06 | 3,500 | 62.40 | ||||
John G. Nikkel | 5/5/05 | 3,500 | 39.50 | |||
| 5/4/06 | 3,500 | 62.40 | ||||
Gary R. Christopher | 5/4/06 | 3,500 | 62.40 | |||
Robert J. Sullivan Jr. | 5/4/06 | 3,500 | 62.40 | |||
The following table shows the total compensation received by each of our non-employee directors:directors in 2006:
OUTSTANDING OPTIONS HELD BY NON-EMPLOYEE DIRECTORS AS OF MARCH 7, 2006
Director | Date of Option | Shares Subject to Option (#) | Exercise Price ($) | |||||||||||||||||
| DIRECTOR COMPENSATION FOR 2006 | DIRECTOR COMPENSATION FOR 2006 | |||||||||||||||||||
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in ($) | All Other Compensation ($) | Total ($) | |||||||||||||
| (a) | (b)(1) | (c) | (d)(2) | (e) | (f) | (g)(3) | (h) | |||||||||||||
J. Michael Adcock | 5/8/03 5/6/04 5/5/05 | 3,500 3,500 3,500 | 20.46 28.23 39.50 | 60,000 | n/a | 90,405 | n/a | n/a | 520 | 150,925 | ||||||||||
John H. Williams | 59,500 | n/a | 90,405 | n/a | n/a | - | 149,905 | |||||||||||||
Don Cook | 5/6/99 5/4/00 5/3/01 5/2/02 5/8/03 5/6/04 5/5/05 | 2,500 3,500 3,500 3,500 3,500 3,500 3,500 | 6.90 12.1875 17.54 20.10 20.46 28.23 39.50 | 71,500 | n/a | 90,405 | n/a | n/a | - | 161,905 | ||||||||||
John H. Williams | 5/3/01 5/2/02 5/8/03 5/6/04 5/5/05 | 3,500 3,500 3,500 3,500 3,500 | 17.54 20.10 20.46 28.23 39.50 | |||||||||||||||||
William B. Morgan | 5/6/99 5/3/01 5/2/02 5/8/03 5/6/04 5/5/05 | 2,500 3,500 3,500 3,500 3,500 3,500 | 6.90 17.54 20.10 20.46 28.23 39.50 | 72,500 | n/a | 90,405 | n/a | n/a | - | 162,905 | ||||||||||
King P. Kirchner | 5/2/02 5/8/03 5/6/04 5/5/05 | 3,500 3,500 3,500 3,500 | 20.10 20.46 28.23 39.50 | 42,000 | n/a | 90,405 | n/a | n/a | - | 132,405 | ||||||||||
Mark E. Monroe(1) | 5/6/04 | 3,500 | 28.23 | |||||||||||||||||
John G. Nikkel | 5/5/05 | 3,500 | 39.50 | 40,500 | n/a | 90,405 | n/a | n/a | 420 | 130,905 | ||||||||||
Gary R. Christopher(2) | n/a | n/a | n/a | |||||||||||||||||
Robert J. Sullivan, Jr.(2) | n/a | n/a | n/a | |||||||||||||||||
Gary R. Christopher | 53,000 | n/a | 90,405 | n/a | n/a | - | 143,405 | |||||||||||||
Robert J. Sullivan Jr. | 40,500 | n/a | 90,405 | n/a | n/a | - | 130,905 | |||||||||||||
Notes to table:
| (1) |
| (2) |
| (3) | Represents reimbursement for expenses. |
OWNERSHIP OF OUR COMMON STOCK BY BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares of our common stock beneficially owned as of March 7, 20065, 2007 by each director, each named executive officer named in the Summary Compensation Table and by all directors and named executive officers as a group. Except as otherwise noted, all shares are directly owned.
STOCK OWNED BY OUR DIRECTORS AND EXECUTIVE OFFICERS AS OF MARCH 7, 2006
| STOCK OWNED BY OUR DIRECTORS AND EXECUTIVE OFFICERS AS OF MARCH 5, 2007 | STOCK OWNED BY OUR DIRECTORS AND EXECUTIVE OFFICERS AS OF MARCH 5, 2007 | ||||||||||||||
Name of Beneficial Owner* | Common Stock(1) | Options Exercisable within 60 days | Shares of Restricted Stock(3) | Common Stock(1)(2) | Options Exercisable within 60 days | Shares of Restricted Stock(3) | Shares of Stock Appreciation Rights(4) | ||||||||
King P. Kirchner | 134,720 | 14,000 | n/a | 134,720 | 17,500 | - | - | ||||||||
Don Cook | 7,618 | 23,500 | n/a | 7,618 | 27,000 | - | - | ||||||||
William B. Morgan | 7,500 | 20,000 | n/a | 5,000 | 23,500 | - | - | ||||||||
John G. Nikkel | 294,528 | (2) | 3,500 | n/a | 293,376 | 7,000 | - | - | |||||||
John H. Williams | 1,000 | 17,500 | n/a | 1,000 | 21,000 | - | - | ||||||||
J. Michael Adcock | 78,091 | (2) | 10,500 | n/a | 17,941 | 14,000 | - | - | |||||||
Larry D. Pinkston | 51,411 | 37,500 | 1,715 | 47,961 | 35,500 | 7,599 | 23,716 | ||||||||
Mark E. Schell | 43,916 | 36,200 | 1,086 | 45,488 | 33,400 | 2,397 | 6,522 | ||||||||
David T. Merrill | 578 | 4,200 | 1,001 | 2,296 | 6,800 | 2,186 | 5,929 | ||||||||
Gary R. Christopher | 1,000 | 0 | n/a | 3,000 | 3,500 | - | - | ||||||||
Robert J. Sullivan, Jr. | 0 | 0 | n/a | ||||||||||||
Robert J. Sullivan Jr. | - | 3,500 | - | - | |||||||||||
John Cromling | 13,307 | 4,100 | 1,029 | 7,943 | 5,300 | 1,750 | 4,348 | ||||||||
Bradford J. Guidry | 5,064 | 6,100 | 972 | 5,387 | 10,000 | 1,665 | 4,150 | ||||||||
All Directors and Named Executive Officers as a Group* | 638,733 | 177,100 | 5,803 | ||||||||||||
| All directors and named executive officers as a group* | 571,730 | 208,000 | 15,597 | 44,665 | |||||||||||
| * | Each named director and officer individually owns less than one percent of our outstanding shares of common stock and collectively the |
Notes to table:
| (1) | Includes shares of common stock held under our 401(k) thrift plan as of March |
| (2) | Of the shares listed as being beneficially owned, the following individuals disclaim any beneficial interest in shares held by spouses, trusts or for the benefit of family members: |
| (3) | These shares of restricted stock were issued |
| (a) On December 13, |
| (b) On December 12, 2006: Mr. Pinkston, 6,742 shares; Mr. Schell, 1,854 shares; Mr. Merrill, 1,686 shares; Mr. Cromling, 1,236 shares; and Mr. Guidry, 1,179 shares. These shares will vest in one-third increments on January 1 of the years 2008 through 2010, subject to the recipient’s continued employment by the company on those dates. |
| (4) | These shares of stock appreciation rights (stock settled) vest in one-third increments on January 1st of each of the years 2008 through 2010, subject to the recipient’s continued employment by the company on those dates. |
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
| STOCKHOLDERS WHO OWN AT LEAST 5% OF OUR COMMON STOCK | STOCKHOLDERS WHO OWN AT LEAST 5% OF OUR COMMON STOCK | ||||||||
Name and Address | Amount and Nature of Beneficial Ownership(1) | Percent of Class | Amount and Nature of Beneficial Ownership(1) | Percent of Class | |||||
Royce & Associates, LLC 1414 Avenue of the Americas New York, New York 10019 | 3,893,600 | 8.44 | % | 5,435,500 | 11.75% | ||||
| Barclays Global Investors, N.A. 45 Fremont Street San Francisco, California 94105 | 4,044,804 | 8.74% | |||||||
Neuberger Berman Inc. 605 Third Avenue New York, New York 10158 | 3,204,440 | 6.95 | % | 2,771,088 | 5.988% | ||||
Note 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. |
The compensation committee of the board has reviewed and discussed with the company’s management the following Compensation discussion and analysis. Based on that review and discussion, the compensation committee recommended to the board that the Compensation discussion and analysis be included in this proxy statement.
Members of the Compensation Committee:
J. Michael Adcock - chairman
William B. Morgan
John H. Williams
Don Cook
Compensation discussion and analysis
General compensation objectives:
The primary goal of our compensation program, both for executives and non-executives, is to attract, motivate, reward and retain competent employees. We seek to apply our program in a manner that joins our executives’ interests with that of our business and financial objectives as
well as the interests of our stockholders. In order to accomplish this we try to:
offer a competitive compensation mix consisting of reasonable salaries, short-term and long-term cash and equity incentives, as well as additional benefits such as perquisites and general health and retirement benefits;
reward performance that achieves company business objectives and enhances the performance of our common stock; and
link executive compensation incentives to stockholders’ interests by offering equity incentives primarily related to appreciation in the value of our stock.
Elements of our compensation program:
Our executives’ compensation consists of base salary, cash bonus, equity awards, health, disability and life insurance, indemnification protection, separation benefits, and certain perquisites. We use each of these elements because we believe they provide the
compensation mix required to attract and retain talented executives, reward them for quality performance, and motivate them to focus on both the short-term and long-term performance of the company. Specifically, we believe an adequate base salary is required to attract and retain qualified executives based on competitive salaries. Annual salary increases and cash bonuses provide executives with potential earnings that can be based on annual financial and operating results and reward them for short-term successes. Equity awards are used to
motivate our executives to achieve both long-term and short-term results and aid long-term retention of our executives. Compensating our executives for positive company performance in both the short term and the long term serves our goal of aligning our executives’ compensation with the interests of our stockholders. Indemnification protections, separation benefits and general perquisites are commonly included in executive compensation packages offered by our competitors, and we believe that providing them helps achieve our compensation goals.
The following chart provides further details about what we pay (or offer) our executives and why we do so:
Form of compensation or benefit | Description | Purpose and what it rewards | Interaction with other elements of compensation or benefits | |||
| Base Salary | Regular cash income, paid semi-monthly. | Provides adequate and predictable regular compensation and rewards core competence and experience. | Serves as a short-term feature to balance long-term incentives; is a fundamental component of our overall competitive pay mix. | |||
| Cash Bonus | Discretionary cash awards, historically awarded once each year but paid in three annual installments; however the most recent bonus awarded in December 2006 to our named executive officers was paid in one installment in January 2007. | Provides annual incentive in form of cash based compensation and rewards short-term corporate and individual performance. | Serves as a short-term incentive to balance long- term incentives; rewards short-term performance, aligning executives’ interests with those of the stockholders in the short term. | |||
| Long-term Incentives* | We have historically used stock options as our long-term equity incentive. Starting in 2005, we awarded shares of restricted stock and in 2006 a combination of shares of restricted stock and stock appreciation rights. Pay-out is generally staggered over a vesting period. See “Long-term Incentive Compensation,” page 23, for additional information. | Provides long-term incentive to contribute to company performance and rewards positive corporate performance as well as employee’s continuity of service with company. | This balances the short-term features of our mix and motivates our executives to enhance corporate performance, further aligning the executives’ interest with stockholder interests by creating value. | |||
| Indemnification | We indemnify our officers and directors to the fullest extent permitted by law. This is required by our charter, bylaws, and we have agreements with certain of those individuals, contractually binding us to provide this indemnification for them. | We include this as a compensation element because it is commonly provided by peer organizations and it is a value to our executives. We believe that it allows our executives to be free from undue concern about personal liability in connection with their service to us and it rewards willingness to serve in positions that carry exposure to liability and significant responsibility. | We feel this is a significant component of a competitive executive compensation package. | |||
| Form of Compensation or benefit | Description | Purpose and what it rewards | Interaction with other elements of compensation or benefits | |||
| Medical, Dental, Life and Disability | Active employee benefits, available to most full-time company employees through our active benefit plans. The value of these is not included in the Summary Compensation Table, since they are available on a company-wide basis. | We include this as a compensation element as it is commonly provided by most of our competitors and it encourages health of our employees, and adds to employee productivity and loyalty. | We feel this is a significant component of a competitive executive compensation package. | |||
| Other Paid Time-off Benefits | We provide vacation and other paid holidays to most of our full time employees, including the named executive officers. | This rewards continuity of service, and is a standard benefit comparable to the vacation benefits provided at similar-sized competitors. | We feel this is a minimal requirement and works together with other elements to create a competitive compensation package. | |||
| Unit Corporation Employees’ Thrift Plan [(401(k) plan)] | Tax-qualified retirement savings plan under which participating employees can contribute up to 99% of their pre-tax compensation, a portion of which the company can match. Our match for 2006 was 117% of the first 6% of the participant’s salary deferral contribution paid in stock. | We provide this plan (and our match to the participants) as an element of compensation as we believe it is a standard benefit, and is a component of our program that contributes to our competitiveness. This benefits continuity of service. | We feel this element works in combination with our other executive pay components to create a competitive overall executive compensation package. | |||
| Unit Corporation Salary Deferral Plan [Non-qualified plan] | Our non-qualified plan allows designated participants to defer recognition of salary and cash bonus for tax purposes until actual distribution at termination, death, or under defined hardship. We do not make a matching contribution to this plan. | We provide this element of compensation as we believe it is a standard benefit at executive levels, and is a component of our program that contributes to our competitiveness. This benefits continuity of service. | We feel this element works in combination with our other executive pay components to create a competitive overall executive compensation package. | |||
| Separation Benefits | We provide potential payments to most of our salaried full time employees on involuntary termination, change-in-control, or on retirement after 20 years of service with the company. This benefit is generally offered on a company-wide basis to most all of our salaried full time employees. For specifics, see the narrative discussion at “Potential Payments On Termination or Change-in-Control,” page32. | We pay this element of compensation as we believe it is a standard benefit at executive levels, and is a component of our program that contributes to our competitiveness. This benefit rewards continuity of service. | We feel this element works in combination with our other executive pay components to create a competitive overall executive compensation package. | |||
| Perquisites | We provide a car allowance to our named executive officers as well as paying for certain club memberships. | We believe that compensating for certain perquisites adds to the general attractiveness and competitiveness of our compensation mix, and helps us to attract and retain the quality executives we value. | Again, we feel that this element works in combination with our other executive pay components to create a competitive executive compensation program. | |||
| * | Until our stockholders approved our Stock and Incentive Compensation Plan on May 3, 2006, we used our Employee Bonus Plan and Amended and Restated Stock Option Plan to issue equity awards. As of May 3, 2006, no additional awards will be made under these last two plans. For convenience, we will refer, unless the context requires otherwise, throughout this proxy statement to the latter two plans as the “old incentive plans,” and the current plan as the “new incentive plan.” |
Administration of executive compensation program:
Our executive compensation program is administered by our compensation committee. Additional details about that committee are located in the corporate governance provisions of this proxy, under “Compensation Committee,” on page8.
Historically (and through the year 2006), the committee meets each year in December to review, approve and recommend to the board the compensation for the company’s named executive officers. The committee’s salary and bonus determinations, once approved by the board, are generally implemented as of January 1 of the following year. Equity awards are effective as of the date of the committee’s decision to award them.
By holding its meeting in, December the committee can take into account the full annual performance of the company, both financially and operationally. If, during the year, circumstances warrant that the committee make adjustments to its previously-approved compensation decisions, the committee will evaluate those needs at one or more meetings scheduled throughout the year.
In making its determinations, the committee considers the financial and operational results of the company for the year, generally taking into account:
the growth of its oil and gas reserves;
its oil and gas production volumes;
net income, cash flow, and asset base growth;
long-term debt levels;
results of acquisitions made during the year;
the attainment of any designated business objectives;
conditions within our industry; and
the relationship of our compensation program to those being offered by other companies.
Individual performances are also reviewed, taking into account the individual’s responsibilities, experience, potential and length of service.
Before its 2006 determination of compensation for 2007 (discussed below), the committee had not used benchmarking to establish compensation levels. The committee has used the market information provided in the Mercer Energy Compensation Table showsSurvey published by Mercer Human Resource Compensation, Inc. to assist it in assessing the reasonableness of its compensation determinations and to ensure that the company’s compensation levels remained competitive.
The committee’s evaluation has always been subjective. There are no specific written criteria or formulas under which an executive officer’s annual compensation is determined or calculated. The factors considered in compensation decisions are not weighted, but are viewed collectively. Because there is no written policy or compensation formula, there have been no formulaic decisions about how to allocate the various types of compensation or forms of award, how to specifically tie company or individual achievement to the awards, whether prior compensation should be considered in making compensation decisions or whether or how to incorporate other such criteria-based measures into the compensation-setting process.
Role of management in compensation decisions:
At the annual December committee meeting, committee members review the information forand recommendations regarding the company’s salaried employees previously submitted to each committee member by the company’s Chief Executive Officer. Additionally, our Chief Executive Officer meets with the committee at that meeting and discusses his recommendations with respect to the executive officers who report to him as well as certain other non-executive employees. These recommendations are provided to the committee members in advance of the committee’s meeting. The Chief Executive Officer does not make a recommendation regarding his compensation. The executives and employees subject to the
Chief Executive Officer’s recommendations are not present at the time of these deliberations. Following the Chief Executive Officer’s review and departure from the meeting, the committee members then discuss the recommendations, review the financial and operational results of the company for the year and also discuss their opinions regarding the compensation for the Chief Executive Officer. The compensation committee has the authority to accept, reject or adjust the recommendations made to it by the Chief Executive Officer. The committee then sets the compensation for the executive officers (which may or may not involve the grant of an equity award). The committee’s determinations are then submitted to the full board at its meeting held immediately following the committee’s December meeting. The full board then ratifies (and approves, if required) the committee’s determination regarding the compensation for the named executive officers.
2005 actions with regard to 2006 compensation:
The committee reviewed the company’s performance over the course of 2005, taking the following into account:
earnings for each of the first three quarters were up over the same periods in 2004;
the company had closed a private acquisition of proven oil and gas reserves;
the company had closed the acquisition of Texas Wyoming Drilling, Inc.;
the success ratio for wells drilled by the company’s exploration segment was 91% as of December 9, 2005;
the company’s exploration segment developed through its own drilling exploration 51 Bcfe and acquired another 56 Bcfe as of December 9, 2005;
oil and gas reserves grew by 250% of production as of December 9, 2005, exceeding the company’s goal of growing reserves by at least 150% of production;
oil and gas production for the first nine months of 2005 increased 18% compared to the same period in 2004;
the company’s stock price was $58.18 per share on December 9, 2005, compared to $36.15 per share on January 3, 2005; and
the rig fleet increased from 101 to 112 during the period from January 1, 2005 to December 9, 2005.
Based on the committee’s review of these results, as well as the individual performance of the various executive officers, the committee recommended and the board ratified and approved the salaries, cash bonuses and restricted stock awards reflected in the Summary Compensation Table.
2007 compensation determination:
Because the committee took certain actions in 2006 for the year 2007, we have provided the following discussion even though the results are not applicable to 2006 compensation.
Role of compensation consultant.Until 2006, neither the compensation committee nor the board retained an outside consulting firm to assist it in the compensation determination process. During 2006, the committee determined that it should work toward developing and implementing a more objective, performance-based system on which to determine future compensation. The committee’s charter grants it the authority to retain consultants to assist it.
In 2006, the committee hired Longnecker & Associates, a Houston, Texas-based independent outside compensation consultant. Longnecker had no prior relationship with the company or its executive officers, and it has never advised management of the company. Longnecker received no compensation from the company other than its fee for consulting with the committee on executive compensation matters. Longnecker was engaged to assist the committee in:
obtaining better information regarding the competitiveness of our named executive officers’ compensation;
providing recommendations on how the committee might further align the named executive officers’ compensation with the long-term and short-term performance of the company;
preparing to meet the new SEC requirements with regard to evaluation and disclosure of executive compensation;
designing and implementing future awards under the company’s new incentive plan; and
if needed, determining the financial impact on the company of the various forms of awards that might be made under the Plan.
Longnecker performed a study of our senior management executive compensation structure compared to 14 companies in the oil and gas exploration and drilling industry. The Longnecker data provided a background for the committee to use in benchmarking, or comparing, our programs with other fourindependent exploration and production companies as well as certain drilling contractors. The 14 companies that served as our peer group in the study are:
Cabot Oil & Gas Corporation (COG)
Cimarex Energy Co. (XEC)
Denbury Resources Inc. (DNR)
Forest Oil Corporation (FST)
Grey Wolf, Inc. (GW)
Helmerich & Payne, Inc. (HP)
Newfield Exploration Co. (NFX)
Parker Drilling Company (PKD)
Patterson-UTI Energy, Inc (PTEN)
Pioneer Drilling Company (PDC)
Pogo Producing Company (PPP)
St. Mary Land & Exploration Co. (SM)
Stone Energy Corporation (SGY)
W&T Offshore, Inc. (WTI).
Longnecker selected these companies for comparison because they were publicly traded companies similar to us in industry, projected revenues, assets, and market capitalization.
Additionally, information from the following published salary surveys was incorporated into Longnecker’s study:
Effective Compensation Incorporated, Oil and Gas E&P Compensation Survey;
Economic Research Institute, ERI Executive Compensation Assessor 2006;
Mercer Human Resources Consulting, 2006 Mercer Benchmark Database Executive;
Watson Wyatt, 2006 Top Management Compensation – Industry Report;
Mercer Human Resources Consulting, 2006 Energy Compensation Survey; and
WordatWork, 2006/2007 Total Salary Increase Budget Survey.
Studies like Longnecker’s only include information on individuals for whom compensation information is publicly disclosed. As a result, these studies typically include only the five most highly compensatedhighly-compensated individuals at each company. Generally, this information correlates to our following employees:
Larry D. Pinkston – President and Chief Executive Officer, Unit Corporation;
Mark E. Schell – Senior Vice President, General Counsel and Secretary, Unit Corporation;
David T. Merrill – Chief Financial Officer and Treasurer, Unit Corporation;
John Cromling – Executive Vice President, Unit Drilling Company; and
Bradford J. Guidry – Senior Vice President, Unit Petroleum Company.
We refer to these persons in this proxy statement as the “named executive officers.”
Results of Longnecker study.Longnecker’s study revealed that our named executive officers’ salary, annual cash bonuses and long-term compensation, individually and as a group, as compared to the peer group’s 50th and 75th percentiles, were below market.
The tables below show certain results of their study. The first table shows the compensation of our named executive officers for services2006 (as used in the study) while the second table shows the range of the named executive officers’ compensation (by component) within the 50th and 75th percentiles of the market as reflected in the study.
Table No. 1
| Name | Salary ($) | Cash Bonus($) | Targeted LTI Value ($)* | |||
| Larry Pinkston | 450,000 | 200,015 | 127,986 | |||
| Mark E. Schell | 220,000 | 126,686 | 81,045 | |||
| David Merrill | 200,000 | 116,642 | 74,702 | |||
| John Cromling | 210,000 | 101,666 | 76,792 | |||
| Brad Guidry | 200,000 | 106,667 | 72,538 |
Table No. 2
Elements of current compensation | As a ratio to Market | Range of individuals’ compensation within the Market | ||||||
| 50th percentile | 75th percentile | 50th percentile | 75th percentile | |||||
| Base Salary | .83 | .70 | .72 - .97 | .62 - .88 | ||||
| Salary and annual incentive | .66 | .50 | .54 - .92 | .37 - .73 | ||||
| Long term incentive | .16 | .09 | .10 - .26 | .05 - .15 | ||||
| Total compensation | .42 | .27 | .31 - .62 | .19 - .43 | ||||
| * | Based on the number of restricted stock shares issued, a price per share of $58.30 and assuming a 21.88 percent increase in the total value. |
In addition, the study provided the following information regarding the mix of our compensation as opposed to the 50th and 75th percentile of the market. Longnecker’s review also indicated that the practice in the market is to pay annual discretionary cash bonuses in a single payment, rather than in installments.
Table No. 3
| Company | 50th Percentile | 75th Percentile | ||||
| Base Salary | 54% | 28% | 21% | |||
| Annual Incentive | 28% | 25% | 24% | |||
| Long term incentive | 18% | 47% | 55% |
The following table presents a summary of the comparison of the individual named executive officer’s compensation, by component, as compared to that of the 50th percentile contained in the study:
Table No. 4
| Salary($) | Annual Incentive($) | Long term incentive($) | Total direct compensation($) | |||||||||||||
| Name | Current | 50th percentile | Current | 50th percentile | Current | 50th percentile | Current | 50th percentile | ||||||||
Larry D. Pinkston | 450,000 | 532,052 | 200,015 | 678,711 | 127,986 | 1,302,103 | 778,001 | 2,512,899 | ||||||||
Mark E. Schell | 220,000 | 302,627 | 126,686 | 232,571 | 81,045 | 394,761 | 427,731 | 929,959 | ||||||||
David T. Merrill | 200,000 | 279,023 | 116,642 | 194,357 | 74,702 | 378,377 | 391,344 | 851,757 | ||||||||
John Cromling | 210,000 | 228,484 | 101,666 | 156,906 | 76,792 | 318,510 | 388,458 | 703,901 | ||||||||
Bradford J. Guidry | 200,000 | 206,803 | 106,667 | 126,731 | 72,538 | 274,014 | 379,205 | 607,548 | ||||||||
2006 actions with regard to 2007 compensation.In view of the Longnecker data and individual and corporate performance, the committee determined that for the company to be competitive and to better align the named executive officers’ compensation with the company’s performance, it needed to increase our executives’ compensation to at least the 50th percentile range, with the 75th percentile range as a long-term goal, and that the compensation mix should be reconfigured to place a stronger emphasis on annual and long term incentives as opposed to base salary. It determined that the ratio of variable-to-fixed executive compensation should be adjusted to place more emphasis on long-term incentives as a percentage of compensation than its existing 46/54 percent split. The committee also determined that the company should, as to the named executive officers, follow the current practices in the industry of paying cash bonuses in a single payment.
At its December 12, 2006 meeting the committee, in addition to the results of the Longnecker study, reviewed the company’s performance over the course of 2006, taking the following into account:
earnings for each of the first three quarters were up over the same periods in 2005;
the company had acquired additional significant new proven oil and gas reserves;
the company had increased production for the first nine months of 2006 by 35% on a year-over-year basis;
the success ratio for wells drilled by its exploration segment was 89% as of December 8, 2006;
the company had developed through its own exploration drilling 80 Bcfe and acquired another 41 Bcfe of oil and gas reserves as of December 8, 2006;
as of December 8, 2006 oil and gas reserves had grown by 252% of production, exceeding the company’s goal of growing reserves by at least 150% of production;
the company’s stock price was $51.83 per share on December 6, 2006, compared to $57.34 per share on January 3, 2006;
the rig fleet increased from 112 rigs to 117 rigs during the period from January 1, 2006 to December 8, 2006; and
the company’s mid-stream segment had closed an acquisition of a natural gas processing plant; gathering system with 15 miles of pipeline, three field compressors and two plant compressors, and had increased gas gathering and processing operations from 199,363 MMBtu per day in December 2005 to 294,962 MMBtu per day in November 2006.
As a result of its review, the committee approved the following compensation for our named executive officers for 2007:
• | Base Salaries. For our chief executive officer and president, the Longnecker study showed that the 50th percentile pay rate was $532,052 for base salary. The committee elected to raise Mr. Pinkston’s salary from $450,000 to $500,000. Similarly, for Mr. Schell, the committee determined that $302,627 would be the 50th percentile pay rate, but that raising his salary from $220,000 to $275,000 was a reasonable increase. For similar reasons, Mr. Merrill received a raise from $200,000 to $250,000 ($279,023 was the 50th percentile), Mr. Cromling received a raise from $210,000 to $220,000 ($228,484 was the 50th percentile), and Mr. Guidry received a raise from $200,000 to $210,000 ($206,803 was the 50th percentile). |
• | Cash Bonuses. The committee’s cash bonus awards were based generally on the Longnecker guidelines and the company’s 2006 performance. Awards were not based on or granted under a plan. For Mr. Pinkston, the committee determined that a cash bonus of $500,015, compared to $678,711 at the 50th percentile of our peers, was reasonable. Similarly, for Mr. Schell, the committee determined that a bonus of $210,000, compared to $232,571 at the 50th percentile of the peer group, was reasonable. The committee also determined that it would be reasonable to award the other named executive officers the following bonuses: Mr. Merrill, a bonus of $190,000 (compared to a 50th percentile of $194,357), Mr. Cromling, a bonus of $160,000 (compared to a 50th percentile of $156,906), and Mr. Guidry, a bonus of $150,000 (compared to a 50th percentile of $126,731). |
Long-term Incentive Compensation. As noted, the committee decided to increase
the proportion of the named executive officer’s future compensation paid in equity interest to a percentage greater than 18% reflected in Table 3 above. Based on the Longnecker study, which established a range from 47% for long term incentive for the 50th percentile to 55% for the 75th percentile, the committee established 51% as the appropriate range for the named executive officers. To implement the long-term incentive award, the committee decided to grant a mix of stock appreciation rights (SARs) and restricted stock awards, each representing approximately 50% of the total value. It is the committee’s belief that this increased emphasis on awards that are sensitive to corporate performance positively aligns the interests of our executives with the interest of our stockholders. |
For the restricted stock awards, the committee determined that the appropriate per share value was $83. This value represented a ten percent value increase for five years in the then approximate $52 per share value of the company’s common stock. Vesting of the restricted stock awards is staggered over a four-year period, with the first vesting date being January 1, 2007, subject to the employee remaining with the company. The committee views this staggered vesting schedule as an additional incentive for executive retention. Using the $83 per share value, the committee then determined that Mr. Pinkston should receive 8,990 restricted stock awards (valued at $746,170). Similarly, it granted Mr. Schell 2,472 restricted stock awards (valued at $205,176), Mr. Merrill 2,248 restricted stock awards (valued at $186,584), Mr. Cromling 1,648 restricted stock awards (valued at $136,784), and Mr. Guidry 1,573 restricted stock awards (valued at $130,559). The restricted stock awards were evidenced by a Restricted Stock Award Agreement entered into
between each of the named executive officers and the company. Each of those agreements, in addition to certain other provisions contained in the plan, provide that twenty-five percent of the shares of restricted stock vests on January 1st of each of the years 2007 through 2010, subject in each case to the employee remaining in the employment of the company. In the event of a change in control of the company, any unvested shares immediately vest in the recipient.
The committee valued each of the SARs at $31.00 (or $83 per share less the $52 per share values discussed above), and awarded 23,716 SARs (valued at $735,196) to Mr. Pinkston, 6,522 SARs (valued at $202,182) to Mr. Schell, 5,929 SARs (valued at $183,799) to Mr. Merrill, 4,348 SARs (valued at $134,788) to Mr. Cromling, and 4,150 SARs (valued at $128,650) to Mr. Guidry. Each SAR award was evidenced by a Stock Settled SAR Award Agreement entered into between each of the named executive officers and the company. Those agreements, in addition to other provision contained in the plan, provide that one-third of the SARs vest on January 1st of each of the years 2008 through 2010, subject in each case to the employee remaining in the employment of the company. In the event of a change in control, any unvested shares automatically vest to the recipient.
Future goals:
The committee is working towards implementing a compensation program for our named executive officers which is based, in greater part, on the attainment of specific objective performance based criteria. However, there is no assurance that the committee will in fact implement such a program, or, if it does, when it will go into effect.
Executive stock ownership policy:
We do not require our named executive officers to own stock or other equity interests in the company. During the course of their employment, all capacitiesnamed executive officers have received
compensation in 2003,the form of stock or other equity interests in the company. We do have a policy prohibiting our executive officers (or directors) from engaging in short-term or speculative transactions in the company’s securities, including hedging activities.
No backdating or spring loading:
We do not backdate options, grant options retroactively or reprice existing options. In addition, we do not coordinate grants of options so that they are made before announcement of favorable information, or after announcement of unfavorable information. Option awards are granted at fair market value on the date the option is approved. The company’s general practice is to grant options only on an annual grant basis, although there are occasions when grants have been made on other dates.
Accounting and tax considerations:
Deductibility of executive compensation.In the past, the primary form of equity compensation that we awarded consisted of stock options. We selected this form because of the favorable accounting and tax treatment and the expectation of employees in our industry. However, beginning in 2006, the accounting treatment of stock options changed as a result of Statement of Financial Accounting Standards No. 123(R), making the accounting treatment of stock options less attractive. As a result, we determined that it would be better to grant stock appreciation rights, restricted stock or a mix of the two.
Section 162(m) of the Internal Revenue Code, adopted in 1993, imposes a $1 million cap, subject to certain exceptions, on the deductibility to the company of compensation paid to the named executive officers. Cash compensation voluntarily deferred by the executive officers under the deferred compensation plan is not subject to the Section 162(m) cap until the year paid. After reviewing the compensation paid in 2006 that was subject to the Section 162(m) cap, we do not believe that we are subject to any Section 162(m) limitations on the deductibility of compensation paid to our named executive officers in 2006.
We will continue to consider other steps which might be in the company’s best interests to
comply with Section 162(m), while reserving the right to award future compensation which would not comply with Section 162(m) requirements for non-deductibility. We concluded that this is in the company’s best interests.
Nonqualified deferred compensation.On October 22, 2004, andthe American Jobs Creation
Act of 2004 was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements. While the final regulations have not become effective yet, we believe we are operating in good faith compliance with the statutory provisions which were effective January 1, 2005. A more detailed discussion of our nonqualified deferred compensation program is provided on page31 under the heading “Nonqualified Deferred Compensation.”
SUMMARY COMPENSATION TABLESummary compensation table
The following table sets forth information regarding the compensation paid, distributed, or accrued for our named executive officers for 2006. We have not entered into employment agreements with any of the named executive officers.
| Long Term Compensation | ||||||||||||||||||
| Annual Compensation(1) | Awards | Payouts | ||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | ||||||||||
Name and Principal Position(s) | Year | Salary ($) | Bonus ($)(2) | Other Annual Compensation ($)(3) | Restricted Stock Award(s) ($)(4) | Securities Underlying Options (#) | LTIP Payout ($) | All Other Compensation ($)(5) | ||||||||||
John G. Nikkel Chairman and CEO(6) | 2005 2004 2003 | 93,750 375,000 360,000 | (7) | 93,333 153,333 143,333 | 12,310 12,594 14,901 | n/a 0 0 | 0 0 15,000 | 0 0 0 | 456,820 12,300 12,000 | (7) | ||||||||
Larry D. Pinkston President and COO(6) | 2005 | 250,000 | 103,333 | 8,260 | 99,984 | 0 | 0 | 14,000 | ||||||||||
| 2004 | 215,000 | 83,333 | 4,635 | 0 | 10,000 | 0 | 12,300 | |||||||||||
| 2003 | 170,750 | 68,333 | 7,500 | 0 | 10,000 | 0 | 10,054 | |||||||||||
Mark E. Schell Sr. V. P., Secretary and General Counsel | 2005 | 190,000 | 88,333 | 8,170 | 63,313 | 0 | 0 | 13,081 | ||||||||||
| 2004 | 175,000 | 76,666 | 8,050 | 0 | 8,500 | 0 | 12,300 | |||||||||||
| 2003 | 153,333 | 68,333 | 8,147 | 0 | 7,500 | 0 | 12,000 | |||||||||||
David T. Merrill CFO and Treasurer(8) | 2005 | 178,200 | 33,333 | 12,811 | 58,358 | 0 | 0 | 14,000 | ||||||||||
| 2004 | 162,500 | 13,333 | 11,764 | 0 | 5,000 | 0 | 10,910 | |||||||||||
| 2003 | 51,212 | 0 | 4,380 | 0 | 8,000 | 0 | 1,006 | |||||||||||
John Cromling Executive V.P. – Drilling(9) | 2005 | 174,750 | 49,666 | 5,547 | 59,990 | 7,500 | 0 | 14,000 | ||||||||||
| 2004 | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
| 2003 | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
Bradford J. Guidry Senior V.P. – Exploration(10) | 2005 | 167,083 | 56,666 | 6,716 | 56,667 | 7,500 | 0 | 14,000 | ||||||||||
| 2004 | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
| 2003 | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
| SUMMARY COMPENSATION TABLE FOR 2006 | ||||||||||||||||||||
| Name and Principal Position | Year | Salary ($ )(1) | Bonus ($)(1)(2) | Stock Awards ($)(3) | Option Awards ($)(4) | Non- Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) | All Other Compensation ($)(6) | Total ($) | |||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||
Larry D. Pinkston, President and CEO | 2006 | 450,000 | 190,000 | 191,359 | (7) | 111,539 | (12) | - | - | 19,414 | 962,312 | |||||||||
Mark E. Schell, Sr. V.P., Secretary and General Counsel | 2006 | 220,000 | 138,333 | 79,473 | (8) | 80,176 | (13) | - | - | 22,475 | 540,457 | |||||||||
David T. Merrill, CFO and Treasurer | 2006 | 200,000 | 91,666 | 72,872 | (9) | 50,468 | (14) | - | - | 28,165 | 443,171 | |||||||||
John Cromling, Executive V.P. - Drilling | 2006 | 210,000 | 101,666 | 66,333 | (10) | 94,564 | (15) | - | - | 22,312 | 494,875 | |||||||||
Bradford J. Guidry, Senior V.P. Exploration | 2006 | 200,000 | 106,667 | 62,894 | (11) | 94,366 | (16) | - | - | 22,164 | 486,091 | |||||||||
NotesFootnotes to table:
| (1) | Compensation deferred at the election of an executive is included in the year earned. During |
Fiscal Year Paid: John G. Nikkel Larry D. Pinkston Mark E. Schell David T. Merrill John Cromling Bradford J. Guidry 2005 2004 2003 Bonus($) Salary($) Bonus($) Salary($) Bonus($) Salary($) 4,666 10,625 15,333 37,500 14,333 36,733 48,000 70,107 30,000 60,199 20,500 38,475 9,451 20,329 5,366 12,250 4,783 11,251 2,666 11,333 — — — — 7,973 10,026 n/a n/a n/a n/a 5,666 12,333 n/a n/a n/a n/a
| AMOUNTS DEFERRED IN 2006 | ||||
Name | Bonus($) | Salary($) | ||
Larry D. Pinkston | 80,000 | 36,000 | ||
Mark E. Schell | 12,740 | 21,593 | ||
David T. Merrill | 7,333 | 7,666 | ||
John Cromling | 13,133 | 6,866 | ||
Bradford J. Guidry | 15,666 | 4,333 | ||
| (2) |
| (3) |
| (4) | The amounts included in the “Option Awards” column are the amounts of compensation cost recognized by the company in fiscal 2006 related to stock option grants and SAR awards, as described in FAS 123(R), but does not include any impact of estimated forfeitures. For a discussion of the valuation assumptions used in calculating these values, see Note 1 to our 2006 Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2006. The amount shown does not represent amounts paid to the named executive officers. |
| (5) | The company does not provide for preferential or above-market earnings on deferred compensation. |
| (6) | The table below shows the components of this column: |
| Name | 401(k) Match for 2006 Plan year ($)* | Personal Car Allowance ($) | Club Membership ($) | Total “All Other Compensaiton” ($) | |||||
Larry D. Pinkston | 15,444 | 3,250 | 720 | 19,414 | |||||
Mark E. Schell | 15,444 | 6,250 | 781 | 22,475 | |||||
David T. Merrill | 15,444 | 6,000 | 6,721 | 28,165 | |||||
John Cromling | 15,444 | 1,049 | ** | 5,819 | 22,312 | ||||
Bradford J. Guidry | 15,444 | 6,000 | 720 | 22,164 | |||||
| * | The company’s matching contribution is made in shares of the company’s stock. |
| ** | This amount represents the imputed income attributable to Mr. Cromling’s use of a company vehicle. |
| (7) | Of the $191,359 of compensation cost recognized by the company in 2006, (i) $75,003 is attributable to restricted stock granted before 2006, and (ii) $116,356 is attributable to restricted stock granted in 2006. |
| (8) | Of the $79,473 of compensation cost recognized by the company in 2006, (i) $47,485 is attributable to restricted stock granted before 2006, and (ii) $31,988 is attributable to restricted stock granted in 2006. |
| (9) | Of the $72,872 of compensation cost recognized by the company in 2006, (i) $43,783 is attributable to restricted stock granted before 2006, and (ii) $29,089 is attributable to restricted stock granted in 2006. |
| (10) | Of the $66,333 of compensation cost recognized by the company in 2006, (i) $45,008 is attributable to restricted stock granted before 2006, and (ii) $21,325 is attributable to restricted stock granted in 2006. |
| (11) | Of the $62,894 of compensation cost recognized by the company in 2006, (i) $42,501 is attributable to restricted stock granted before 2006, and (ii) $20,393 is attributable to restricted stock granted in 2006. |
| (12) | Of the $111,539 of compensation cost recognized by the company in 2006, (i) $23,716 is attributable to stock appreciation rights granted in 2006, and (ii) $87,823 to stock options granted before 2006. |
| (13) | Of the $80,176 of compensation cost recognized by the company in 2006, (i) $6,522 is attributable to stock appreciation rights granted in 2006, and (ii) $73,654 to stock options granted before 2006. |
| (14) | Of the $50,468 of compensation cost recognized by the company in 2006, (i) $5,929 is attributable to stock appreciation rights granted in 2006, and (ii) $44,539 to stock options granted before 2006. |
| (15) | Of the $94,564 of compensation cost recognized by the company in 2006, (i) $4,348 is attributable to stock appreciation rights granted in 2006, and (ii) $90,216 to stock options granted before 2006. |
| (16) | Of the $94,366 of compensation cost recognized by the company in 2006, (i) $4,150 is attributable to stock appreciation rights granted in 2006, and (ii) $90,216 to stock options granted before 2006. |
The following table sets forth the plan-based grants made to the named executive officers during 2006:
| GRANTS OF PLAN-BASED AWARDS FOR 2006 | ||||||||||||||||||||||
| Name | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/sh) | Grant Date Fair Value of Stock and Option Awards ($) | |||||||||||||||
| Thresh- old ($) | Target ($) | Maxi- mum ($) | Thresh- old (# shares) | Target (# shares) | Maxi- mum (# shares) | |||||||||||||||||
| (a) | (b)(1) | (c) | (d) | (e) | (f) | (g) | (h) | (i)(2) | (j)(3) | (k)(4) | (l)(5) | |||||||||||
| Larry D. Pinkston, President and CEO | 12/12/06 12/12/06 | 8,990 | 23,716 | 51.76 | 465,322 668,398 | |||||||||||||||||
| Mark E. Schell, Sr. V.P., Secretary and General Counsel | 12/12/06 12/12/06 | 2,472 | 6,522 | 51.76 | 127,951 183,812 | |||||||||||||||||
| David T. Merrill, CFO and Treasurer | 12/12/06 12/12/06 | 2,248 | 5,929 | 51.76 | 116,357 167,099 | |||||||||||||||||
| John Cromling, Executive V.P. - Drilling | 12/12/06 12/12/06 | 1,648 | 4,348 | 51.76 | 85,300 122,541 | |||||||||||||||||
| Bradford J. Guidry, Senior V.P. Exploration | 12/12/06 12/12/06 | 1,573 | 4,150 | 51.76 | 81,418 116,961 | |||||||||||||||||
Footnotes to table:
| (1) | All awards made under the company’s stock and incentive compensation plan. |
| (2) | Represents restricted stock shares that vest in four installments of 25% each on January 1 of each of the years 2007 through 2010. |
| (3) | Represents shares of stock appreciation rights (stock settled) that vest in one-third increments on January 1st of each of the years 2008 through 2010. |
| (4) | Represents the closing stock price of our stock on the NYSE on the grant date. |
| (5) | Represents the grant date fair value of SARs and restricted stock. The fair value is calculated based on the grant date fair value of the award as determined under FAS 123(R) for financial reporting purposes but does not include any impact of estimated forfeitures and does not represent amounts paid to the named executive officers for the year. For a discussion of the valuation assumptions used in calculating these values, see Note 1 to our 2006 Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2006. |
Based on the salary, cash bonus, and fair value of the equity awards granted to our named executive officers in 2006, salary and bonus accounted for approximately 82% of their total compensation, while equity compensation accounted for 18%. In 2005, those percentages were approximately 80% salary and bonus and 20% equity compensation. Because the value of certain awards included in some of the above tables is based on the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payments (FAS 123(R)) value rather than the fair market value, these percentages may not be able to be derived using the amounts reflected in the above tables.
The salary determinations for 2006 were based primarily on the compensation committee’s recommendations in view of its review of company performance in the context of the peer
data reflected in the Mercer Energy Compensation Survey. As it had in years past, it was the committee’s objective to set salaries approximately between the 50% and the 75% range reflected in the survey. Within this range, the committee then made any adjustments based on individual performance evaluations. The committee exercised discretion based on general experience in setting the salary recommendations above. There were no performance targets and there was no weighting of factors considered by the committee, rather all reviewed information was considered as a totality. Mr. Pinkston, in addition to continuing to serve as the company’s President, had been elected as our Chief Executive Officer effective with the April 1, 2005 retirement of our previous Chief Executive Officer John Nikkel, with no 2005 adjustment to his salary. Accordingly, his 2006 compensation reflected a substantial increase over his 2005 salary due to the increase in the duties he had assumed.
The restricted stock awards authorized by the committee with regard to 2006 compensation were authorized in December of 2005. These amounts are not reflected in the “Grants of Plan-Based Awards for 2006” table, since they were granted in December 2005. See footnote 3 to the “Outstanding Equity Awards at end of 2006” table for more information on these restricted
stock awards. The restricted stock was issued under the company’s former Employee Bonus Plan and evidenced by a restricted stock bonus agreement entered into between each of the named executive officers and the company. Each of those agreements, in addition to certain other provisions, provided that one-half of the restricted shares vests on January 1, 2007 and the other one-half vests on January 1, 2008. There are no performance-based conditions that affect the vesting schedule, except that the employee remains in the employ of the company. In the event of a change in control of the company, any unvested shares immediately vest in the recipient. This was the first time the company had used restricted stock as part of its compensation program, and was intended to more closely link the executives’ compensation to that of the company’s stock price.
Amounts realizable from prior compensation did not affect the awards set forth above. There was no repricing involved with respect to any outstanding equity-based award or option. No targets factored into the compensation determinations reflected above. Allocation among the elements of compensation was determined in the compensation committee’s discretion, based on its general experience and prior practices.
Outstanding equity awards at end of 2006
The following table shows outstanding equity awards at December 31, 2006 for each of the named executive officers:
| OUTSTANDING EQUITY AWARDS AT END OF 2006 | ||||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||
| (a) | (b)(1) | (c) | (d)(2) | (e) | (f) | (g)(3) | (h) | (i) | (j) | |||||||||
Larry D. Pinkston | 12,000 7,500 6,000 6,000 4,000 | 1,500 4,000 6,000 | 23,716 | 3.75 16.6875 19.04 22.95 37.83 51.76 | 12/22/08 12/19/10 12/17/12 12/17/13 12/14/14 12/12/16 | 10,705 | 565,307 | |||||||||||
Mark E. Schell | 12,000 7,500 6,000 4,500 3,400 | 1,500 3,000 5,100 | 6,522 | 3.75 16.6875 19.04 22.95 37.83 51.76 | 12/22/08 12/19/10 12/17/12 12/17/13 12/14/14 12/12/16 | 3,558 | 191,265 | |||||||||||
David T. Merrill | 3,000 1,800 2,000 | 2,000 1,200 3,000 | 5,929 | 21.50 22.95 37.83 51.76 | 8/25/13 12/17/13 12/14/14 12/12/16 | 3,249 | 174,715 | |||||||||||
John Cromling | 1,000 1,400 1,400 1,500 | 1,000 1,400 2,100 6,000 | 4,348 | 19.04 22.95 37.83 37.69 51.76 | 12/17/12 12/17/13 12/14/14 5/25/15 12/12/16 | 2,677 | 145,291 | |||||||||||
Bradford J. Guidry | 1,000 4,000 2,100 1,400 1,500 | 1,000 1,400 2,100 6,000 | 4,150 | 16.6875 19.04 22.95 37.83 37.69 51.76 | 12/19/10 12/17/12 12/17/13 12/14/14 5/25/15 12/12/16 | 2,545 | 138,086 | |||||||||||
Footnotes to table:
| (1) | Each option grant has a ten-year term and vests in 20% annual increments beginning on the first anniversary of the grant date. Exercise prices are determined using the closing market price of the company’s common stock on the date of grant. |
| (2) | These shares of stock appreciation rights (stock settled) vest in one-third increments on January 1st of each of the years 2008 through 2010. |
| (3) | Further information regarding these restricted stock shares is as follows: |
| Name | Grant Dates | No. of Shares | Grant Date Fair Market Value($) | Vesting Schedule | ||||||||||
Larry D. Pinkston | 12/13/05 | 1,715 | 99,985 | 1/2 on January 1st of 2007 & 2008 | ||||||||||
2007 – 2010 | ||||||||||||||
| ||||||||||||||
| 1/4th on January 1st of | ||||||||||||||
| ||||||||||||||
2007 - 2010 | ||||||||
John Cromling | 12/13/05 | 1,029 | 59,991 | 1/2 on January 1st of 2007 & 2008 | ||||
| 12/12/06 | 1,648 | 85,300 | 1/4th on 2007 - 2010 | |||||
Bradford J. Guidry | 12/13/05 | 972 | 56,668 | 1/2 on January 1st of 2007 & 2008 | ||||
| 12/12/06 | 1,573 | 81,418 | 1/4th on 2007 - 2010 | |||||
Option exercises and stock vested
The table below shows the outstanding unvested restrictedinformation regarding options and stock awards toexercised and vested, respectively, for the named executive officers at December 31, 2005.
RESTRICTED STOCK AWARDS NOT YET VESTEDin 2006.
Name | Grant Date | Vesting Date | Initial Price | Initial Shares | Initial Value | Remaining Shares | Current Value* | ||||||||||
Larry D. Pinkston | 12/13/05 | (1 | ) | $ | 58.30 | 1,715 | 99,984.50 | 1,715 | $ | 92,832.95 | |||||||
Mark E. Schell | 12/13/05 | (1 | ) | $ | 58.30 | 1,086 | 63,313.80 | 1,086 | $ | 58,785.18 | |||||||
David T. Merrill | 12/13/05 | (1 | ) | $ | 58.30 | 1,001 | 58,358.30 | 1,001 | $ | 54,184.13 | |||||||
John Cromling | 12/13/05 | (1 | ) | $ | 58.30 | 1,029 | 59,990.70 | 1,029 | $ | 55,699.77 | |||||||
Bradford J. Guidry | 12/13/05 | (1 | ) | $ | 58.30 | 972 | 56,667.60 | 972 | $ | 52,614.36 | |||||||
Note to table:
Present Value of 2005 Total Compensation
Because elements of the Summary Compensation Table may not lend themselves to being totaled due to different presentation requirements, to provide additional transparency on the total compensation for our named executive officers, we are providing the following Present Value of Total Compensation table. The components of executive compensation included in this table are as follows:
PRESENT VALUE OF 2005 TOTAL COMPENSATION
| Cash Compensation | Long-Term Incentive Compensation | |||||||||||||||||||||||
| OPTIONEXERCISES AND STOCK VESTED FOR 2006 | OPTIONEXERCISES AND STOCK VESTED FOR 2006 | |||||||||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||||||||||
Name | Salary ($) | Bonus ($) | Stock Options ($)(1) | Restricted Shares ($)(2) | 401(k) Plan Match ($)(3) | Value Realized on Exercise of Options ($)(4) | Other Benefits & Perquisites ($)(5) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||||||||||
John G. Nikkel | 93,750 | 93,333 | — | — | 9,041 | 789,194 | 447,779 | (6) | ||||||||||||||||
| (a) | (b) | (c)(1) | (d) | (e) | ||||||||||||||||||||
Larry D. Pinkston | 250,000 | 103,333 | — | 99,984 | 14,000 | — | 14,398 | 7,500 | (2) | 371,475 | - | - | ||||||||||||
Mark E. Schell | 190,000 | 88,333 | — | 63,331 | 13,081 | — | 14,308 | 7,500 | (2) | 383,775 | - | - | ||||||||||||
David T. Merrill | 178,200 | 33,333 | — | 58,358 | 14,000 | — | 18,943 | - | - | - | - | |||||||||||||
John Cromling | 174,750 | 49,666 | 282,675 | 59,990 | 14,000 | 106,610 | 11,685 | 2,700 | 115,068 | - | - | |||||||||||||
Bradford J. Guidry | 167,083 | 56,666 | 282,675 | 56,667 | 14,000 | 105,488 | 12,823 | 1,000 | 38,113 | - | - | |||||||||||||
Notes to table:
The following table shows a summary of the stock options exercised by the named executive officers in 2005, as well as the total number and value (stock price less exercise price, using the average of the high and low trading prices of the company’s common stock on December 30, 2005 - $54.71) of unexercised stock options held by the named executive officers as of December 31, 2005.
AGGREGATE OPTION EXERCISES IN 2005 AND FISCAL YEAR END OPTION VALUES
(a) | (b) | (c) | (d) | (e) | |||||||||
Name | Shares Acquired on Exercise (#) | Value Realized ($)(1) | Number of Securities Underlying Unexercised Options at FY-End (#) | Value of Unexercised In-the-Money Options at FY-End ($)(2) | |||||||||
| Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||
John G. Nikkel | 29,000 | (3) | 789,190 | 0 | 0 | 0 | 0 | ||||||
Larry D. Pinkston | 0 | 0 | 37,500 | 17,000 | 1,562,685 | 432,610 | |||||||
Mark E. Schell | 0 | 0 | 36,200 | 14,300 | 1,525,855 | 364,714 | |||||||
David T. Merrill | 0 | 0 | 4,200 | 8,800 | 121,412 | 224,318 | |||||||
John Cromling | 6,000 | 106,610 | 4,100 | 14,400 | 129,973 | 312,950 | |||||||
Bradford J. Guidry | 3,000 | 105,488 | 7,100 | 14,400 | 239,335 | 312,950 | |||||||
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. |
| As provided under |
Certain of
Non-qualified deferred compensation
We permit the named executive officers were awarded stockand certain other employees to elect to receive a portion of their compensation on a deferred basis under our salary deferral plan (an unsecured, non-qualified, deferred compensation plan). We do not provide any matching contributions to this plan. Certain material terms of that plan are discussed below.
Under the plan, each participant may elect to defer up to 100% of his base salary and cash bonuses he may earn.
A participant’s deferrals under the plan (including earnings) are credited with investment gains and losses until the amounts are paid out. Account balances are invested in phantom investments selected by the executive from an array of investment options that mirror the funds in 2005. The table below shows allour 401(k) plan (less the company’s common stock options grantedfund), subject to restrictions established by the plan administrator. Participants can change their investment selections at the time and in the manner specified by the plan administrator prospectively by contacting the plan’s trustee in the same manner that applies to participants in our 401(k) Plan.
The following table presents the investment gain or loss (expressed as a percentage of rate of return) for each of the investment options under the plan for 2006.
| FUND | PERCENTAGE RETURN | |
LargeCap Value Sel Fund | 21.47% | |
Neuberger Berman Partners Tr Fund | 13.04% | |
LargeCap S&P 500 Index Sel Fund | 15.14% | |
American Funds Growth Fund of America R3 Fund | 10.62% | |
LargeCap Growth Sel Fund | 9.46% | |
MidCap Value I Sel | 15.34% | |
MidCap S&P 400 Index Sel Fund | 9.82% | |
MidCap Growth I Sel Fund | 8.90% | |
SmallCap Value Sel Fund | 18.36% | |
Neuberger Berman Genesis Tr Fund | 7.26% | |
Fidelity Advisor Small Cap T Fund | 9.67% | |
Dodge & Cox International Stock Fund | 28.01% | |
Principal Investors LifeTime Strategic Income Sel Fund | 8.66% | |
Principal Investors LifeTime 2010 Sel Fund | 11.56% | |
Principal Investors LifeTime 2020 Sel Fund | 13.82% | |
Principal Investors LifeTime 2030 Sel Fund | 14.74% | |
Principal Investors LifeTime 2040 Sel Fund | 15.15% | |
Principal Investors LifeTime 2050 Sel Fund | 15.72% | |
PIMCO Total Return Admin Fund | 3.74% | |
Dreyfus Bond Market Index Inv. Fund | 3.91% | |
A participant’s plan balance becomes payable 30 days following the participant’s termination of employment. At the participant’s election, the plan balance may be paid as a lump sum, or in monthly or annual installments over a period of no longer than five years. If a participant does not timely designate a payment method, then payment will be made in a lump sum. If a participant elects payment over a period of
years, the participant may elect that all remaining payments to his or her beneficiary be made in a lump sum on his death. Despite the foregoing, a participant may elect to receive a lump sum distribution from the plan in the event of certain severe financial hardships. The amount of any hardship distribution may not exceed the amount necessary to satisfy the hardship.
The following table shows the named executive officersofficers’ contributions, earnings and account balances in 2005 and the potential valuecompany’s non-qualified plan, as of such grants at stock appreciation rates of 0%, 5% and 10% compounded annually over the maximum ten-year term of the options, as well as the value of the grant on the award date.
OPTIONS GRANTED IN 2005December 31, 2006.
| Individual Grants(1) | Potential Realizable Value at Assumed Annual Rate of Stock Price Appreciation for Option Terms(3) | ||||||||||||||||||||||||
| NON QUALIFIED DEFERRED COMPENSATION FOR 2006 | NON QUALIFIED DEFERRED COMPENSATION FOR 2006 | ||||||||||||||||||||||||
Name | Number of Securities Underlying Options Granted (#) | Percent of Total Options Granted to Employees In 2005(2) | Exercise Price ($/Sh) | Expiration Date | 5% ($) | 10% ($) | Grant Date Fair Value($)(4) | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | |||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (h) | (i) | (b)(1) | (c)(2) | (d) | (e) | (f)(3) | |||||||||||||
Larry D. Pinkston | 0 | 0 | — | — | — | — | — | 96,000 | - | 61,867 | - | 991,875 | |||||||||||||
Mark E. Schell | 0 | 0 | — | — | — | — | — | 19,333 | - | 19,779 | - | 253,269 | |||||||||||||
David T. Merrill | 0 | 0 | — | — | — | — | — | - | - | - | - | - | |||||||||||||
John Cromling | 7,500 | 22.06 | $ | 37.69 | 5/25/15 | 177,773 | 450,511 | 282,675 | - | - | - | - | - | ||||||||||||
Bradford J. Guidry | 7,500 | 22.06 | $ | 37.69 | 5/25/15 | 177,773 | 450,511 | 282,675 | - | - | - | - | - | ||||||||||||
Notes to table:
| (1) |
Name | Amount include in both Nonqualified Deferred Compensation Table and 2006 Summary Compensation Table ($) | Amount included in Nonqualified Deferred Compensation Table previously Reported in Prior years’ Summary Compensation Tables ($) | Annual Rate of Return for 2006 | |||
Larry D. Pinkston | 96,000 | 405,831* | 6.80% | |||
Mark E. Schell | 19,333 | 103,582* | 8.72% | |||
David T. Merrill | - | - | - | |||
John Cromling | - | - | - | |||
Bradford J. Guidry | - | - | - | |||
| *reflects | amounts for years 1997 through 2005. Specific information as |
| (2) | The company does not make contributions to its non-qualified deferral plan. |
| (3) |
Other BenefitsPOTENTIAL PAYMENTS ON TERMINATION OR CHANGE-IN-CONTROL
The company alsodiscussion below provides other benefits such as medical, dentala summary of the various plans and life insurance and disability coverage tocontracts (payable or that may be payable) under which each named executive officer through our various benefit plans, which are also provided to most other eligible company employees.
Medical, Dental, Life Insurance and Disability Coverage
Active employee benefits such as medical, dental, life insurance and disability coverage are available to most full time company employees, includingof the named executive officers through our active employee benefits plans. The value of these benefits is not requiredwould be entitled to be included in the Summary Compensation Table since they are made available on a company-wide basis.
The company also provides vacation and other paid holidays to most of its full time corporate employees, including the named executive officers, which, we believe, are comparable to those provided at other similar size companies.
Employee Compensation and Benefit Plans
The Unit Corporation Amended and Restated Stock Option Plan
Under this plan, our employees may be granted stock options from time to time.
Generally the terms of the stock options granted under this plan are as follows:
This plan, which is administered by the Compensation Committee, was approved by our stockholders. Our non-employee Directors are not eligible to participate in this Plan.
Under the this plan our employees may be awarded bonuses either in cash or stock (including restricted stock awards) or a combination of both. Awards may be payable in a lump sum or in annual installments subject to certain restrictions.
This plan is administered by our Compensation Committee. Our non-employee Directors are not eligible to participate in this Plan.
The plan was also approved by our stockholders.
Unit Corporation Employee Thrift Plan
Under the Unit Corporation Employee Thrift Plan, which is tax-qualified retirement savings plan, participating employees may contribute up to 99 percent of compensation on a before-tax basis into their plan accounts. Total contributions may not exceed IRS determined maximums for any given year. In addition, under the plan, we can make a matching contribution. The amount of our matching contributions is generally determined by our Compensation Committee each year and is generally made in shares of our common stock. For the 2006 Plan Year, the Compensation Committee has approved a match of 117% of the first 6% of salary contributed by participants.
We have funded a trust to secure the obligations to make payments under this plan.
Unit Corporation Salary Deferral Plan
We have also established a salary deferral plan which allows certain participants to defer the recognition of salary for income tax purposes until actual distribution of benefits which occurs at either termination of employment, death or certain defined unforeseeable emergency hardships. This is a non-qualified plan.that executive’s employment. The actual amounts to be paid out can only be determined at the time of
We indemnify our directorsthe executive’s separation from service, and some of our elected officers to the fullest extent permitted by law so that they willmay well be free from undue concern about personal liability in connection with their service to the company. This is required under our bylaws, and we have also entered into agreements with certain of those individuals contractually obligating us to provide this indemnification to them.
The following table summarizes information, as of December 31, 2005, relating to our equity compensation plans.
EQUITY COMPENSATION PLANS AS OF DECEMBER 31, 2005
Plan Category | Number of securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options ($) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||
| (a) | (b) | (c) | ||||
Equity compensation plans approved by security holders(1) | 530,713 | 24.28 | 1,514,210 | |||
Equity compensation plans not approved by security holders | 0 | N/A | 0 | |||
Total | 530,713 | 24.28 | 1,514,210 |
Note to table:
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
As allowed for in our stock option plan, each option agreement contains a provision vesting all stock options in the event of a “change-in-control” of the company. A “change-in-control” is deemed to have occurred at such time as any person or group, otherdifferent than the company 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.figures set forth below.
Separation Benefit Planbenefit plan
On December 20, 1996, effective as of January 1, 1997, the Boardboard adopted the Separation Benefit Plan of Unit Corporation and Participating Subsidiaries. The plan is generally
applicable to all of our full-time salaried employees and to the salaried employees of our subsidiaries, 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 before the 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 Boardboard before a “change-in-control” of the company, as defined in the plan, all eligible employees shall be vested in their separation benefit as of the date of the “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 the company or its subsidiaries.
The following table identifies the amounts that would be due to each of the named executive officers identified in the Summary Compensation Table assuming that those amounts were determined as of December 31, 2005.
ESTIMATED BENEFIT AMOUNTS AS OF DECEMBER 31, 20052006.
ESTIMATED BENEFIT AMOUNTS AS OF DECEMBER 31, 2006 | ||
| Name | Amount | |
Larry D. Pinkston | ||
Mark E. Schell | ||
David T. Merrill | ||
John Cromling | ||
Bradford J. Guidry | ||
| * | Assumes for purposes of this disclosure only that the amount shown has either vested under the terms of the plan or that a change-in-control of the company (as defined in the plan) has occurred. |
Senior Management Separation Benefit Planmanagement separation benefit plan
On October 28, 1997, the Boardboard 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 Committeecompensation committee determines who will participate in this plan. In addition, the Committeecommittee 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.
Effective with their retirement from the company, Mr. Keeley, Mr. Lamborn and Mr. Nikkel are receivingcertain former executives received payments under these plans.this plan. Their compensation iswas paid out over a period not to exceedexceeding 26 months. Currently there are no other participants in this Plan.plan.
The following table identifies the total amounts that were due to certainthose retired officers, all of our retired former executive officers under the Senior Management Separation Benefit Plan and the amountwhich was fully paid to each as ofby December 31, 2005:2006:
Individual | Total Amount Earned Under Plan ($) | Amount Paid As of 12/31/05 ($) | ||||
Earle Lamborn | $ | 410,000 | $ | 401,458 | ||
Philip M. Keeley | $ | 315,384 | $ | 315,384 | ||
John G. Nikkel | $ | 605,769 | $ | 281,250 | ||
| Individual | Total Amount Earned Under Plan($) | |
| Earle Lamborn | 410,000 | |
| Philip M. Keeley | 315,384 | |
| John G. Nikkel | 605,769 |
Special Separation Benefit Planseparation benefit plan
This plan is identical to the Separation Benefit Plan with the exception that a participant will vest in his or her earned benefit on the earliest of the participant reaching the age of 65 or serving 20 years with us. AsThere are currently 33 employees participating in this plan. None of December 31, 2005, there were nothe named executive officers are participants in this plan, however in January 2006, the Compensation Committee elected to allow 33 employees to participate in the plan. Participation in this plan is in lieu of participation in any of the other Separation Benefit Plans.separation benefit plans discussed above.
Change-in-Control ArrangementsChange-in-control arrangements
Unit Corporation Employee Stock Bonus Plan:
As provided for in the restricted stock bonus agreements entered into under the terms of the Unit Corporation Employee Stock Bonus Plan (replaced by the Unit Corporation Stock and Incentive Plan), restricted stock shares granted under that plan vest immediately in the event of a change in control of the company. A “change of control” is deemed to have occurred ten days after any of the following events:
| (1) | an acquisition (excluding acquisitions from or by the company, a company-sponsored benefit plan, under a stockholder-approved business combination, or by persons deemed by the board not to intend to change control and who subsequently divest themselves of their control shares) in which any person or group becomes the beneficial owner, directly or indirectly, of 15% 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 thereof cease to constitute a majority of the board (except 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 thereof will be deemed to be a member of the incumbent board); |
| (3) | approval by the company’s stockholders of a reorganization, |
merger or consolidation or sale of 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 70% of the outstanding common stock of the corporation resulting from the business combination;
no person, entity or group (other than the company, the resulting corporation, or a person who prior to the combination owned 25% of company stock or voting securities) will beneficially own, directly or indirectly, 25% 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 company resulting from the business combination were members of the company’s board prior to the combination; or
| (4) | approval by the company’s stockholders of a complete liquidation or dissolution of the company. |
Unit Corporation Amended and Restated Stock Option Plan:
As provided for in option agreements entered into under the terms of the Unit Corporation Amended and Restated Stock Option Plan, all stock options vest immediately in the event of a “change-in-control” of the company. A “change- in-control” is deemed to have occurred at such time as any person or group, other than the company 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.
Unit Corporation Stock and Incentive Compensation Plan:
The restricted shares of stock and the SARs awards granted in December 2006 under the Unit Corporation Stock and Incentive Plan vest immediately in the event of a “change-of- control” of the company. Under that plan, a “change- in-control” is generally defined as:
| (1) | Any individual, entity or group acquiring beneficial ownership of 15% of 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 thereof ceasing 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 thereof 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 combinations: |
all or substantially all of the beneficial owners of the company’s then outstanding common stock prior to the business combination own more than 70% of the outstanding common stock of the company resulting from the business combination;
no person, entity or group owns 25% or more of the outstanding
voting securities of the company resulting from the business combination; and |
at least a majority of the board of the company 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. |
Key Employee Contracts:
We have entered into key employee change-in-control contracts with Messrs. Pinkston, Schell, Merrill and Belitz. Mr. Belitz is our Controller. These severance contracts have an initial three-year term that is automatically extended for one year uponon each anniversary, unless a notice not to extend is given by us. If a change-in-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-in-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 suchthe three-year period, or the executive terminates employment for any reason during the 30-day period following the first anniversary of the change-in-control, and on certain terminations before a change-in-control or in connection with or in anticipation of a change-in-control, the executive is generally entitled to receive from the company in a lump sum the following payment and benefits:
earned but unpaid compensation;
up to 2.92.99 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 contract. 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 Internal Revenue 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 severancethose contracts.
For purposes of the severancethese contracts, a change-in-control is generally defined as:
(1)
| (1) | Any individual, entity or group acquiring beneficial ownership of 15% or more of either the outstanding shares of the company’s common stock
|
| (2) | Individuals who constitute the board on the date thereof 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 thereof 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 Boardboard of the company resulting from the business combination were members of the company’s Boardboard prior to the business combination; or
(4) Approval by the company’s
| (4) | Approval by our stockholders of a complete liquidation or dissolution of the company. |
Payments on termination or change-in-
control table
Under the individual severance agreements with the named executive officers that address their termination of employmentcontracts and plans discussed above, following a change-in-control of the company, each named executive officer would be entitled to receive the following estimated benefits.benefits assuming that the change-in-control occurred at December 31, 2006, including a gross-up for certain taxes in the event that any payments made in connection with a change-in-control would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code. These disclosed amounts are estimates only and do not necessarily reflect the actual amounts that would be paid to the executive, which would only be known at the time that they become eligible for payment and would only be payable if a change-in-control under the plan or agreement were to occur. The table reflects the amount that could be payable under the various arrangements assuming that the change-in-control occurred at December 31, 2005, including a gross-up for certain taxes in the event that any payments made in connection with a change-in-control would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code.
ESTIMATED CURRENT VALUE OF CHANGE-IN-CONTROL BENEFITS
| ESTIMATED CURRENT VALUE OF CHANGE-IN-CONTROL BENEFITS AS OF DECEMBER 31, 2006 | ||||||||||||
| Name | Separation Plan ($) | Key Employee Contract(1) ($) | Early Vesting of Stock Options and SARs(2) ($) | Early Vesting of Restricted Stock(3) ($) | Estimated Tax Gross Up(4) ($) | Total ($) | ||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | ||||||
| Larry D. Pinkston | 865,385 | 3,536,892 | 211,905 | 520,585 | 1,388,553 | 6,523,320 | ||||||
| Mark E. Schell | 321,538 | 1,647,033 | 176,505 | 173,024 | 558,675 | 2,876,775 | ||||||
| David T. Merrill | 46,154 | 1,480,766 | 117,476 | 157,999 | 541,315 | 2,343,710 | ||||||
(a) | (b) | (c) | (d) | (e) | (f) | |||||
Name | Severance Amount(1) | Early Vesting of | Early Vesting of Stock(3) | Estimated Tax Gross Up(4) | Total | |||||
Larry D. Pinkston | 2,491,038 | 432,610 | 93,828 | 821,703 | 3,839,179 | |||||
Mark E. Schell | 1,687,611 | 364,714 | 59,415 | 528,576 | 2,640,316 | |||||
David T. Merrill | 1,298,483 | 224,318 | 54,762 | 521,147 | 2,098,710 |
Notes to table:
| (1) | This amount represents the product of 2.99 |
|
| (2) | The value of stock options and SARs assumes a fair market value for |
| (3) | The value of restricted stock assumes a fair market value for |
| (4) | The estimated tax gross up is based on the 20% excise tax, grossed up for taxes, on the amount of severance and other benefits above each individual’s average five-year W-2 earnings times 2.99. |
Retirement or Consulting Agreementsconsulting agreements
In connection with the retirement of Mr. King Kirchner from his position as our Chief Executive Officer, of the company, we entered into a Separation Agreement with Mr. Kirchner on May 11, 2001. Under this agreement, Mr. Kirchner is entitled to receive a total of $2.4 million. For the first two years under the agreement, Mr. Kirchner received, as part of the total due him, payments under the terms of the company’s Separation Benefit Plan for Senior Management or a total of $560,000. Then, commencing in July 2003 (and continuing through June 2009), Mr. Kirchner is receiving the $1,840,000 balance at the rate of $300,000 per year paid in monthly installments of $25,000. As of December 31, 2005,2006, Mr. Kirchner had received monthly payments totaling $770,000.$1,090,000.
We have also entered into an agreement with Mr. John Nikkel, our former Chief Executive
Officer, providing for him to serve as a consultant to the company when he retired on April 1, 2005. Under this agreement, for the term of the agreement which is for a one year term extendable for successive one year periods by mutual agreement, Mr. Nikkel receives, on an annual basis, $70,000 per year. We currently extended the agreement until April 1, 2007. In addition, we providedprovide him with office space and secretarial services for the time he serves as a consultant. In addition, atAt its February 2005 meeting, the Compensation Committeecompensation committee elected to reward Mr. Nikkel for his 21 years of service to the company by awarding him with a cash bonus of $750,000 payable in 24 monthly installments commencing on the 20th month following his retirementretirement.
Our related person transaction policy
Our board has adopted a policy and procedures for the review, approval or ratification of Related Person Transactions (as defined below) which is set forth in our Policy and Procedures with Respect to Related Person Transactions (the “Policy”).
For purposes of the Policy, a “Related Person Transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which the company (including any of its subsidiaries) was, is or will be a participant and in which any Related Person (as defined below) had, has or will have a direct or indirect material interest, other than (1) transactions in which the amount involved does not exceed $100,000, (2) transactions available to employees generally, or (3) transactions involving compensation approved by the company’s compensation committee.
For purposes of the Policy, a “Related Person” means (1) any person who is, or at any time since the beginning of the company’s last fiscal year was, a director or executive officer of the company or a nominee to become a director of the company, (2) any person who is known to be the beneficial owner of more than 5% of our voting securities, (3) any immediate family member of any of the above persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner, and (4) any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person has a 5% or greater ownership or economic interest.
Our audit committee is responsible for reviewing and approving (or prohibiting) any transaction that is determined by our General Counsel to constitute a Related Person Transaction. The audit committee will consider all of the relevant facts and circumstances available to it, including (if applicable) but not limited to (1) the benefits to the company, (2) the impact on April 1, 2005.a director’s independence in the event the Related Person is a director, an immediate family member of a director or an entity in which a director is a partner, stockholder or executive officer, (3) the availability of other sources for comparable products or services, (4) the terms of the transaction, and (5) the terms available to unrelated third parties or to employees generally. No member of the audit committee will participate in any review, consideration or approval of any Related Person Transaction with respect to which such member or any of his or her immediate family members is the Related Person. The audit committee will approve only those Related Person Transactions that are in, or are not inconsistent with, the best interests of the company and its stockholders, as the audit committee determines in good faith.
REPORT OF THE COMPENSATION COMMITTEECertain transactions between the company and its officers, directors, nominees for directors and their associates
The following report of the Compensation Committee shall not be incorporated by reference into anySince 1984, one of our prior filingssubsidiaries, or its predecessor, has formed employee-limited partnerships for investment by our employees and directors. The limited partnerships participate with Unit Petroleum Company, a subsidiary of ours, in its exploration and production operations.
Investment in these programs is offered, where allowed under the Securities Actapplicable law, to all 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 Compensation Committee is responsible for:
Over the compensation for the company’s salaried employees,
The committee is composed entirely of independent outside directors. There are no interlocking relationships between any of our named executive officers and any entity whose directors or executive officers serve on the committee.
Typically the committee reviews and approves the compensation for the company’s executive officers (as well as that of the company’s other salaried employees) at its meeting held each December. At this meeting, the committee members review the information and recommendations regarding the company’s salary employees previously submitted to each committee member by the company’s management.have invested in these employee programs. The committee may also, as it didfollowing table shows their investments in the case of the Unit Corporation Stock2006 and Incentive Compensation Plan, approve and recommend for submission to our stockholders any new equity compensation plans.
The determinations of the committee at its December meeting are, in the case of salaries and bonuses, generally implemented as of January 1 of the year following the meeting. Any stock awards have, until the committee’s December 2005 meeting, only been made in the form of stock options and are effective as of the date of the committee’s decision to award the options.
The committee feels that by waiting until December of each year to make its decisions regarding the compensation levels of the executive officers for the following year, it has the benefit of being able to take into account the full annual performance of the company, both financially and operationally.
If, during the year, circumstances warrant that the committee make adjustments to its previously approved compensation decisions, the committee will evaluate those needs at one or more meetings scheduled throughout the year. Until recently, such decisions generally related to the compensation to be paid to newly hired executive officers. However, because of the recent industry growth in all segments of the company’s operations, the company has been faced with increasing compensation pressure from industry competitors. This pressure has, especially during 2005, forced the company and the committee to make certain adjustments during the course of the year to its compensation program for specific individuals, including that related to Mr. John Cromling and Mr. Brad Guidry, as more fully discussed below.
Objectives of the Committee’s Compensation Program
The objectives of the committee in determining executive compensation are to:2007 employee programs.
| AGGREGATE OF DIRECT OR INDIRECT INVESTMENT | ||||
Officer/Director | 2006 Employee Program($) | 2007 Employee Programs($) | ||
| John G. Nikkel | 200,000 | 250,000 | ||
| King P. Kirchner | 40,000 | 100,000 | ||
| Don Cook | 2,000 | 2,000 | ||
| J. Michael Adcock | 71,000 | 71,000 | ||
| Larry D. Pinkston | 20,000 | 20,000 | ||
| John H. Williams | 25,000 | 25,000 | ||
| Gary R. Christopher | 100,000 | 100,000 | ||
| Bradford J. Guidry | 5,000 | 5,000 | ||
Each year the committee reviews the executive officers’ compensation with regard to:
Individual performances are also reviewed, taking into account the individual’s responsibilities, experience and potential and his or her period of service with the company.
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 under which the executive officers’ annual compensation is determined.
The committee has not historically used outside consultants to assist the committee with regard to its executive compensation policies and decisions. The committee does, however, use each year the Mercer Energy Compensation Survey published by Mercer Human Resource Compensation, Inc. as a guide to informing the committee of the compensation programs of many of the company’s competitors.
Elements of Executive Compensation
The company’s executive compensation program (as well as its overall program) has historically consisted of the following elements:
The company does not currently have employment agreements with any of its executive officers.
Base Salary. In determining the base salaries for the executive officers for 2005, the committee relied primarily on its evaluation of the compensation being paid to individuals holding comparable positions in our industry. In doing so, the committee relied 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 the company. It was the committee’s objective to set the executives’ base salary at approximately the 75% 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 decided to recommend to the full Board that it increase the 2004 salaries of the following officers by the percentages indicated: Larry D. Pinkston 16%, Mark E. Schell 8.5% and David T. Merrill 9.7%.
As noted elsewhere in this proxy statement, Mr. Cromling and Mr. Guidry were promoted to their current positions with two of our subsidiaries on April 1, 2005 and March 1, 2005, respectively. At those times, the committee approved, based on the recommendations of the company’s management, that Mr. Guidry’s salary be increased from $152,500 to $170,000 and Mr. Cromling’s salary be increased from $162,000 to $180,000. These increases were based on the added responsibilities assumed by these individuals as well as a desire to keep the company’s compensation for them at a competitive level.
Bonuses. Executive officers are eligible to earn annual bonuses either in cash or in stock. Stock bonuses are awarded under the Employee 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 the 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.
Generally the bonuses awarded to the company’s executive officers are structured to be paid in three annual installments, with the first payment to be made in the first month of the year following the committee’s decision to award the bonuses. The next two installments are made in January of the next two succeeding years. Receipt of the remaining installments is contingent on the recipient’s continued employment with the company.
Bonus awards to the executive officers for the 2005 year were: Mr. Pinkston, $180,000; Mr. Schell, $100,000; Mr. Merrill, $40,000; Mr. Cromling, $50,000; and Mr. Guidry, $60,000. Consistent with the committee’s previous bonus awards, the first installment of these bonuses was paid as part of the total bonus amount paid to each executive officer in January, 2005.
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.
In 2005, no stock options were granted to Mr. Pinkston, Schell or Merrill. However, as part of the compensation awarded to Mr. Cromling and Guidry on their promotions in 2005, the committee authorized the award of a stock option to each of these individuals covering 7,500 shares of common stock.
From January 1, 2005 until his retirement effective April 1, 2005, Mr. John Nikkel served as the company’s Chief Executive Officer. In view of his pending retirement, the committee elected not to adjust Mr. Nikkel’s salary or award him a bonus at its December 2004 meeting. However, at its February 2005 meeting, the committee did elect to reward Mr. Nikkel for his 21 years of service by awarding him a cash bonus of $750,000 payable in 24 monthly installments commencing on the 20th month following his retirement.
Effective with Mr. Nikkel’s retirement, Mr. Pinkston was elected to the position of the company’s Chief Executive Officer. Mr. Pinkston’s compensation for 2005 was not adjusted from that previously discussed as a result of his election to the position as Chief Executive Officer.
2005 Actions with regard to 2006 Compensation
On December 13, 2005, the committee approved and the Board ratified (and approved, where required), the following compensation for the company’s executive officers for 2006:
Name and Principal Position(s) | Salary($) | Cash Bonus($) | Restricted Stock Award(s)(#) | |||
Larry D. Pinkston President and CEO | 450,000 | 200,015 | 1,715 | |||
Mark E. Schell Sr. V. P., Secretary and General Counsel | 220,000 | 126,686 | 1,086 | |||
David T. Merrill CFO and Treasurer | 200,000 | 116,642 | 1,001 | |||
John Cromling Exec. V. P., Drilling | 210,000 | 101,666 | 1,029 | |||
Bradford J. Guidry Sr. V. P., Exploration | 200,000 | 106,667 | 972 |
The cash bonuses represented above are payable in three annual installments, commencing in January 2006. The first installment in the amount of 50% of the award was paid in January 2006 and the balance will be paid in two equal annual installments. Receipt of these amounts is contingent on the employee remaining in the employment of the company.
The restricted stock awards were issued under the company’s Employee Bonus Plan and evidenced by a restricted stock bonus agreement entered into between each of the above employees and the company. Each agreement, in addition to certain other provisions, provides that one-half of the Restricted Shares vests on January 1, 2007 and the other one-half vests on January 1, 2008, subject in each case to the employee remaining in the employment of the company. In the event of a “change in control” of the company (as defined in the agreement), any unvested shares will immediately vest in the recipient. This is the first time the committee has used restricted stock awards as part of its compensation program. The committee chose to use restricted stock awards in lieu of stock options as a means of more closely linking the executive’s compensation to that of the company’s stock price.
At this meeting the committee also decided to proceed with the preparation of a new incentive plan to replace the company’s existing Employee Bonus Plan and its employee Stock Option Plan. The committee thought that the company needed to update its equity plans in view of recent tax and accounting changes as well as desiring to have a plan that would allow the committee a greater range of options in structuring its equity based compensation. The result of this effort is the Unit Corporation Stock and Incentive Compensation Plan that is being submitted for approval to the company’s stockholders with this proxy statement. The committee views the adoption and approval of this plan as an important step in the ability of the company to maintain a competitive compensation program.
Deductibility of Compensation Under Internal Revenue Code Section 162 (m)
Section 162(m) of the Internal Revenue Code, adopted in 1993, imposes a $1 million cap, subject to certain exceptions, on the deductibility to the company of compensation paid to the executive officers named in our proxy statement. Currently, the compensation paid under our stock option plan is not deductible. Cash compensation voluntarily deferred by the executive officers under the deferred compensation plan is not subject to the Section 162(m) cap until the year paid. After reviewing the compensation to be paid in 2005 that was subject to the Section 162(m) cap, the committee did not expect that compensation to exceed $1 million for any of the named executive officers. Therefore, the committee believes that the company will not be subject to any Section 162(m) limitations on the deductibility of compensation paid to the company’s named executive officers for fiscal year 2005.
The committee continues to consider other steps which might be in the company’s best interests to comply with Section 162(m), while reserving the right to award future compensation which would not comply with the Section 162(m) requirements for nondeductibility if the committee concluded that this was in the company’s best interests.
Members of the Compensation Committee:
J. Michael Adcock - Chairman
William B. Morgan
John H. Williams
Don Cook
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 SEC rules now require that we include in our proxy statement a report from the Audit Committeeaudit committee of the Board.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 Boardaudit committee assists the Boardboard in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and financial reporting practices. During the year 2005,2006, the committee met five 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 company’s Chief Financial Officer and independent registered public accounting firm before public release.
The Boardboard and the Audit Committeeaudit committee believe that the Audit Committee’saudit committee’s current member composition satisfies the rule of the NYSE 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.
The company’sOur 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 Reportour annual report on Form 10-K for 2006 with our 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 company’sour independent registered public accounting firm, 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 the company’s 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. The committee has discussed with the independent registered public accounting firm the auditors’ independence from management, including the implications of the SEC regulations regarding the provisions of non-audit services by the independent registered public accounting firm and determined that the provisions of the non-auditnon- audit services were not inconsistent with the independent registered public accounting firm’s status as an independent registered public accounting firm. In addition, the committee
received the written disclosures and letter from the independent registered public accounting firm required by the Independence Standards Board, Standard No. 1.
The committee also reviewed the report of management contained in the company’s Annual Reportour annual report on Form 10-K for the fiscal year ended December 31, 20052006 filed with the SEC, as well as PricewaterhouseCoopers LLP’s Report of Independent Registered Public Accounting Firm (included in the company’s Annual Reportour annual report on Form 10-K). This report related to its audit of (i) the consolidated financial statements, (ii) management’s assessment of the effectiveness of internal control over financial reporting and (iii) the effectiveness of internal control over financial reporting. The committee continues to oversee the company’s efforts related to its internal control over financial reporting and management’s preparations for the evaluation in fiscal 2006.
Based on review and discussions with management and the independent registered public accounting firm, the committee recommended to the Boardboard that the company’s audited financial statements be included in its Annual Reportannual report on Form 10-K for the year ended December 31, 2005,2006, for filing with the SEC.
Each member of our Audit Committeethe committee is financially literate, knowledgeable and qualified to review financial statements. The Boardboard has
determined that Don Cook qualifies as an “audit committee financial expert” under the rules of the SEC.
Members of the Audit Committee:
Don Cook - Chairman– chairman
William B. Morgan
Gary R. Christopher
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Audit Committee has appointed
At its meeting currently scheduled to be held in April 2007, the audit committee intends to appoint PricewaterhouseCoopers LLP as the
company’s independent registered public accounting firm for the fiscal year ending December 31, 2006.2007.
Fees incurred by the company for PricewaterhouseCoopers LLP
The following table shows the fees for professional audit services provided by PricewaterhouseCoopers LLP for the integrated audit of the company’s annual financial statements for the years ended December 31, 20052006 and 2004,2005, and fees billed for other services during those periods.years.
| 2005 | 2004 | 2006 ($) | 2005 ($) | |||||||
Audit Fees(1) | $ | 525,000 | $ | 584,875 | 541,000 | 525,000 | ||||
Audit-Related Fees(2) | $ | 164,635 | $ | 78,700 | 88,500 | 164,635 | ||||
Tax Fees(3) | $ | 18,950 | $ | 55,245 | 9,050 | 18,950 | ||||
All Other Fees | — | — | - | - | ||||||
Total | $ | 708,585 | $ | 718,820 | 638,550 | 708,585 | ||||
Notes to table:
| (1) | Audit fees represent fees for professional services provided in connection with the integrated audit of our financial statements and review of our quarterly financial statements and audit services provided in connection with the issuance of comfort letters, consents, and assistance with review of documents filed with the SEC. |
| (2) | Audit-related fees consisted primarily of services provided in connection with |
| (3) | For fiscal |
Policy on Audit Committee Pre-Approvalaudit committee pre-approval of Auditaudit and Permissible Non-Audit Servicespermissible non-audit services of Independent Auditorindependent auditor
Consistent with SEC policies regarding auditor independence, the Audit Committeeaudit committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committeeaudit committee has established a policy to pre-approvepre- approve all audit and permissible non-audit services provided by the independent registered public accounting firm.
Before incurring the following, management will submit a list of services and related fees expected to be rendered during that year within each of the following four categories of services to the Audit Committeeaudit committee for approval:
| 1. | Auditservices include audit work performed on the financial statements, internal control over financial reporting, as well as work that generally only the independent registered public accounting firm can reasonably be expected to provide, including comfort |
letters, statutory audits, and discussions surrounding the proper application of financial accounting and/or reporting standards. |
| 2. | Audit-Relatedservices are for assurance and related services that are traditionally performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements. |
| 3. | Taxservices include all services, except those services specifically related to the audit of the financial statements performed by the independent registered public accounting firm’s tax personnel, including tax analysis; assisting with coordination of execution of tax related activities, primarily in the area of corporate development; supporting other tax related regulatory requirements; and tax compliance and reporting. |
| 4. | Other Feesare those associated with services not captured in the other categories. The company generally doesn’t request such services from the independent registered public accounting firm. |
The Audit Committeeaudit committee pre-approves the independent registered public accounting firmsfirm’s services within each category. The fees are budgeted and the Audit Committeeaudit committee requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval categories. In those instances, the Audit Committeeaudit committee requires specific pre-approval before engaging the independent registered public accounting firm.
The Audit Committeeaudit committee may (and has at various times in the past) delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committeeaudit committee at its next scheduled meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2005,2006, 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:compensation committee: J. Michael Adcock, William B. Morgan, John H. Williams and Don Cook. There are no committee interlocks with other companies within the meaning of the SEC’s rules during 2005.2006.
As more fully discussed in OTHER MATTERS“RELATED PERSON TRANSACTIONS – Certain Transactions Betweentransactions between the Companycompany and Its Officers, Directors, Nomineesits officers, directors, nominees for Directordirector and Their Associates, Mr. Adcock, Williamstheir associates,” certain directors and Cookofficers have, from time to time invested in certain employee and director limited partnerships that are formed and administered by one of the company’s subsidiaries.
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, 2000) in our common stock during the five-year period from December 31, 2001 through December 31, 2005, with the Standard & Poor’s 500 Composite Index, the S&P 600 Oil & Gas Exploration and Production Index and a company determined peer group index. The graph reflects a peer group index consisting of Grey Wolf Inc., Patterson-UTI Energy Inc., Pioneer Drilling Co., and Helmrich & Payne Inc. The comparisons in this table are required by the SEC 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, | ||||||||||
| 2001 | 2002 | 2003 | 2004 | 2005 | ||||||
Unit | 68.12 | 97.95 | 124.36 | 201.77 | 290.59 | |||||
S&P 500 | 88.11 | 68.64 | 88.33 | 97.94 | 102.75 | |||||
S&P 600 Oil & Gas | 85.17 | 89.60 | 124.41 | 189.55 | 317.27 | |||||
Peer Group | 67.11 | 81.88 | 85.76 | 107.22 | 182.87 | |||||
ITEM 1: Election of Directorsdirectors
Item 1 is the election of three directors to the Board.board. Our Amended and Restated Certificate of Incorporation provides that the number of directors the companyon our board may have may not be less than three nor more than ten. Our Boardboard currently is composed of nine 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 III 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,board, or the Boardboard 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 Boardboard increases the number of directors, the Boardboard may fill the vacancy or elect the new director.
Mr. SullivanOur nominating and Mr. Christopher are standing for their first election by our stockholders. Both were elected to our Board effective July 1, 2005 at the recommendation of the Nominating and Governance Committee and on the unanimous
vote of the Board. One of our non-management directors initially recommended Mr. Sullivan for consideration as a Board member while Mr. Christopher was considered on the initial recommendation of the Chairman of the Board of Directors.
Our Nominating & Governance Committeegovernance committee has recommended, and the Boardboard has approved, the nominees listed below to stand for election. Each nominee has previously been elected by our stockholders. Information concerning each nominee and each continuing director is provided below.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF ELECTING THE THREE NOMINEES.
| NOMINEES FOR DIRECTOR | ||||
Terms
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expiring at 2007 annual meeting (Class II) | William B. Morgan Age Director since 1988 | Mr. Morgan was elected a director of | ||
John H. Williams Age Director since 1988 | Mr. Williams was elected a director of | |||
Larry D. Pinkston Age Director since 2004 | Mr. Pinkston joined | |||
| CONTINUING DIRECTORS | ||||||||
Terms expiring at 2008 annual meeting (Class III) | King P. Kirchner Age Director since 1963 | Mr. Kirchner, a co-founder of | ||||||
Don Cook Age Director since 1963 | Mr. Cook has served as a director | |||||||
J. Michael Adcock Age Director since 1997 | Mr. Adcock was elected a director | |||||||
| CONTINUING DIRECTORS | ||||||||
Terms expiring 2009 annual meeting (Class I) | John G. Nikkel Age 72 Director since 1983 | Mr. Nikkel joined the company as its President, Chief Operating Officer and a director in 1983. He was elected its Chief Executive Officer in July, 2001 and Chairman of the Board in August, 2003. Mr. Nikkel retired as an employee and as the Chief Executive Officer of the company on April 1, 2005. He currently holds the position of Chairman of the Board. From 1976 until January, 1982 when he co-founded 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. Before 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, a family owned oil and gas | ||||||
| investment company. From August 16, 2000 until August 23, 2002 Mr. Nikkel, in connection with the company’s investment in that 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. | ||||
Robert J. Sullivan Jr. Age 61 Director since 2005 | Mr. Robert J. Sullivan Jr. is a Principal with Sullivan and Company LLC, a family-owned independent oil and gas exploration and production company founded in 1958. He is also the Founder (1989) and served as Chairman and Chief Executive Officer of Lumen Energy Corporation prior to its sale in 2004. Mr. Sullivan was appointed to Oklahoma Governor Frank Keating’s Cabinet as Secretary of Energy in March, 2002. He received a BBA from the University of Notre Dame, and a MBA from the University of Michigan. Mr. Sullivan is a board Member of the Oklahoma Independent Petroleum Association, Oklahoma Energy Resources Board, St. John Medical Center, St. Joseph Residence, University of Notre Dame Alumni Association, and former Board Member of Catholic Charities and Gatesway Foundation. He also is Trustee for the Monte Cassino Endowment Trust, a Member of the University of Notre Dame, Graduate School Advisory Council and Past Chairman of the following School Boards: Cascia Hall Preparatory School; Monte Cassino School and School of St. Mary. | |||
Gary R. Christopher Age 57 Director since 2005 | Mr. Gary R. Christopher is engaged in personal investments and consulting. Between August, 1999 and January, 2004, he served as President and Chief Executive Officer of PetroCorp Incorporated (a public oil and gas exploration company), and from March 1996 to August 1999 he served as the Acquisition Coordinator of Kaiser-Francis Oil Company. His other past professional experience includes serving as Vice President of Acquisitions for Indian Wells Oil Company, Senior Vice President and Manager of the Energy Lending Division of First National Bank of Tulsa and from 1991 to 1996 Senior Vice President and Manager of Energy Lending for Bank of Oklahoma. Previous to that, Mr. Christopher worked for Amerada Hess Corporation as a Reservoir Engineer and for Texaco, Inc. as a Production Engineer. Mr. Christopher is a member of the Society of Petroleum Engineers, Society of Petroleum Evaluation Engineers, and the Oklahoma Independent Petroleum Association. Mr. Christopher received a B.S. degree in Petroleum Engineering from the University of Missouri at Rolla. Mr. Christopher is a past Director of the Petroleum Club of Tulsa, Middle Bay Oil Company, Three Tech Energy, PetroCorp Incorporated and a present Director of the Summit Bank of Oklahoma. |
The following table identifies our executive officers who are not directors as well as certain of theexecutive officers of our subsidiaries.
Name and Age as of the 2007 Annual Meeting | Position, Principal Occupation, Business Experience and | |||
Mark E. Schell Age | Senior Vice President, General Counsel and Secretary | |||
David T. Merrill Age | Chief Financial Officer and Treasurer | |||
John Cromling Age | Executive Vice President of Unit Drilling Company | |||
Bradford J. Guidry Age | Senior Vice President of Unit Petroleum Company | |||
Robert H. Parks Jr. Age | Manager of Superior Pipeline Company, L.L.C. | |||
ITEM 2: Ratification of Appointmentappointment of Independent Registered Public Accounting Firmindependent registered public accounting firm
Our Audit Committee has unanimously selectedaudit committee expects to appoint PricewaterhouseCoopers LLP as our independent registered public accounting firm for our 20062007 fiscal year.year at the committee’s next meeting currently scheduled to be held in April, 2007. We are asking you to ratify and approve thisthat 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 suchthis ratification, the Audit Committeeaudit 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 Committeeaudit committee may still appoint a new independent registered public accounting firm at any time if it believes that such change would be in the best interest of the company and its stockholders. Failure to ratify this selection is not binding on the Audit Committee.audit committee. However, if our stockholders do not ratify this selection, the Audit Committeeaudit committee will reconsider the appointment.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL, WHICH VOTE WILL ACT TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP.
ITEM 3: Approval of Increase in the Authorized Shares of Common Stock
The Board believes that the proposed increase to the authorized number of shares of common stock, par value $.20 per share, is necessary for the continued success and growth of the company. The proposed amendment to our Amended and Restated Certificate of Incorporation will amend Article Four to increase the number of authorized shares of common stock, par value $.20 per share, from 75,000,000 shares to 175,000,000 shares.
The proposed amendment is as follows:
“The aggregate number of shares of all classes of stock which the corporation shall have the authority to issue is [180,000,000], 175,000,000 of which shall be Common Stock of the par value of $.20 per share (hereinafter called “Common Stock”) and [5,000,000] of which shall be Preferred Stock of the par value of $1.00 per share (hereinafter called “Preferred Stock”).”
Note that the numbers contained in the brackets above are subject to change depending on the outcome of the voting on Item No. 4 as set out in this proxy statement. If our stockholders approve Item No. 4 as well and this proposal, the numbers in the brackets above would change to 185,000,000 and 10,000,000, respectively.
As of March 13, 2006, there were
If this proposal is approved, taking into account the number of shares reserved for issuance, the Board will have the authority to issue approximately 128,212,641 shares of common stock without further stockholder approval, except as may be required for a particular transaction by applicable law, regulatory agencies or the rules of the NYSE or any other securities exchange on which our securities may then be listed.
The additional authorized shares of common stock may be used for such corporate purposes as may be determined by the Board from time to time to be necessary or desirable. These purposes may include, without limitation: raising capital through the sale of common stock; effecting a stock split or issuing a stock dividend; acquiring other businesses in exchange for shares of common stock; and attracting and retaining employees by the issuance of additional securities under the company’s equity
compensation plans. At the present time, the company has no commitments, agreements or undertakings to issue any such additional shares, except in connection with existing equity compensation plans and agreements.
The Board believes that the authorized number of shares of common stock should be increased to provide the Board with the ability to issue additional shares of common stock for the potential corporate purposes described above, without having to incur the delay and expense incident to holding a special meeting of the stockholders to approve an increase in the authorized shares of common stock at that time.
The authorization of the additional shares by this proposal would not have any immediate dilutive effect on the proportionate voting power or other rights of existing stockholders, but, to the extent that the additional authorized shares are issued in the future, they may decrease existing stockholders’ percentage equity ownership and, depending on the price at which they are issued, could be dilutive to existing stockholders and have a negative effect on the market price of the company’s common stock. Under the company’s Amended and Restated Certificate of Incorporation, stockholders do not have preemptive rights with respect to the issuance of shares of common stock, which means that current stockholders do not have a prior right to purchase shares in any new issue of common stock in order to maintain their proportionate ownership of common stock.
Anti-Takeover Considerations
The increase in the number of authorized shares of common stock could have an anti-takeover effect, although this is not the intent of the Board. For example, if the Board issues additional shares in the future, such issuance could dilute the stock ownership and voting power of, or increase the cost to, a person seeking to obtain control of the company, thereby deterring or rendering more difficult a merger, tender offer, proxy contest or other extraordinary transaction. To the extent that it impedes any such attempts, the proposed amendment may serve to perpetuate the Board and the company’s management. The proposed amendment is not being proposed in response to any known effort or threat to acquire control of the company and is not part of a plan by management to adopt a series of amendments to the Amended and Restated Certificate of Incorporation and the company’s bylaws having an anti-takeover effect.
In addition, other provisions of the company’s Amended and Restated Certificate of Incorporation and bylaws may have an anti-takeover effect, including provisions that require stockholders to give the company advance notice to nominate candidates for election to its Board or to make stockholder proposals at a stockholder meeting, and that permit the Board to issue, without stockholder approval, preferred stock with such terms as the Board may determine. Further, Section 203 of the Delaware General Corporation Law provides certain restrictions on business combinations between the company and any party acquiring a 15 percent or greater interest in its voting stock. These provisions of the company’s Amended and Restated Certificate of Incorporation, our bylaws, our shareholder rights plan and Delaware law could discourage potential acquisition proposals and could delay or prevent a change-in-control of the company, even if the stockholders support such proposals.
Voting Information
A majority of the outstanding shares or our common stock must vote FOR this proposal to approve the proposed Amendment. Abstentions and broker non-votes will have the same effect as votes against the proposal.
The Board reserves the right to abandon the proposed amendment set forth in this proposal at any time before its effectiveness whether before or after stockholder approval under Delaware General Corporation Law §242(c). If this proposal is approved, we intend to promptly file a Certificate of Amendment with the Secretary of State of the State of Delaware. On filing, all stockholders will be bound by the terms of the Certificate of Amendment, whether or not they voted to approve it.
THE BOARD HAS APPROVED AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE PROPOSED AMENDMENT.
ITEM 4: Approval of Increase in the Authorized Shares of Preferred Stock
The Board believes that the proposed increase to the authorized number of shares of preferred stock is necessary for the continued success and growth of the company. The proposed amendment to our Amended and Restated Certificate of Incorporation will amend Article Four to increase the number of authorized shares of preferred stock from 5,000,000 shares to 10,000,000 shares.
The proposed amendment is as follows:
“The aggregate number of shares of all classes of stock which the corporation shall have the authority to issue is [85,000,000], [75,000,000] of which shall be Common Stock of the par value of $.20 per share (hereinafter called “Common Stock”) and 10,000,000 of which shall be Preferred Stock of the par value of $1.00 per share (hereinafter called “Preferred Stock”).”
Note that the numbers contained in the brackets above are subject to change depending on the outcome of the voting on Item No. 3 as set out in this proxy statement. If our stockholders approve Item No. 3 as well and this proposal, the numbers in the brackets above would change to 185,000,000 and 175,000,000, respectively.
Under the laws of the state of Delaware and our Amended and Restated Certificate of Incorporation, our Board has the authority, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the privileges and rights of each series. The Board is now requesting that the stockholders approve an increase in the number of shares of preferred stock which we can issue from 5,000,000 to 10,000,000. Currently, we do not have any shares of preferred stock outstanding.
The additional shares of preferred stock may be used for such corporate purposes as may be determined by the Board from time to time to be necessary or desirable. These purposes may include, without limitation: raising capital through the sale preferred stock; and acquiring other businesses in exchange for shares of preferred stock At the present time, the company has no commitments, agreements or undertakings to issue any such additional shares.
The Board believes that the authorized number of shares of preferred stock should be increased to provide the Board with the ability to issue additional shares of preferred stock for the potential corporate purposes described above, without having to incur the delay and expense incident to holding a special meeting of the stockholders to approve an increase in the authorized shares of preferred stock at that time.
Anti-Takeover Considerations
The increase in the number of authorized shares of preferred stock could have an anti-takeover effect, although this is not the intent of the Board. For example, if the Board issues shares in the future, such issuance could dilute the stock ownership and voting power of, or increase the cost to, a person seeking to obtain control of the company, thereby deterring or rendering more difficult a merger, tender offer, proxy contest or other extraordinary transaction. To the extent that it impedes any such attempts, the proposed amendment may serve to perpetuate the company’s Board or management. The proposed amendment is not being proposed in response to any known effort or threat to acquire control of the company and is not part of a plan by management to adopt a series of amendments to the Amended and Restated Certificate of Incorporation and the company’s bylaws having an anti-takeover effect.
In addition, other provisions of the company’s Amended and Restated Certificate of Incorporation and bylaws may have an anti-takeover effect, including provisions that require stockholders to give the company advance notice to nominate candidates for election to its Board or to make stockholder proposals at a stockholder meeting, and that permit the Board to issue, without stockholder approval, preferred stock with such terms as the Board may determine. Further, Section 203 of the Delaware General Corporation Law provides certain restrictions on business combinations between
the company and any party acquiring a 15 percent or greater interest in its voting stock. These provisions of the company’s Amended and Restated Certificate of Incorporation, our bylaws, our shareholder rights plan and Delaware law could discourage potential acquisition proposals and could delay or prevent a change-in-control of the company, even if the stockholders support such proposals.
Voting Information
A majority of the outstanding shares or our common stock must vote FOR this proposal to approve the proposed Amendment. Abstentions and broker non-votes will have the same effect as votes against the proposal.
The Board reserves the right to abandon the proposed amendment set forth in this proposal at any time before its effectiveness whether before or after stockholder approval under Delaware General Corporation Law §242(c). If this proposal is approved, we intend to promptly file a Certificate of Amendment with the Secretary of State of the State of Delaware. On filing, all stockholders will be bound by the terms of the Certificate of Amendment, whether or not they voted to approve it.
THE BOARD HAS APPROVED AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE PROPOSED AMENDMENT.
ITEM 5: Proposal to Approve the Unit Corporation Stock and Incentive Compensation Plan
General
The Board believes that the growth of our company depends on the efforts of our employees, and that the Unit Corporation Stock and Incentive Compensation Plan (the “Plan”) will provide an effective means of attracting and retaining qualified employees while enhancing their long-term focus on maximizing stockholder value.
The Plan has been adopted by the Board, subject to approval by our stockholders at the annual meeting. The principal features of the Plan are summarized below. This summary is qualified in its entirety, however, by reference to the Plan, which is attached to this proxy statement as Appendix A.
If approved by our stockholders, the Plan will serve as the successor to the Unit Corporation Amended and Restated Stock Option Plan and the Employee Bonus Plan, both of which were previously approved by our stockholders, and no further grants will be made under those plans from and after the date our stockholders approve this Plan.
Purpose of the Proposal
The Board believes that providing selected employees with a proprietary interest in the growth and performance of our company (and its subsidiaries) is crucial to stimulating individual performance while at the same time enhancing stockholder value. Currently, approximately 1,167,116 shares of common stock remain available for grant under the two previously approved plans mentioned above. The Board believes that adoption of the Plan is necessary to provide us with the continued ability to attract, retain and motivate employees in a manner that is tied to the interests of our stockholders.
Terms of the Plan
Administration of the Plan.The Compensation Committee of the Board administers the Plan and has authority to make awards under the Plan, to set the terms of the awards, to interpret the Plan, to establish any rules or regulations relating to the Plan that it determines to be appropriate and to make any other determination that it believes necessary or advisable for the proper administration of the Plan. Subject to the limitations specified in the Plan, the Compensation Committee may delegate its authority to appropriate company personnel.
Eligibility.Employees of our company (and its subsidiaries) will be eligible to receive awards (the “Awards”) under the Plan when designated as Plan participants. Awards under the Plan may be granted in any one or a combination of the following forms:
Shares Issuable Through the Plan.A total of 2,500,000 shares of common stock are authorized to be issued under the Plan, representing approximately 5.4% of our outstanding shares of common stock. The closing sale price of a share of common stock, as quoted on the NYSE on March 16, 2006 was $55.50.
Limitations and Adjustments to Shares Issuable Through the Plan.The Plan limits the maximum number of shares that can be issued as “incentive stock options” to 2,000,000 shares. The Plan also contains the following limits to the Awards granted to an insider in any one year as follows:
All Awards shall be subject to the minimum vesting periods, determined by the Compensation Committee and included in the Award agreement.
For purposes of determining the maximum number of shares of common stock available for delivery under the Plan, shares of common stock that are not delivered because the Award is forfeited, canceled or settled in cash will not be deemed to have been delivered under the Plan. With respect to stock appreciation rights, the net number of shares of common stock delivered on exercise of the stock appreciation right will be counted against the Plan limits.
Proportionate adjustments will be made to all of the share limitations provided in the Plan, including shares subject to outstanding Awards, in the event of any recapitalization, stock dividend, stock split, combination of shares or other change in the shares of common stock, and the terms of any Award will be adjusted to the extent appropriate to provide participants with the same relative rights before and after the occurrence of any such event.
Amendments to the Plan.The Compensation Committee or Board may, at any time and from time to time, alter, amend, modify, suspend, or terminate this Plan in whole or in part; provided however, that:
to the extent necessary under any applicable law, regulation or exchange requirement, no amendment shall be
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Types of Awards.Each type of Award that may be granted under the Plan is described below:
Stock Options. The Compensation Committee may grant non-qualified stock options or incentive stock options to purchase shares of common stock. The Compensation Committee will determine the number and exercise price of the options, and the time or times that the options become exercisable, provided that the option exercise price may not be less than the fair market value of a share of common stock on the date of grant, except for an option granted in substitution of an outstanding award in an acquisition transaction in accordance with Section 424(h) of the Code. The term of an option will also be determined by the Compensation Committee; provided that the term of an option may not exceed 10 years.
The option exercise price may be paid in cash; by check; in shares of common stock, subject to certain limitations; through a “cashless” exercise arrangement with a broker approved in advance by us; or in any other manner authorized by the Compensation Committee. Incentive stock options will be subject to certain additional requirements necessary in order to qualify as incentive stock options under Section 422 of the Code.
Except for certain permitted adjustments, unless approved by our stockholders, (a) the exercise price for any outstanding option granted under the Plan may not be decreased after the date of grant and (b) an outstanding option that has been granted under the Plan may not, as of any date that such option has a per share exercise price that is greater than the then current fair market value of our common stock, be surrendered as consideration for the grant of a new option with a lower exercise price, shares of common stock, shares of restricted stock, restricted stock units, another “stock-based” award or a cash payment.
Restricted Stock. Shares of common stock may be granted by the Compensation Committee to an eligible employee and made subject to restrictions on sale, pledge or other transfer by the employee for a certain period (the restricted period). All shares of restricted stock will be subject to such restrictions as the Compensation Committee may provide in an Award agreement with the participant, including provisions obligating the participant to forfeit or resell the shares to us in the event of termination of employment or if specified performance goals or targets are not met. Participant’s rights with respect to such shares shall be subject to the restrictions provided in the Award agreement and the Plan.
Restricted Stock Units. A restricted stock unit represents the right to receive from us, on the respective scheduled vesting or payment date for such restricted stock unit, one share of common stock. An award of restricted stock units may be subject to the attainment of specified performance goals or targets, forfeitability provisions and such other terms and conditions as the Compensation Committee may determine, subject to the provisions of the Plan. To the extent an award of restricted stock units is intended to qualify as performance based compensation under Section 162(m), it must be granted subject to the attainment of performance goals and meet the additional requirements imposed by Section 162(m).
Stock Appreciation Rights. A stock appreciation right may be granted by the Compensation Committee in its discretion. The Compensation Committee may grant free standing stock appreciation rights, tandem stock appreciation rights or any combination of these forms of stock appreciation rights. The grant price for each stock appreciation right shall be determined by the Compensation Committee and shall be specified in the Award agreement, but in no event shall the grant price be less than the fair market value of the shares of common stock of the company on the date the stock appreciation right is granted. The grant price of tandem stock appreciation rights shall be equal to the option price of the related option. The term of the stock appreciation right shall be determined by the Compensation Committee and specified in the Award agreement, which relates to the stock appreciation right. No stock appreciation right will be exercised after the tenth anniversary
from the date of its grant. However, for employees employed outside the United States and who are third-country nationals, the Compensation Committee may grant stock appreciation rights with a term of more than 10 years. Outstanding stock appreciation rights may be exercised on whatever terms the condition the Compensation Committee imposes. Tandem stock appreciation rights may be exercised for all or part of the shares subject to the related option on the surrender of the right to exercise equivalent portions of the related option. A tandem stock appreciation right may be exercised only with respect to the shares for which the related option is unexercisable. With respect to a tandem stock appreciation right granted in connection with an incentive stock option, (a) the tandem stock appreciation right will expire no later than the expiration of the underlying incentive stock option; (b) the value of the payout with respect to the tandem stock appreciation right will be for no more than 100% of the difference between the option price of the underlying incentive stock option and the fair market value of the shares subject to the underlying incentive stock option at the time the tandem stock appreciation right is exercised; and (c) the tandem stock appreciation right may be exercised only when the fair market value of the shares subject to the incentive stock option exceeds the option price of the incentive stock option.
On the exercise of a stock appreciation right, a participant will be entitled to receive payment in an amount determined by multiplying: (a) the difference between the fair market value of a share of common stock on the date of exercise and the grant price; by (b) the number of shares with respect to which the stock appreciation right is exercised. In the discretion of the Compensation Committee, the payment of the stock appreciation right exercised may be in cash, shares of equivalent value (based on the fair market value on the date of exercise of a stock appreciation right) in some combination thereof or in any other form approved by the Compensation Committee.
Other Stock-Based Awards. The Plan also authorizes the Compensation Committee to grant participants awards of common stock and other awards that are denominated in, payable in, valued in whole or in part by reference to, or are otherwise based on the value of, or the appreciation in value of, shares of common stock (other stock-based awards). The Compensation Committee has discretion to determine the participants to whom other stock-based awards are to be made, the times at which such awards are to be made, the size of such awards, the form of payment, and all other conditions of such awards, including any restrictions, deferral periods or performance requirements.
Performance-Based Compensation Under Section 162(m). Stock options and stock appreciation rights granted in accordance with the terms of the Plan, the exercise of which is based on the attainment of performance goals, will qualify as performance-based compensation under Section 162(m). Grants of any restricted stock, restricted stock units or other stock-based awards that we intend to qualify as performance-based compensation under Section 162(m) must be made subject to the achievement of pre-established performance goals. The pre-established performance goals will be based on any or a combination of the following business criteria applied to our company as a whole, a company division or a subsidiary:
Any performance goal (s) may be used to measure the performance of the company as a whole or any business unit of the company or any combination thereof, as the Compensation Committee may deem appropriate, or any of the above performance measures as compared to the performance of a group of comparative companies, or published or special index that the Compensation Committee, in its sole discretion, deems appropriate.
The Compensation Committee has authority to use different targets from time to time under the performance goals provided in the Plan. As a result, the regulations under Section 162(m) require that the material terms of the performance goals be re-approved by the stockholders every five years. To qualify as performance-based compensation, grants of restricted stock, restricted stock units and other stock-based awards will be required to satisfy the other applicable requirements of Section 162(m).
Termination of Employment.If a participant ceases to be employed by us or provide services to us for any reason, including death, his outstanding Awards may be exercised or shall expire at such time or times as may be determined by the Compensation Committee and described in the Award agreement.
Change-in- Control.In the event of a change-in-control of our company, as defined in the Plan, all Awards will become fully vested and exercisable, all restrictions or limitations on any Awards will generally lapse and, unless otherwise provided in the Award agreement, all performance criteria and other conditions relating to the payment of Awards will generally be deemed to be achieved or waived.
Transferability of Awards.The Awards awarded under the Plan may not be transferred except
Payment of Withholding Taxes.We may withhold from any payments or stock issuances under the Plan, or collect as a condition of payment, any taxes required by law to be withheld. Any participant may, but is not required to, satisfy his or her withholding tax obligation by electing to deliver currently owned shares of common stock or to have us withhold, from the shares the participant would otherwise receive, shares of common stock, in each case having a value equal to the minimum amount required to be withheld. This election must be made before the date on which the amount of tax to be withheld is determined and is subject to the Compensation Committee’s right of disapproval.
Awards to be Granted
If our stockholders approve the Plan at the annual meeting, grants of awards to selected employees will be made in the future by the Compensation Committee as necessary to attract and retain employees.
Federal Income Tax Consequences of Stock Options
Under existing federal income tax provisions, a participant who is granted a stock option normally will not realize any income, nor will we normally receive any deduction for federal income tax purposes, in the year the option is granted.
When a non-qualified stock option granted under the Plan is exercised, the participant will realize ordinary income measured by the difference between the aggregate purchase price of the shares of common stock acquired and the
aggregate fair market value of the shares of common stock acquired on the exercise date and, subject to the limitations of Section 162(m) of the Code, we will be entitled to a deduction in the year the option is exercised equal to the amount the participant is required to treat as ordinary income.
An employee generally will not recognize any income upon the exercise of any incentive stock option, but the excess of the fair market value of the shares at the time of exercise over the option price will be an item of tax preference, which may, depending on particular factors relating to the employee, subject the employee to the alternative minimum tax imposed by Section 55 of the Code. The alternative minimum tax is imposed in addition to the federal individual income tax, and it is intended to ensure that individual taxpayers do not completely avoid federal income tax by using preference items. An employee will recognize capital gain or loss in the amount of the difference between the exercise price and the sale price on the sale or exchange of stock acquired pursuant to the exercise of an incentive stock option, provided the employee does not dispose of such stock within two years from the date of grant and one year from the date of exercise of the incentive stock option (the holding periods). An employee disposing of such shares before the expiration of the holding periods will recognize ordinary income generally equal to the difference between the option price and the fair market value of the stock on the date of exercise. The remaining gain, if any, will be capital gain. We will not be entitled to a federal income tax deduction in connection with the exercise of an incentive stock option, except where the employee disposes of the shares of common stock received upon exercise before the expiration of the holding periods.
If the exercise price of a non-qualified option is paid by the surrender of previously owned shares, the basis and the holding period of the previously owned shares carry over to the same number of shares received in exchange for the previously owned shares. The compensation income recognized on exercise of these options is added to the basis of the shares received. If the exercised option is an incentive stock option and the shares surrendered were acquired through the exercise of an incentive stock option and have not been held for the holding periods, the optionee will recognize income on such exchange, and the basis of the shares received will be equal to the fair market value of the shares surrendered. If the applicable holding period has been met on the date of exercise, there will be no income recognition and the basis and the holding period of the previously owned shares will carry over to the same number of shares received in exchange, and the remaining shares will begin a new holding period and have a zero basis.
If, on a change-in-control of our company, the exercisability or vesting of an Award is accelerated, any excess on the date of the change-in-control of the fair market value of the shares or cash issued under accelerated Awards over the purchase price of such shares, if any, may be characterized as “parachute payments” (within the meaning of Section 280G of the Code) if the sum of such amounts and any other such contingent payments received by the employee exceeds an amount equal to three times the “base amount” for such employee. The base amount generally is the average of the annual compensation of such employee for the five years preceding such change in ownership or control. An “excess parachute payment,” with respect to any employee, is the excess of the parachute payments to such person, in the aggregate, over and above such person’s base amount. If the amounts received by an employee upon a change-in-control are characterized as parachute payments, such employee will be subject to a 20% excise tax on the excess parachute payment and we will be denied any deduction with respect to such excess parachute payment.
Vote Required
Approval of the Plan requires the affirmative vote of the holders of a majority of the votes cast on the proposed plan, and the total votes cast on the proposal must represent more than 50% of our outstanding common stock as of the record date of the stockholders’ meeting.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO APPROVE THE PLAN
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 2005 and 2006 employee programs.
AGGREGATE OF DIRECT OR INDIRECT INVESTMENT
Officer/Director | 2005 Employee Program($) | 2006 Employee Program($) | ||
John G. Nikkel | 150,000 | 200,000 | ||
King P. Kirchner | 40,000 | 40,000 | ||
Don Cook | 2,000 | 2,000 | ||
J. Michael Adcock | 51,000 | 71,000 | ||
Larry D. Pinkston | 4,000 | 20,000 | ||
John H. Williams | 10,000 | 25,000 | ||
Gary R. Christopher | 0 | 100,000 |
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.
Section 16(a) Beneficial Ownership Reporting Compliancebeneficial 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 SEC and the NYSE.SEC. These persons are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of suchthis forms furnished to us, we believe that during 20052006 all Section 16(a) filing requirements applicable to our Reporting Personsreporting persons were complied with except the following:with.
Matters Which May Come Beforewhich may come before the Meetingmeeting
The Boardboard 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.
2006 Stockholder Proposals2007 stockholder proposals or Nominationsnominations
Stockholder Proposals:proposals:
For a stockholder proposal to be considered for inclusion in the company’s proxy statement for next year’s annual meeting, the written proposal must be received by our Corporate Secretary at our principal executive offices no later than December 4, 2006.November 29, 2007. If the date of next year’s annual meeting is moved more than 30 days before or after the anniversary date of this year’s annual meeting, the deadline for inclusion of proposals in the company’s proxy statement is instead a reasonable time before the company begins to print and mail its proxy materials. SuchThese proposals also will need to comply with SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to:
Corporate Secretary
Unit Corporation
7130 South Lewis, Suite 1000
Tulsa, Oklahoma 74136
Fax: (918) 493-7711
For a stockholder proposal that is not intended to be included in the company’s proxy statement under Rule 14a-8, the stockholder must deliver a proxy statement and form of proxy to holders of a sufficient number of shares of the company common stock to approve that proposal, provide the information required by the bylaws of the company and give timely notice to the Corporate Secretary of the company in accordance with the bylaws of the company, which, in general, require that the notice be received by the Corporate Secretary of the company:
Not earlier than the close of business on November 20, 2006,January 2, 2008, and
Not later than the close of business on December 20, 2006.February 1, 2008.
If the date of the stockholder meeting is moved more than 30 days before or 70 days after the anniversary of the company’s annual meeting for the prior year, then notice of a stockholder proposal that is not intended to be included in the company’s proxy statement under Rule 14a-8 must be received no earlier than the close of business 120 days prior tobefore the meeting and no later than the close of business on the later of the following two dates:
90 days prior tobefore the meeting; and
10 days after public announcement of the meeting date.
Nomination of Director Candidates:director candidates:
You may propose director candidates for consideration by the Board’s Nominating & Governance Committee.board’s nominating and governance committee. Any such recommendationsrecommendation should include the nominee’s name and qualifications for Boardboard membership and should be directed to theour Corporate Secretary of the company at the address of our principal executive offices set forth above. In addition, theour bylaws of the company permit a stockholder to nominate directors for election at an annual stockholder meeting. To nominate a director, thea stockholder must deliver a proxy statement and form of proxy to holders of a sufficient number of our shares of the company common stock to elect suchthe nominee and provide the information required by theour bylaws, of the company, including a statement by the stockholder identifying (i) the name and address of suchthe stockholder, as they appear on the corporation’scompany’s books, and of such
beneficial owner, (ii) the class and number of shares of capitalour common stock of the corporation which are owned beneficially and of record by suchthe stockholder and such beneficial owner, (iii) a representation that the stockholder is a holder of record of stockshares of the corporationour common stock entitled to vote at suchthe meeting and intends to appear in person or by proxy at the meeting to propose suchthe nomination, and (iv) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (A) to deliver a proxy statement and/or form a proxy to holders of at least the percentage of the corporation’s outstanding capitalour common stock required to elect the nominee and/or (B) otherwise to solicit proxies from stockholders in support of suchthe nomination. In addition, the stockholder must give timely notice to theour Corporate Secretary of the company in accordance with theour bylaws, of the company,
which, in general, require that the notice be received by the Corporate Secretary of the company within the time period described above under “Stockholder Proposals.”
Communication With UsCommunicating 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 the company:
Our home page on the Internet, located athttp://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.
If you would like to contact us, please call our Investor Relation Department at (918) 493-7700, or send your correspondence to the following address:
Linda Swanson
Unit Corporation
Investor Relations
7130 South Lewis, Suite 1000
Tulsa, Oklahoma 74136
Form 10-K Annual Reportannual report to the SEC
COPIES OF OUR ANNUAL REPORT (FORM 10-K) FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005,2006, AS FILED WITH THE SEC, MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO: MARK E. SCHELL, SECRETARY, UNIT CORPORATION, 7130 S. LEWIS, SUITE 1000, TULSA, OKLAHOMA 74136.
Unit Corporation
Stock and Incentive Compensation Plan
Effective as of May 3, 2006
Table of ContentsIncorporated by reference
i
ii
Unit Corporation
Stock and Incentive Compensation Plan
Effective: May 3, 2006
Establishment, Purpose, and Duration
1.1 Establishment ofTo the extent that this Plan. Unit Corporation, a Delaware corporation (hereinafter referred to as the “Company”), establishes an incentive compensation plan to be known as the Stock and Incentive Compensation Plan (hereinafter referred to as the “Plan”), as set forth in this document.
This Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards, and Stock-Based Awards.
This Plan shall become effective, if approvedproxy statement is incorporated by the Board and shareholders, on May 3 2006 (the “Effective Date”) and shall remain in effect as provided in Section 1.3 of this document.
1.2 Purpose of this Plan. The purpose of this Plan is to promote the success and enhance the value of the Company and Affiliatesreference into any other filing by linking the personal interests of the Participants to those of the Company’s shareholders, and by providing Participants with an incentive for outstanding performance.
This Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants on whose judgment, interest, and special effort the successful conduct of its operation largely is dependent.
1.3 Duration of this Plan. This Plan shall commence as of the Effective Date and shall remain in effect, subject to the right of the Committee or the Board to amend or terminate this Plan at any time under Article 15, until all Shares subject to this Plan have been purchased or acquired according to this Plan’s provisions.
1.4 Successor Plan. This Plan shall serve as the successor to the Unit Corporation Amended and Restated Stock Option Plan and the Employee Bonus Plan (the “Predecessor Plans”), and no further grants shall be madeus under the Predecessor Plans from and after the Effective Date of this Plan.
Definitions
Whenever used in this Plan, the following terms shall have the meaning set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized.
“Affiliate” shall have the meaning given to that term in Rule 12b-2 of the General Rules and Regulations of the Exchange Act, with reference to the Company, and shall also include any corporation, partnership, joint venture, limited liability company, or other entity in which the Company owns, directly or indirectly, at least fifty percent (50%) of the total combined Voting Power of such corporation or of the capital interest or profits interest of such partnership or other entity.
“Award” means, individually or collectively, a grant under this Plan of NQSOs, ISOs, SARs, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards, or Stock-Based Awards, in each case subject to the terms of this Plan.
“Award Agreement” means either (i) a written agreement entered into by the Company or an Affiliate and a Participant setting forth the terms and provisions applicable to Awards granted under this Plan; or (ii) a written statement issued by the Company or an Affiliate to a Participant describing the terms and provisions of such Award.
“Beneficial Owner” or “Beneficial Ownership” shall have the meaning given to that term in rule 13d-3 of the General Rules and Regulations under the Exchange Act.
“Board” or “Board Of Directors” means the Board of Directors of the Company.
“Cash-Based Award” means an Award granted under Article 10, the value of which is denominated in cash as determined by the Committee and which is not any other form of Award described in this Plan.
“Cause” means (i) the willful failure by the Participant to perform substantially the Participant’s duties as an Employee (other than due to physical or mental illness) after reasonable notice to the Participant of such failure, (ii) the Participant’s engaging in serious misconduct that is injurious to the Company or any Affiliate in any way, including, but not limited to, by way of damage to their respective reputations or standings in their respective industries, (iii) the Participant’s having been convicted of, or having entered a plea of nolo contendere to, a crime that constitutes a felony or (iv) the breach by the Participant of any written covenant or agreement with the Company or any Affiliate not to disclose or misuse any information pertaining to, or misuse any property of, the Company or any Affiliate or not to compete or interfere with the Company or any Affiliate.
“Change of 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:
(a) 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 ExchangeSecurities Act of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 15%1933, as
amended, 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; (D) any acquisition by any corporation pursuant to a transaction with complies with clauses (i), (ii) and (iii) of subsection (iii) of this definition; and (E) if the Board of Directors of the Company determines in good faith that a Person became the beneficial owner of 15% or more of the Outstanding Company Common Stock inadvertently (including, without limitation, because (A) such Person was unaware that it beneficially owned a percentage of Outstanding Company Common Stock that would cause a Change of Control or (B) such Person was aware of the extent of its beneficial ownership of Outstanding Company Common Stock but had no actual knowledge of the consequences of such beneficial ownership under this Plan) and without any intention of changing or influencing control of the Company, then the beneficial ownership of Outstanding Company Common Stock by that Person shall not be deemed to be or to have become a Change of Control for any purposes of this Plan unless and until such Person shall have failed to divest itself, as soon as practicable (as determined, in good faith, by the Board of Directors of the Company), of beneficial ownership of a sufficient number of Outstanding Company Common Stock so that such Person’s beneficial ownership of Outstanding Company Common Stock would no longer otherwise qualify as a Change of Control.
(b) 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;
(c) 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 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
(d) approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company.
“Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
“Committee” means the Compensation Committee of the Board of Directors, or any other duly authorized committee of the Board appointed by the Board to administer this Plan.
“Company” means Unit Corporation, a Delaware corporation, and any successor thereto as provided in Article 18.
“Constructively Terminated” means, unless otherwise specified by the Committee in the Award Agreement, a voluntary termination of employment by an Employee within ten (10) business days after any of the following actions by the Company, Affiliate, or person acting on behalf of either:
“Employee” means any employee of the Company or an Affiliate. Directors who are not otherwise employed by the Company or an Affiliate shall not be considered Employees under this Plan. For greater clarity, and without limiting the generality of the foregoing, individuals described in the first sentence of this definition who are foreign nationals or are employed outside of the United States, or both, are Employees and may be granted Awards on the terms and conditions set forth in this Plan, or on such other terms and conditions as may, in the judgment of the Committee, be necessary or desirable to further the purposes of this Plan.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, from time to time, or any successor act thereto.
“Fair Market Value” or “FMV” means a price that is based on the opening, closing, actual, high, low, or average selling pricessections of a Share onthis proxy statement entitled “Compensation Committee Report” and “Audit Committee Report” (to the New York Stock Exchange (“NYSE”) or other established stock exchange (or exchanges) on the applicable date, the preceding trading day, the next succeeding trading day, or an average of trading days, as determinedextent permitted by the Committee in its discretion. Such definition(s) of FMV shall be specified in each Award Agreement and may differ depending on whether FMV is in reference to the grant, exercise, vesting, settlement, or payout of an Award. If, however, the accounting standards used to account for equity awards granted to Participants are substantially
modified subsequent to the Effective Date of this Plan, the Committee shall have the ability to determine an Award’s FMV based on the relevant facts and circumstances. If Shares are not traded on an established stock exchange, FMV shall be determined by the Committee based on objective criteria.
“Fiscal Year” means the year commencing on January 1 and ending December 31 or other time period as approved by the Board.
“Freestanding SAR” means an SAR that is not a Tandem SAR, as described in Article 7.
“Grant Price” means the price against which the amount payable is determined on exercise of an SAR.
“Incentive Stock Option” or “ISO” means an Option to purchase Shares granted under Article 6 and that is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422rules of the Code, or any successor provision.
“Insider” shall mean an individual who is, on the relevant date, subject to the reporting requirements of Section 16 of the Exchange Act, as determined by the Board.
“Nonqualified Stock Option” or “NQSO” means an Option to purchase Shares, granted under Article 6, which is not intended to be an Incentive Stock Option or that otherwise does not meet such requirements.
“Option” means the conditional right to purchase Shares at a stated Option Price for a specified period of time in the form of an Incentive Stock Option or a Nonqualified Stock Option subject to the terms of this Plan.
“Option Price” means the price at which a Share may be purchased by a Participant under an Option, as determined by the Committee.
“Participant” means an Employee who has been selected to receive an Award, or who has an outstanding Award granted under this Plan.
“Performance-Based Compensation” means compensation under an Award that is granted in order to provide remuneration solely on account of the attainment of one or more Performance Goals under circumstances that satisfy the requirements of Section 162(m) of the Code.
“Performance Goal” means a performance criterion selected by the Committee for a given Award for purposes of Article 11 based on one or more of the Performance Measures.
“Performance Measures” means measures as described in Article 11, the attainment of one or more of which shall, as determined by the Committee, determine the vesting, payability, or value of an Award to an Insider that are designated to qualify as Performance-Based Compensation.
“Performance Period” means the period of time during which the assigned performance criteria must be met in order to determine the degree of payout and/or vesting with respect to an Award.
“Performance Share” means an Award granted under Article 9 and subject to the terms of this Plan, denominated in Shares, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria have been achieved.
“Performance Unit” means an Award granted under Article 9 and subject to the terms of this Plan, denominated in units, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria have been achieved.
“Period Of Restriction” means the period when an Award of Restricted Stock or Restricted Stock Unit is subject to forfeiture based on the passage of time, the achievement of performance criteria, and/or on the occurrence of other events as determined by the Committee, in its discretion.
“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof; provided, however, that “Person” shall not include (i) the Company or any Affiliate or (ii) any employee benefit plan (including an employee stock ownership plan) sponsored by the Company or any Affiliate.
“Restricted Stock” means an Award of Shares subject to a Period of Restriction, granted under Article 8 and subject to the terms of this Plan.
“Restricted Stock Unit” means an Award denominated in units subject to a Period of Restriction, granted under Article 8 herein and subject to the terms of this Plan.
“Shares” means the shares of common stock of the Company, $0.20 par value per Share.
“Stock Appreciation Right” or “SAR” means the conditional right to receive the difference between the FMV of a Share on the date of exercise over the Grant Price, under the terms of Article 7 and subject to the terms of this Plan.
“Stock-Based Award” means an equity-based or equity-related Award granted under Article 10 and subject to the terms of this Plan, and not otherwise described by the terms of this Plan.
“Tandem SAR” means an SAR that the Committee specifies is granted in connection with a related Option under Article 7 and subject to the terms of this Plan, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be cancelled). Regardless of whether an Option is granted coincident with an SAR, an SAR is not a Tandem SAR unless so specified by the Committee at time of grant.
“Voting Power” shall mean that number of Voting Securities as shall enable the holders thereof to cast all the votes which could be cast in an annual election of directors of a company.
“Voting Securities” shall mean all securities entitling the holders thereof to vote in an annual election of directors of a company.
Administration
3.1 General. The Committee shall be responsible for administering this Plan. The Committee may employ attorneys, consultants, accountants, agents, and other individuals, any of whom may be an Employee, and the Committee, the Company, and its officers and Directors shall be entitled to rely on the advice, opinions, or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee shall be final, conclusive, and binding on the Participants, the Company, and all other interested parties.
3.2 Authority of the Committee. The Committee shall have full and exclusive discretionary power to interpret the terms and the intent of this Plan and any Award Agreement or other agreement ancillary to or in connection with this Plan, to determine eligibility for Awards, and to adopt such rules, regulations, and guidelines for administering this Plan as the Committee may deem necessary or proper. Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions and, subject to Article 15, adopting modifications and amendments, or subplans to this Plan (as described in Section 18.5) or any Award Agreement, including, without limitation, any that are necessary or appropriate to comply with the laws or compensation practices of the countries and other jurisdictions in which the Company and Affiliates operate.
3.3 Delegation. The Committee may delegate to one or more of its members or to one or more officers of the Company or its Affiliates, any of its duties or powers as it may deem advisable; provided, however, that the Committee may not delegate any of its non-administrative powers with respect to Awards intended to be Performance-Based Compensation; and provided further, that the member(s) or officer(s) shall report periodically to the Committee regarding the nature and scope of the Awards granted under the authority delegated under this Section 3.3. Subject to the terms of the previous sentence, the Committee may delegate to any individual(s) such administrative duties or powers as it may deem advisable
Shares Subject to this Plan and Maximum Awards
4.1 Number of Shares Available for Awards. Subject to adjustment as provided in Section 4.2, the number of Shares hereby reserved for issuance to Participants under this Plan shall be Two Million Five Hundred Thousand (2,500,000) (such total number of Shares, including such adjustment and remaining Shares, the “Total Share Authorization”). The maximum aggregate number of Shares that may be granted in the form of Nonqualified Stock Options shall be equal to the Total Authorization. The maximum aggregate number of Shares that may be granted in the form of Incentive Stock Options shall be Two Million (2,000,000).
For greater clarity, any Awards that are not settled in Shares shall not reduce any of these reserves. Any Shares related to Awards which (i) terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such Shares, (ii) are settled in cash either in lieu of Shares or otherwise, or (iii) are exchanged with the Committee’s permission for
Awards not involving Shares, shall be available again for grant under this Plan. Moreover, if the Option Price of any Option granted under this Plan or the tax withholding requirements with respect to any Award granted under this Plan are satisfied by tendering Shares to the Company (by either actual delivery or by attestation)SEC), or if an SAR is exercised, only the number of Shares issued, net of the Shares tendered, if any, will be deemed delivered for purposes of determining the maximum number of Shares available for issuance under this Plan. The maximum number of Shares available for issuance under this Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional Shares or credited as additional Restricted Stock, Restricted Stock Units, Performance Shares, or Stock-Based Awards. The Shares available for issuance under this Plan may be authorized and unissued Shares or treasury Shares.
Unless and until the Committee determines that an Award to an Insider shall not be designed to qualify as Performance-Based Compensation, the following limits (“Award Limits”) shall apply to grants of Awards to Insiders under this Plan:
(a)OPTIONS AND SARS: The maximum aggregate number of Shares that may be granted in the form of Options or Stock Appreciation Rights, under any Award granted in any one Fiscal Year to any one Participant, shall be 100,000.
(b)RESTRICTED STOCK/RESTRICTED STOCK UNITS: The maximum aggregate grant with respect to Awards of Restricted Stock/Restricted Stock Units granted in any one Fiscal Year to any one Participant shall be 50,000.
(c)PERFORMANCE SHARES/PERFORMANCE UNITS: The maximum aggregate Award of Performance Shares or Performance Units that a Participant may receive in any one Fiscal Year shall be 50,000 Shares, or equal to the value of 50,000 Shares determined as of the date of vesting or payout, as applicable.
(d)CASH-BASED AWARDS: The maximum aggregate amount awarded or credited with respect to Cash-Based Awards to any one Participant in any one Fiscal Year may not exceed $1,000,000 determined as of the date of vesting or payout, as applicable.
(e)STOCK AWARDS: The maximum aggregate grant with respect to Awards of Stock-Based Awards in any one Fiscal Year to any one Participant shall be 50,000.
4.2 Adjustments in Authorized Shares. In the event of any corporate event or transaction (including, but not limited to, a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, extraordinary dividend, stock split, reverse stock split, split up, spin-off, or other distribution of stock or property of the Company, combination of securities, exchange of securities, dividend in kind, or other like change in capital structure or distribution (other than normal cash dividends) to shareholders of the Company, or any similar corporate event or transaction, the Committee, in its sole discretion, in order to prevent dilution or enlargement of Participants’ rights under this Plan, may substitute or adjust, as applicable, the number and kind of Shares that may be issued under this Plan, the number and kind of Shares subject to outstanding Awards, the Option Price or Grant Price applicable to outstanding Awards, the Award Limits, the limit on issuing Awards other than Options granted with an Option Price equal to at least the FMV of a Share on the date of grant or Stock Appreciation Rights with a Grant Price equal to at least the FMV of a Share on the date of grant, and any other value determinations applicable to outstanding Awards or to this Plan provided that any such substitution or adjustment is made in accordance with Section 424(h) of the Code.
The Committee, in its sole discretion, may also make appropriate adjustments in the terms of any Awards under this Plan to reflect, or related to, such changes or distributions and may modify any other terms of outstanding Awards, including modifications of performance criteria and changes in the length of Performance Periods. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under this Plan.
Subject to the provisions of Article 14 and any applicable law or regulatory requirement, without affecting the number of Shares reserved or available under this Plan, the Committee may authorize the issuance, assumption, substitution, or conversion of Awards under this Plan in connection with any such corporate event or transaction on such terms and conditions as it may deem appropriate. Additionally, the Committee may amend this Plan, or adopt supplements to this Plan, in such manner as it deems appropriate to provide for such issuance, assumption, substitution, or conversion as provided in the previous sentence.
Eligibility and Participation
5.1 Eligibility. Individuals eligible to participate in this Plan include all Employees.
5.2 Actual Participation. Subject to the provisions of this Plan, the Committee may from time to time, select from all eligible Employees, those to whom Awards shall be granted and shall determine in its discretion, the nature, terms, and amount of each Award.
Stock Options
6.1 Grant of Options. Subject to the terms and provisions of this Plan, Options may be granted to Participants in such number, and on such terms, and at any time and from time to time as shall be determined by the Committee in its discretion. Despite the foregoing, no ISOs may be granted more than ten (10) years after the earlier of (a) adoption of this Plan by the Board, and (b) the Effective Date.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, the conditions on which an Option shall become vested and exercisable, and any such other provisions as the Committee shall determine. The Award Agreement also shall specify whether the Option is intended to be an ISO or a NQSO.
6.3 Option Price. The Option Price for each grant of an Option under this Plan shall be determined by the Committee and shall be specified in the Award Agreement but in no event shall the Option Price be less than the FMV of the Shares on the date of grant.
6.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant; provided, however, no Option shall be exercisable later than the tenth (10th) anniversary date of its grant. Despite the forgoing, for Options granted to Participants employed outside the United States and who are third country nationals, the Committee has the authority to grant Options that have a term greater that ten (10) years.
6.5 Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and on the occurrence of such events, and be subject to such restrictions and conditions, as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.
6.6 Payment. Options granted under this Article 6 shall be exercised by the delivery of a notice of exercise to the Company or an agent designated by the Company in a form specified or accepted by the Committee, or by complying with any alternative procedures which may be authorized by the Committee, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares.
The Option Price on exercise of any Option shall be payable to the Company in full either: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate FMV at the time of exercise equal to the total Option Price; (c) by a combination of (a) and (b); or (d) any other method approved or accepted by the Committee in its sole discretion subject to such rules and regulations as the Committee may establish.
Subject to Section 6.7 and any governing rules or regulations, as soon as practicable after receipt of a notification of exercise and full payment, the Committee shall cause to be delivered to the Participant Share certificates or evidence of book entry Shares in an appropriate amount based on the number of Shares purchased under the Option(s). Unless otherwise determined or accepted by the Committee, all payments in cash shall be paid in United States dollars.
6.7 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired under the exercise of an Option granted under this Plan as it may deem advisable, including, without limitation, requiring the Participant to hold the Shares acquired under exercise for a specified period of time, or restrictions under applicable laws or under the requirements of any stock exchange or market on which such Shares are listed and/or traded.
6.8 Termination of Employment. Each Participant’s Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant’s employment with the Company or Affiliates. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Options issued under this Article 6, and may reflect distinctions based on the reasons for termination.
6.9 Nontransferability of Options.
(a)INCENTIVE STOCK OPTIONS. No ISO granted under this Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under this Article 6 shall be exercisable during his or her lifetime only by such Participant.
(b)NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a Participant’s Award Agreement at the time of grant, or thereafter by the Committee, NQSO granted under this Article 6 may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement at the time of grant or thereafter by the Committee, all NQSOs granted to a Participant under this Article 6 shall be exercisable during the Participant’s lifetime only by such Participant.
6.10 Notification of Disqualifying Disposition. The Participant will notify the Company on the disposition of Shares issued under the exercise of an ISO. The Company will use such information to determine whether a disqualifying disposition as described in Section 421(b) of the Code has occurred.
Stock Appreciation Rights
7.1 Grant of SARs. Subject to the terms and conditions of this Plan, SARs may be granted to Participants at any time and from time to time and on such terms as shall be determined by the Committee in its discretion. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SARs.
The SAR Grant Price for each grant of a Freestanding SAR shall be determined by the Committee and shall be specified in the Award Agreement but in no event shall the Grant Price be less than FMV of the Shares on the date of grant The Grant Price of Tandem SARs shall be equal to the Option Price of the related Option.
7.2 SAR Agreement. Each SAR Award shall be evidenced by an Award Agreement that shall specify the Grant Price, the term of the SAR, and any such other provisions as the Committee shall determine.
7.3 Term of SAR. The term of an SAR granted under this Plan shall be determined by the Committee, in its sole discretion, and except as determined otherwise by the Committee and specified in the SAR Award Agreement, no SAR shall be exercisable later than the tenth (10th) anniversary date of its grant. Despite the forgoing, for SARs granted to Participants employed outside the United States and who are third country nationals, the Committee has the authority to grant Options that have a term greater that ten (10) years.
7.4 Exercise of Freestanding SARs. Freestanding SARs may be exercised on whatever terms and conditions the Committee, in its sole discretion, imposes.
7.5 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option on the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable.
Despite any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Option Price of the underlying ISO and the FMV of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the FMV of the Shares subject to the ISO exceeds the Option Price of the ISO.
7.6 Payment of SAR Amount. On the exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
(a) The difference between the FMV of a Share on the date of exercise over the Grant Price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment on SAR exercise may be in cash, Shares of equivalent value (based on the FMV on the date of exercise of the SAR, as defined in the Award Agreement or otherwise defined by the Committee thereafter), in some combination thereof, or in any other form approved by the Committee at its sole discretion. The Committee’s determination regarding the form of SAR payout shall be set forth or reserved for later determination in the Award Agreement pertaining to the grant of the SAR.
7.7 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the Participant’s employment with the Company or Affiliates. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with Participants, need not be uniform among all SARs issued under this Plan, and may reflect distinctions based on the reasons for termination.
7.8 Nontransferability of SARs. Except as otherwise provided in a Participant’s Award Agreement at the time of grant or thereafter by the Committee, an SAR granted under this Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement at the time of grant or thereafter by the Committee, all SARs granted to a Participant under this Plan shall be exercisable during his or her lifetime only by such Participant.
7.9 Other Restrictions. Without limiting the generality of any other provision of this Plan, the Committee may impose such other conditions and/or restrictions on any Shares received on exercise of an SAR granted under this Plan as it may deem advisable. This includes, but is not limited to, requiring the Participant to hold the Shares received on exercise of an SAR for a specified period of time.
Restricted Stock and Restricted Stock Units
8.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and provisions of this Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock and/or Restricted Stock Units to Participants in such amounts and on such terms as the Committee shall determine.
8.2 Restricted Stock or Restricted Stock Unit Agreement. Each Restricted Stock and/or Restricted Stock Unit grant shall be evidenced by an Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock or the number of Restricted Stock Units granted, and any such other provisions as the Committee shall determine.
8.3 Nontransferability of Restricted Stock and Restricted Stock Units. Except as otherwise provided in this Plan or the Award Agreement, the Shares of Restricted Stock and/or Restricted Stock Units granted may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction specified in the Award Agreement (and in the case of Restricted Stock Units until the date of delivery or other payment), or on earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Award Agreement at the time of grant or thereafter by the Committee. All rights with respect to the Restricted Stock and/or Restricted Stock Units granted to a Participant under this Plan shall be available during his or her lifetime only to such Participant, except as otherwise provided in the Award Agreement at the time of grant or thereafter by the Committee.
8.4 Other Restrictions. The Committee shall impose, in the Award Agreement at the time of grant or anytime thereafter, such other conditions and/or restrictions on any Shares of Restricted Stock or Restricted Stock Units granted under this Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock or each Restricted Stock Unit, restrictions based on the achievement of specific performance criteria, time-based restrictions on vesting following the attainment of the performance criteria,
time-based restrictions, restrictions under applicable laws or under the requirements of any stock exchange or market on which such Shares are listed or traded, or holding requirements or sale restrictions placed on the Shares by the Company on vesting of such Restricted Stock or Restricted Stock Units.
To the extent deemed appropriate by the Committee and subject to Section 18.6, the Company may retain the certificates representing Shares of Restricted Stock, or Shares and delivered in consideration of Restricted Stock Units, in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied or lapse.
Except as otherwise provided in this Article 8, Shares of Restricted Stock covered by each Restricted Stock Award shall become freely transferable by the Participant after all conditions and restrictions applicable to such Shares have been satisfied or lapse, and Restricted Stock Units shall be paid in cash, Shares, or a combination of cash and Shares as the Committee, in its sole discretion shall determine.
8.5 Certificate Legend. In addition to any legends placed on certificates under Section 8.4, each certificate representing Shares of Restricted Stock granted under this Plan may bear a legend such as the following:
The sale or other transfer of the Shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in the Unit Corporation Stock and Incentive Compensation Plan, and in the associated Award Agreement. A copy of this Plan and such Award Agreement may be obtained from Unit Corporation.
8.6 Voting Rights. To the extent provided by the Committee in the Award Agreement, Participants holding Shares of Restricted Stock may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction. A Participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder.
8.7 Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock or Restricted Stock Units may, if the Committee so determines and provides in the Participant’s Award Agreement, be credited with dividends paid with respect to the underlying Shares or dividend equivalents while they are so held in a manner determined by the Committee in its sole discretion. The Committee may apply any restrictions to the dividends or dividend equivalents that the Committee deems appropriate. The Committee, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, Shares, Restricted Stock, or Restricted Stock Units.
8.8 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to retain Restricted Stock and/or Restricted Stock Units following termination of the Participant’s employment with the Company or Affiliates. These provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Shares of Restricted Stock or Restricted Stock Units issued under this Plan, and may reflect distinctions based on the reasons for termination.
8.9 Payment In Consideration of Restricted Stock Units. When and if Restricted Stock Units become payable, a Participant having received the grant of such units shall be entitled to receive payment from the Company in cash, Shares of equivalent value (based on the FMV, as defined in the Award Agreement at the time of grant or thereafter by the Committee), in some combination thereof, or in any other form determined by the Committee at its sole discretion. The Committee’s determination regarding the form of payout shall be set forth or reserved for later determination in the Award Agreement pertaining to the grant of the Restricted Stock Unit.
Performance Shares and Performance Units
9.1 Grant of Performance Shares and Performance Units. Subject to the terms and provisions of this Plan, the Committee, at any time and from time to time, may grant Performance Shares and/or Performance Units to Participants in such amounts and on such terms as the Committee shall determine.
9.2 Value of Performance Shares and Performance Units. Each Performance Share shall have an initial value equal to the FMV of a Share on the date of grant. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant which shall in no event be less than the FMV of a Share. The Committee shall set performance criteria for a Performance Period in its discretion which, depending on the extent to which they are met, will determine, in the manner determined by the Committee and documented in the Award Agreement the value and/or number of each Performance Share or Performance Unit that will be paid to the Participant.
9.3 Earning of Performance Shares and Performance Units. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Shares/Performance Units shall be entitled to receive payout on the value and number of Performance Shares/Performance Units determined as a function of the extent to which the corresponding performance criteria have been achieved. Despite the foregoing, the Company has the ability to require the Participant to hold the Shares received under such Award for a specified period of time.
9.4 Form and Timing of Payment of Performance Shares and Performance Units. Payment of earned Performance Shares/Performance Units shall be as determined by the Committee and as evidenced in the Award Agreement. Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Performance Shares/Performance Units in the form of cash or in Shares (or in a combination thereof) equal to the value of the earned Performance Shares/Performance Units at the close of the applicable Performance Period. Any Shares may be granted subject to any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award or reserved for later determination.
9.5 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to retain Performance Shares/Performance Units following termination of the Participant’s employment or Agency with the Company or an Affiliate. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Awards of Performance Shares/Performance Units issued under this Plan, and may reflect distinctions based on the reasons for termination.
9.6 Nontransferability of Performance Shares and Performance Units. Except as otherwise provided in a Participant’s Award Agreement at the time of grant or thereafter by the Committee, Performance Shares/Performance Units may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
Cash-Based Awards and Stock-Based Awards
10.1 Grant of Cash-Based Awards. Subject to the terms and provisions of this Plan, the Committee, at any time and from time and time, may grant Cash-Based Awards to Participants in such amounts and on such terms as the Committee may determine.
10.2 Value of Cash-Based Awards. Each Cash-Based Award shall have a value as may be determined by the Committee. For each Cash-Based Award, the Committee may establish performance criteria in its discretion. If the Committee exercises its discretion to establish such performance criteria, the number and/or value of Cash-Based Awards that will be paid out to the Participant will be determined, in the manner determined by the Committee, the extent to which the performance criteria are met.
10.3 Payment in Consideration of Cash-Based Awards. Subject to the terms of this Plan, the holder of a Cash-Based Award shall be entitled to receive payout on the value of Cash-Based Award determined as a function of the extent to which the corresponding performance criteria, if any, have been achieved.
10.4 Form and Timing of Payment of Cash-Based Awards. Payment of earned Cash-Based Awards shall be as determined by the Committee and evidenced in the Award Agreement. Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Cash-Based Awards in the form of cash or in Shares (or in a combination thereof) that have an aggregate FMV equal to the value of the earned Cash-Based Awards (the applicable date regarding which aggregate FMV shall be determined by the Committee). Such Shares may be granted subject to
any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.
10.5 Stock-Based Awards. The Committee may grant other types of equity-based or equity-related Awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted Shares) in such amounts and subject to such terms and conditions including, but not limited to being subject to performance criteria, or in satisfaction of such obligations, as the Committee shall determine. Such Awards may entail the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
10.6 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to receive Cash-Based Awards and Stock-Based Awards following termination of the Participant’s employment with the Company or Affiliates. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the applicable Award Agreement, need not be uniform among all Awards of Cash-Based Awards and Stock-Based Awards issued under this Plan, and may reflect distinctions based on the reasons for termination.
10.7 Nontransferability of Cash-Based Awards and Stock-Based Awards. Except as otherwise provided in a Participant’s Award Agreement at the time of grant or thereafter by the Committee, Cash-Based Awards and Stock-Based Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
Performance Measures
Despite any other terms of this Plan, the vesting, payment, or value (as determined by the Committee) of each Award other than an Option or SAR that, at the time of grant, the Committee intends to be Performance-Based Compensation to an Insider shall be determined by the attainment of one or more Performance Goals as determined by the Committee in conformity with Section 162(m) of the Code. The Committee shall specify in writing, by resolution or otherwise, the Participants eligible to receive such an Award (which may be expressed in terms of a class of individuals) and the Performance Goal(s) applicable to such Awards within ninety (90) days after the commencement of the period to which the Performance Goal(s) relate(s) or such earlier time as required to comply with Section 162(m) of the Code. No such Award shall be payable unless the Committee certifies in writing, by resolution or otherwise, that the Performance Goal(s) applicable to the Award were satisfied. In no case may the Committee increase the value of an Award of Performance-Based Compensation above the maximum value determined under the performance formula by the attainment of the applicable Performance Goal(s), but the Committee may retain the discretion to reduce the value below such maximum.
Unless and until the Committee proposes for shareholder vote and the shareholders approve a change in the general Performance Measures set forth in this Article 11, the Performance Goal(s) on which the payment or vesting of an Award to an Insider that is intended to qualify as Performance-Based Compensation shall be limited to the following Performance Measures:
(a) Net earnings or net income (before or after taxes);
(b) Earnings per share;
(c) Net operating profit;
(d) Operating earnings;
(e) Operating earnings per share;
(f) Return measures (including, but not limited to, return on assets, capital, equity, or sales);
(g) Cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital);
(h) Earnings before or after taxes, interest, depreciation, and/or amortization and including/excluding capital gains and losses;
(i) Gross or operating margins;
(j) Share price (including, but not limited to, growth measures and total shareholder return);
(k) Margins;
(l) Operating efficiency;
(m) Customer satisfaction;
(n) Employee satisfaction;
(o) Working capital targets;
(p) Revenue growth; and
(q) Growth of Assets
Any Performance Measure (s) may be used to measure the performance of the Company as a whole or any business unit of the Company or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of comparator companies, or published or special index that the Committee, in its sole discretion, deems appropriate. In the Award Agreement, the Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of Performance Goal(s).
The Committee may provide in any Award Agreement that any evaluation of attainment of a Performance Goal may include or exclude any of the following events that occurs during the relevant period: (a) asset write-downs; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results; (d) any reorganization and restructuring programs; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable year; (f) acquisitions or divestitures; and (g) foreign exchange gains and losses. To the extent such inclusions or exclusions affect Awards to Insiders, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility for federal income tax purposes.
In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant Awards to Insiders that shall not qualify as Performance-Based Compensation, the Committee may make such grants without satisfying the requirements of Code Section 162(m).
Beneficiary Designation
A Participant’s “beneficiary” is the person or persons entitled to receive payments or other benefits or exercise rights that are available under this Plan in the event of the Participant’s death. A Participant may designate a beneficiary or change a previous beneficiary designation at such times prescribed by the Committee by using forms and following procedures approved or accepted by the Committee for that purpose. If no beneficiary designated by the Participant is eligible to receive payments or other benefits or exercise rights that are available under this Plan at the Participant’s death the beneficiary shall be the Participant’s estate.
Despite the above, the Committee may in its discretion, after notifying the affected Participants, modify the foregoing requirements, institute additional requirements for beneficiary designations, or suspend the existing beneficiary designations of living Participants or the process of determining beneficiaries under this Article 12, or both, in favor of another method of determining beneficiaries.
Rights of Employees
13.1 Employment. Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Company or an Affiliate to terminate any Participant’s employment or other service relationship at any time,
nor confer on any Participant any right to continue in the capacity in which he or she is employed or otherwise serves the Company or an Affiliate.
Neither an Award nor any benefits arising under this Plan shall constitute part of an employment contract with the Company or an Affiliate and, accordingly, subject to the terms of this Plan, this Plan may be terminated or modified at any time in the sole and exclusive discretion of the Committee without giving rise to liability on the part of the Company or an Affiliate for severance payments or otherwise except as provided in this Plan.
For purposes of this Plan, unless otherwise provided by the Committee, transfer of employment of a Participant between the Company and an Affiliate or among Affiliates, shall not be deemed a termination of employment. The Committee may stipulateincorporated unless specifically provide otherwise in a Participant’s Award Agreementsuch filing. Information contained on or otherwise the conditions under which a transfer of employment or Agencyconnected to an entity thatour website is spun-off from the Company or an Affiliate, if any, shallnot incorporated by reference into this proxy statement and should not be deemed a termination of employment for purposes of an Award.
13.2 Participation. No Employee shall have the right to be selected to receive an Award. No Employee, having been selected to receive an Award, shall have the right to be selected to receive a future Award or (if selected to receive such a future Award) the right to receive such a future Award on terms and conditions identical or in proportion in any way to any prior Award.
13.3 Rights as a Shareholder. Except to the extent otherwise provided in an Award Agreement, a Participant shall have none of the rights of a shareholder with respect to Shares covered by any Award until the Participant becomes the record holder of such Shares.
Change of Control
14.1 Accelerated Vesting and Payment. Subject to the provisions of Section 14.2 or as otherwise provided in the Award Agreement, in the event of a Change of Control, unless otherwise specifically prohibited under law or by the rules and regulations of a national security exchange:
(a) Any and all Options and SARs granted under this Plan shall become immediately exercisable; additionally, if a Participant’s employment is involuntarily terminated for any reason except Cause within twelve (12) months of such Change in Control, the Participant shall have until the earlier of (i) twelve (12) months following such termination date , or (ii) the term of the Option or SAR, to exercise such Options or SARs;
(b) Any Period of Restriction and other restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and Restricted Stock Units shall be immediately payable;
(c) The target payout opportunities attainable under all outstanding Awards of performance-based Restricted Stock, performance-based Restricted Stock Units, Performance Units, and Performance Shares (including but not limited to Awards intended to be Performance-Based Compensation) shall be deemed to have been fully earned based on targeted performance being attained as of the effective date of the Change of Control:
(d) On a Change of Control, unless otherwise specifically provided in a written agreement entered into between the Participant and the Company or an Affiliate, the Committee shall immediately vest and pay out all Cash-Based Awards and Other Stock-Based Awards as determined by the Committee.
14.2 Alternative Awards. Despite Section 14.1, no cancellation, acceleration of vesting, lapsing of restrictions, payment of Award, cash settlement or other payment shall occur with respect to any Award if the Committee reasonably determines in good faith before the occurrence of a Change of Control that such Award shall be honored or assumed, or new rights substituted therefor (such honored, assumed or substituted Award hereinafter called an “Alternative Award”) by any successor as described in Article 17; provided that any such Alternative Award must:
(a) Be based on stock which is traded on an established U.S. securities market, or that the Committee reasonably believes will be so traded within sixty (60) days after the Change of Control;
(b) Provide such Participant with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under such Award, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment;
(c) Have substantially equivalent economic value to such Award (determined at the time of the Change of Control); and
(d) Have terms and conditions which provide that in the event that the Participant’s employment is involuntarily terminated or Constructively Terminated, any conditions on a Participant’s rights under, or any restrictions on transfer or exercisability applicable to, each such Alternative Award shall be waived or shall lapse, as the case may be.
Amendment, Modification, Suspension, and Termination
15.1 Amendment, Modification,Suspension, and Termination. The Committee or Board may, at any time and from time to time, alter, amend, modify, suspend, or terminate this Plan in whole or in part; provided however, that:
(a) Without the prior approval of the Company’s shareholders, Options and SARs issued under this Plan will not be repriced, replaced, or regranted through cancellation or by lowering the exercise price of a previously granted Option.
(b) To the extent necessary under any applicable law, regulation or exchange requirement, no amendment shall be effective unless approved by the shareholders of the Company in accordance with applicable law, regulation, or exchange requirement.
15.2 Adjustment of Awards on the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under this Plan. To the extent such adjustment affects Awards to Insiders intended to be Performance-Based Compensation, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility for federal income tax purposes.
15.3 Awards Previously Granted. Despite any other provisionconsidered part of this Plan to the contrary, no termination, amendment, suspension, or modification of this Plan shall adversely affect in any material way any Award previously granted under this Plan, without the written consent of the Participant holding such Award.
Withholding
The Company or any Affiliate shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company or any Affiliate, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign (including the Participant’s FICA obligation), required by law or regulation to be withheld with respect to any taxable event arising or as a result of this Plan. The Committee may provide for Participants to satisfy withholding requirements by having the Company withhold Shares or the Participant making such other arrangements, in either case on such conditions as the Committee specifies.
Successors
Any obligations of the Company or an Affiliate under this Plan with respect to Awards granted under this Plan, shall be binding on any successor to the Company or Affiliate, respectively, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company or Affiliate, as applicable.
General Provisions
18.1 Forfeiture Events. Without limiting in any way the generality of the Committee’s power to specify any terms and conditions of an Award consistent with law, and for greater clarity, the Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment on the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award.Such events shall include, but shall not be limited to, failure to accept the terms of the Award Agreement, termination of employment under certain or all circumstances, violation of material Company and Affiliate policies, breach of noncompetition, confidentiality, nonsolicitation, noninterference, corporate property protection, or other agreement that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company and Affiliates.
18.2 Legend. The certificates for Shares may include any legend that the Committee deems appropriate to reflect any restrictions on transfer of such Shares.
18.3 Delivery Of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares issued under this Plan before:
(a) Obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and
(b) Completion of any registration or other qualification of the Shares under any applicable national or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable.
18.4 Investment Representations. The Committee may require each Participant receiving Shares under an Award under this Plan to represent and warrant in writing that the Participant is acquiring the Shares for investment and without any present intention to sell or distribute such Shares.
18.5 Employees Based Outside of The United States. Without limiting in any way the generality of the Committee’s powers under this Plan, including but not limited to the power to specify any terms and conditions of an Award consistent with law, in order to comply with the laws in other countries in which the Company or an Affiliate operates or has Employees, the Committee, in its sole discretion, shall have the power and authority, notwithstanding any provision of this Plan to the contrary, to:
(a) Determine which Affiliates shall be covered by this Plan;
(b) Determine which Employees outside the United States are eligible to participate in this Plan;
(c) Modify the terms and conditions of any Award granted to Employees outside the United States to comply with applicable foreign laws;
(d) Establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable. Any subplans and modifications to Plan terms and procedures established under this Section 18.5 by the Committee shall be attached to this Plan document as appendices; and
(e) Take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals.
Despite the above, the Committee may not take any actions under this Plan and no Awards shall be granted that would violate the Exchange Act, the Code, any securities law, or governing statuteproxy statement or any other applicable law.
18.6 Uncertificated Shares. To the extentfiling that this Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of such Shares may be effected on a noncertificated basis to the extent not prohibited by applicable law or the rules of any stock exchange.
18.7 Unfunded Plan. Participants shall have no right, title, or interest whatsoever in or to any investments that the Company or an Affiliate maywe make to aid it in meeting its obligations under this Plan. Nothing contained in this Plan, and no action taken under its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company or an Affiliate and any Participant, beneficiary, legal representative, or any other person. Awards shall be general, unsecured obligations of the Company, except that if an Affiliate signs an Award Agreement instead of the Company the Award shall be a general, unsecured obligation of the Affiliate and not any obligation of the Company. To the extent that any individual acquires a right to receive payments from the Company or an Affiliate, such right shall be no greater than the right of an unsecured general creditor of the Company or Affiliate, as applicable. All payments to be made under this Plan shall be paid from the general funds of the Company or Affiliate, as applicable, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in this Plan. This Plan is not intended to be subject to ERISA.
18.8 No Fractional Shares. No fractional Shares shall be issued or delivered under this Plan or any Award Agreement. In such an instance, unless the Committee determines otherwise, fractional Shares and any rights thereto shall be forfeited or otherwise eliminated.
18.9 Other Compensation and Benefit Plans. Nothing in this Plan shall be construed to limit the right of the Company or an Affiliate to establish other compensation or benefit plans, programs, policies, or arrangements. Except as may be otherwise specifically stated in any other benefit plan, policy, program, or arrangement, no Award shall be treated as compensation for purposes of calculating a Participant’s rights under any such other plan, policy, program, or arrangement.
18.10 No Constraint on Corporate Action. Nothing in this Plan shall be construed (i) to limit, impair or otherwise affect the Company’s or an Affiliate’s right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets, or (ii) to limit the right or power of the Company or an Affiliate to take any action which such entity deems to be necessary or appropriate.
Legal Construction
19.1 Gender And Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural.
19.2 Severability. In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
19.3 Requirements of Law. The granting of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. The Company or an Affiliate shall receive the consideration required by law for the issuance of Awards under this Plan.
The inability of the Company or an Affiliate to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s or the Affiliate’s counsel to be necessary to the lawful issuance and sale of any Shares under this Plan, shall relieve the Company or Affiliate of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
19.4 Governing Law. This Plan and each Award Agreement shall be governed by the laws of the State of Oklahoma, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction.
UNIT CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 3, 2006
THIS PROXY IS SOLICITED ON BEHALF OF UNIT CORPORATION’S
BOARD OF DIRECTORS
The undersigned hereby appoints Larry D. Pinkston and Mark E. Schell proxies for the undersigned, each of them 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 3, 2006 at 11:00 AM, or at any adjournment thereof, on the matters set forth on the reverse side and described in the accompanying Proxy Statement and on such other business as may properly come before the meeting or any adjournment thereof.
Please mark this proxy as indicated 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.SEC.
(Continued, and to be marked, dated and signed on reverse side.)
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You can now access your UNIT CORPORATION account online.
Access your Unit Corporation stockholder account online via Investor ServiceDirect® (ISD).
Mellon Investor Services LLC, Transfer Agent for Unit Corporation, now makes it easy and convenient to get current information on your stockholder account.
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Visit us on the web at http://www.melloninvestor.com
For Technical Assistance Call 1-877-978-7778 between 9AM-7PM
Monday-Friday Eastern Time
Investor ServiceDirect®is a registered trademark of Mellon Investor Services LLC
The Board of Directors recommends a vote FOR Items 1 through 5
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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.
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Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:59 PM Eastern Time
the day before the 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.
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If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
