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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 2000
REGISTRATION NO. 333-94325
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
UNIT CORPORATION
(Exact name of registrant as specified in its charter)
1000 KENSINGTON TOWER I
7130 SOUTH LEWIS
TULSA, OKLAHOMA 74136
(918) 493-7700
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DELAWARE (Name, address, including zip code, 73-1283193
(State or other jurisdiction of and telephone number, including area code, (I.R.S. Employer Identification No.)
incorporation or organization) of Registrant's principal executive offices)
</TABLE>
MARK E. SCHELL COPY TO:
GENERAL COUNSEL LYNNWOOD R. MOORE, JR.
UNIT CORPORATION CONNER & WINTERS,
1000 KENSINGTON TOWER I, 7130 SOUTH LEWIS, A PROFESSIONAL CORPORATION
TULSA, OKLAHOMA 74136 3700 FIRST PLACE TOWER
(918) 493-7700 15 EAST 5TH STREET
(Name, address, including zip code, and TULSA, OKLAHOMA 74103-4344
telephone number, including area code, (918) 586-5711
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and at
consummation of the merger contemplated by the Agreement and Plan of Merger
dated as of December 8, 1999, attached as Appendix A to the Proxy
Statement/Prospectus included in this Registration Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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Questa Oil & Gas Co. Unit Corporation
PROPOSED MERGER -- YOUR VOTE IS VERY IMPORTANT
Dear Questa Shareholder:
The boards of directors of Questa Oil & Gas Co. and Unit Corporation have
agreed to a merger of Questa with Unit. The Questa board believes that the
larger, financially stronger combined company will benefit from significant
synergies while affording shareholders enhanced investment liquidity. Questa's
board of directors has determined that the merger is advisable and fair to, and
in the best interests of, Questa and its shareholders.
If the merger is approved, Questa shareholders will receive .95 shares of
common stock of Unit Corporation for each share of Questa common stock.
Following the merger, Questa shareholders will own approximately 5% of the
combined company.
The Unit common stock trades on the New York Stock Exchange under the
symbol "UNT" and the Questa common stock trades on the Nasdaq SmallCap Market
under the symbol "QUES."
We can only complete the merger if Questa shareholders owning a majority of
the outstanding shares of Questa common stock approve the merger agreement. We
have scheduled a special meeting for the Questa shareholders to vote on the
merger.
The date, time and place of the special meeting for the Questa shareholders
are as follows:
March 14, 2000
10:00 a.m.
7030 South Yale, Suite 700
Tulsa, Oklahoma 74136
Your vote is very important. Whether or not you plan to attend the Questa
special meeting, please take the time to vote by completing and mailing to us
the enclosed proxy card. This will not prevent you from revoking your proxy at
any time prior to the special meeting or from voting your shares in person if
you later choose to attend the special meeting.
This document provides you with detailed information about the proposed
merger. You are encouraged to read this document carefully.
Very truly yours,
/s/ Alan W. Meeks
Alan W. Meeks
President
Questa Oil & Gas Co.
See "Risk Factors" beginning on page 8 for a discussion of risks that you should
consider in evaluating the merger.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the merger, the Unit common stock to
be issued in the merger or the fairness or the merits of the merger or has
determined whether the information contained in this document is truthful or
complete. Any representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Proxy Statement/Prospectus dated February 11, 2000, and first being
mailed to Questa shareholders on February 11, 2000.
<PAGE>
QUESTA OIL & GAS CO.
7030 SOUTH YALE AVE., SUITE 700
TULSA, OKLAHOMA 74136
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 14, 2000
TO THE SHAREHOLDERS OF
QUESTA OIL & GAS CO.: FEBRUARY 11, 2000
A Special Meeting of the Shareholders of Questa Oil & Gas Co. will be held at
7030 South Yale Ave., Suite 700, Tulsa, Oklahoma, on March 14, 2000, at 10:00
a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of December 8, 1999, among Questa, Unit Corporation,
a Delaware corporation, and a wholly-owned subsidiary of Unit, pursuant
to which, among other things:
(i) Unit's subsidiary will be merged with and into Questa; and
(ii) each issued and outstanding share of common stock of Questa
(other than shares held by Questa, which will be canceled) will be
converted into the right to receive .95 fully paid, nonassessable
shares of Unit common stock (with a cash payment in lieu of any
fractional share); and
2. To transact such other business as may properly come before the
meeting.
A copy of the merger agreement is attached as Appendix A to the Proxy
Statement/Prospectus accompanying this Notice.
Only shareholders of record at the close of business on February 7, 2000 are
entitled to notice of and to vote at the special meeting and any adjournment
thereof.
All shareholders of Questa have the right to exercise dissenter's rights with
respect to the proposed merger and may obtain payment for their shares by
complying with the terms of Section 7-113-101 through 7-113-302 of the Colorado
Business Corporation Act, a copy of which is attached.
All shareholders are cordially invited to attend the meeting.
Your vote is important. Please sign, date and return the accompanying proxy
promptly. Your board of directors unanimously recommends that you vote to
approve the merger proposal.
By Order of the Board of Directors,
/s/ Lowell C. Sund
Lowell C. Sund
Corporate Secretary
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TABLE OF CONTENTS
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Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... iii
SUMMARY.................................................................................................... 1
The Companies........................................................................................... 1
The Merger.............................................................................................. 1
The Merger Agreement.................................................................................... 2
Other Information....................................................................................... 3
The Special Meeting..................................................................................... 4
Risk Factors............................................................................................ 4
Comparison of Rights of Questa Shareholders and Unit Shareholders....................................... 4
Recent Developments in Unit's Business and Operations................................................... 4
Selected Historical Consolidated Financial Data......................................................... 4
Selected Unaudited Pro Forma Combined Financial Data of Unit............................................ 7
RISK FACTORS............................................................................................... 8
Risks Relating to the Transaction....................................................................... 8
Risks Relating to Unit and its Business................................................................. 9
FORWARD-LOOKING STATEMENTS................................................................................. 13
COMPARATIVE PER SHARE DATA................................................................................. 14
COMPARATIVE MARKET VALUE DATA.............................................................................. 15
COMPARATIVE PER SHARE PRICES AND DIVIDENDS DATA............................................................ 15
THE SPECIAL MEETING........................................................................................ 16
Time and Place; Purpose................................................................................. 16
Record Date; Shares Entitled to Vote.................................................................... 17
Quorum.................................................................................................. 17
Vote Required........................................................................................... 17
Effect of Abstentions and Broker Non-Votes.............................................................. 17
Voting of Proxies....................................................................................... 17
Revocation of Proxies................................................................................... 17
Solicitation of Proxies; Expenses....................................................................... 17
Shares Held by Questa Management and Others............................................................. 18
THE MERGER................................................................................................. 18
General................................................................................................. 18
Background of the Merger................................................................................ 18
Reasons for the Merger; Recommendation of the Questa Board.............................................. 20
Closing and Effective Time of the Merger................................................................ 20
Exchange of Certificates................................................................................ 20
Federal Securities Laws Consequences; Resale Restrictions............................................... 20
New York Stock Exchange Listing of Unit Common Stock.................................................... 21
Certain Effects of the Merger........................................................................... 21
Regulatory Matters...................................................................................... 21
Source of Funds......................................................................................... 21
Management of Questa Following the Merger............................................................... 22
Rights of Dissenting Shareholders....................................................................... 22
Material U.S. Federal Income Tax Consequences........................................................... 22
Accounting Treatment.................................................................................... 22
THE MERGER AGREEMENT....................................................................................... 23
The Merger.............................................................................................. 23
Representations and Warranties.......................................................................... 23
Covenants and Agreements................................................................................ 24
No Solicitation of Acquisition Proposals................................................................ 25
Closing Conditions...................................................................................... 26
Termination............................................................................................. 27
Termination Fees and Expenses........................................................................... 28
Amendment; Waiver....................................................................................... 28
Related Agreements...................................................................................... 28
RIGHTS OF DISSENTING QUESTA SHAREHOLDERS................................................................... 28
COMPARISON OF SHAREHOLDERS' RIGHTS......................................................................... 30
Authorized Capital...................................................................................... 30
</TABLE>
i
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Number of Directors, Elections and Classification....................................................... 31
Removal of Directors.................................................................................... 31
Shareholder Action by Consent in Lieu of Meeting........................................................ 31
Special Meeting Of Shareholders......................................................................... 31
Notice Of Special Meetings Of Shareholders.............................................................. 31
Amendment of Charter.................................................................................... 31
Amendment of Bylaws..................................................................................... 32
Fair Price Provisions................................................................................... 32
Delaware Business Combination Statute................................................................... 32
Shareholder Rights Plans................................................................................ 33
INFORMATION ABOUT UNIT..................................................................................... 36
Business of Unit........................................................................................ 36
Oil and Gas Properties.................................................................................. 36
Land Contract Drilling Operations....................................................................... 38
INFORMATION ABOUT QUESTA................................................................................... 41
Business of Questa...................................................................................... 41
Oil and Gas Properties.................................................................................. 42
Legal Proceedings....................................................................................... 43
Market for Questa Common Stock and Related Shareholder Matters.......................................... 43
Selected Financial Data................................................................................. 44
Management's Discussion and Analysis of Financial Condition and Results of Operations................... 44
Results of Operations................................................................................... 45
PRINCIPAL SHAREHOLDERS OF QUESTA........................................................................... 46
LEGAL MATTERS.............................................................................................. 46
EXPERTS.................................................................................................... 46
INDEPENDENT ACCOUNTANTS.................................................................................... 47
SHAREHOLDER PROPOSALS...................................................................................... 47
OTHER MATTERS.............................................................................................. 47
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 47
INDEX TO PRO FORMA FINANCIAL INFORMATION OF UNIT
AND FINANCIAL STATEMENTS OF QUESTA...................................................................... F-1
APPENDIX A -- Agreement and Plan of Merger................................................................. A-1
APPENDIX B -- Article 113 of the Colorado Business Corporation Act......................................... B-1
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What Is The Merger?
A: In the merger, a wholly owned subsidiary of Unit will merge with Questa.
Questa will survive the merger as a wholly owned subsidiary of Unit.
Q: What Will I Receive In The Merger?
A: Each of your shares of Questa common stock will be converted into .95
shares of Unit common stock. Unit will not issue fractional shares of its
common stock. Instead of any fractional share, you will receive cash based
on the closing market price of Unit common stock on the closing date of the
merger.
Q: What Vote Is Required To Approve The Merger?
A: The holders of a majority of the outstanding shares of Questa common
stock must approve the merger agreement. Unit shareholders are not required
to approve the merger and will not vote on the merger. You are entitled to
cast one vote per share of Questa common stock you owned at the close of
business on February 7, 2000, the record date.
Q: Does The Board Of Directors Of Questa Recommend Voting In Favor Of The Merger
Agreement?
A: Yes. After careful consideration, Questa's board of directors has
determined that the terms of the merger are fair to, and in the best
interests of, Questa and its shareholders and unanimously recommends that
you vote in favor of the merger agreement.
Q: Are There Risks I Should Consider In Deciding Whether To Vote For The Merger?
A: Yes. For example you will receive .95 shares of Unit common stock for
each share of Questa common stock you own, regardless of the market price
of either Unit common stock or Questa common stock at the effective time of
the merger. The market value of Unit common stock is likely to fluctuate,
and no one can accurately predict what the market value will be either at
the effective time of the merger or after the merger. In evaluating the
merger, you should carefully consider this and other factors discussed in
the section entitled "Risk Factors" on page 8.
Q: What Do I Need To Do Now?
A: After carefully considering the information contained in this document,
you should cast your vote on the merger agreement by completing, signing
and dating your proxy card. You should return your completed proxy card as
soon as possible in the enclosed postage-paid envelope. If you return your
signed proxy card but do not include instructions on how to vote, your
shares will be voted "FOR" approval of the merger agreement. You can also
attend the special meeting and vote in person.
If you abstain from voting or do not vote, it will have the effect of
voting against approval of the merger agreement.
Q: What Do I Do If I Want To Change My Vote?
A: You can change your vote at any time before your proxy is voted at the
special meeting, in one of three ways. First, you can sign and deliver a
written notice stating that you would like to revoke your proxy. Second,
you can complete and send a later-dated signed proxy card to Questa.
Third, you can attend the special meeting and vote in person.
iii
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Q: If My Questa Shares Are Held In "Street Name" By My Broker, Will My Broker
Vote My Shares For Me?
A: No. Your broker will vote your shares only if you provide instructions
on how to vote. You should fill out the voter instruction form sent to you
by your broker with this proxy statement/prospectus. If you do not give
instructions to your broker, your shares will not be voted, which will have
the effect of voting against the merger.
Q: Should I Send In My Questa Stock Certificates Now?
A: No. After the merger is completed, we will send you written instructions
for exchanging your Questa stock certificates for Unit stock certificates.
Please do not send in your stock certificates with your proxy card.
Q: When Do You Expect The Merger To Be Completed?
A: We are working toward completing the merger as quickly as possible. We
hope to complete the merger in March 2000, if all approvals and other
required matters are completed at that time.
Q: Will I Recognize A Taxable Gain Or Loss On The Transaction?
A: We expect that if the merger is completed, you will not recognize a gain
or loss for United States federal income tax purposes on the shares of Unit
common stock you receive. You will recognize a gain or loss with respect to
cash received for any fractional shares. However, we urge you to consult
your own tax advisor to determine the tax consequences particular to your
situation.
Q: Whom Should I Call With Questions?
A: If you have any questions about the merger or if you need additional
copies of the proxy statement/prospectus, you should contact:
Mr. Warren L. Meeks
Chairman
Questa Oil & Gas Co.
7030 South Yale, Suite 700
Tulsa, Oklahoma 74136
(918) 494-6055
You may also obtain additional information about Unit and Questa from documents
we file with the Securities and Exchange Commission, by following the
instructions in the section entitled "Where You Can Find More Information" on
page 47.
iv
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SUMMARY
This summary, together with the preceding questions and answer section,
highlights selected information from this document and may not contain all of
the information that is important to you. To understand the merger more fully,
you should read the more detailed information contained in the rest of this
document, including the attached appendixes, and the documents referred to you
in "Where You Can Find More Information" on page 47.
The Companies
Questa Oil & Gas Co.
Questa was incorporated in Colorado on February 24, 1981 as Trinity Oil &
Gas, Inc. Its name was changed to Questa on March 31, 1986. Questa is engaged in
the oil and gas business in the continental United States. Its activities
include the acquisition and exploration of oil and gas property interests and
developing, operating and otherwise dealing in oil and gas property interests of
all types.
Questa's principal executive offices are located at 7030 South Yale, Suite
700, Tulsa, Oklahoma 74136, and its telephone number is (918) 494-6055.
Unit Corporation
Unit, through its wholly owned subsidiaries, is engaged in the land
contract drilling of natural gas and oil wells and the exploration, development,
acquisition and production of natural gas and oil properties. Unit was founded
in 1963 as a contract drilling company and its current contract drilling
operations are focused primarily in the natural gas producing provinces of the
Oklahoma and Texas areas of the Anadarko and Arkoma Basins, and the Texas Gulf
Coast and the Rocky Mountain regions. Its primary exploration and production
operations are also conducted in the Anadarko and Arkoma Basins and in the Texas
Gulf Coast area. As of December 17, 1999 Unit owned 47 drilling rigs and owned
an interest in 2,517 oil and gas wells.
Unit's principal executive offices are located at 1000 Kensington Tower I,
7130 South Lewis, Tulsa, Oklahoma 74136, and its telephone number is (918) 493-
7700.
The Merger
Recommendation Of The Questa Board
The Questa board unanimously approved the merger agreement, believes that
the merger is in the best interests of, and fair to, the Questa shareholders and
unanimously recommends that you vote to approve the merger agreement at the
Questa special shareholders meeting.
After weighing both the positive and negative aspects of the merger with
Unit, the Questa board based its determination and recommendation principally on
the following grounds:
. Questa's common stock has historically traded at a price/earnings
multiple per share which is lower than the multiple at which
shares of other oil and gas companies are traded;
. The market for Unit's common stock is superior to the market for
Questa's common stock due to larger market capitalization,
greater liquidity and enhanced visibility and interest; and
. Unit's common stock has a greater potential for appreciation than
Questa's common stock.
Closing
Questa and Unit expect to consummate the merger promptly after the
conditions to closing set forth in the merger agreement are fulfilled or waived.
It is anticipated that the last of the conditions to be fulfilled will be the
adoption of the merger agreement by the Questa shareholders. Questa and Unit are
working towards completing the merger as quickly as possible and expect to
consummate the transaction in March 2000 or as soon thereafter as is
practicable. See "The Merger -- Effective Time."
1
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Surrender Of Share Certificates; Payment For Shares
Promptly after the merger is consummated, Unit will mail a transmittal form
to each holder of record of Questa common stock describing the procedure for
surrendering Questa share certificates. You should not send in your stock
certificates until you receive a transmittal form. Shareholders who submit their
certificates and a completed transmittal form will receive:
. certificates for the whole number of shares of Unit common stock
which the holder has the right to receive; and
. cash instead of fractional shares of Unit common stock.
No interest will be paid on any cash payable upon surrender of
certificates. See "The Merger -- Exchange of Certificates."
The Merger Agreement
The merger agreement is attached as Appendix A to this document. We
encourage you to read the merger agreement because it is the legal document that
governs the merger.
Prohibition On Solicitation Of Competing Transactions
So long as the merger agreement is in effect, Questa is prohibited from
initiating, soliciting or encouraging the submission of any proposal by, or
entering into any discussions or negotiations with, a third party relating to a
competing acquisition transaction. A competing acquisition transaction includes
any of the following:
. a merger or consolidation of Questa;
. the sale or other disposition of all or substantially all of the
properties and assets of Questa or any other material properties
and assets; or
. a tender or exchange offer for more than 20% of the outstanding
shares of Questa common stock.
If the Questa board, after consulting with legal counsel, determines in
good faith that it must do so in order to comply with its fiduciary duties, then
Questa may, in response to an unsolicited competing acquisition proposal meeting
specified criteria, participate in discussions and negotiations regarding that
proposal. See "The Merger Agreement -- Covenants -- No Solicitation."
Conditions To The Merger
The conditions to the obligations of all parties to consummate the merger
include:
. the adoption of the merger agreement by the shareholders of
Questa; and
. the absence of any injunction or other legal restraint
prohibiting the merger.
The conditions to the obligations of each party to consummate the merger
include:
. that the other party not have suffered a material adverse effect
in its business or operations since the date of the merger
agreement;
. that the representations and warranties of the other party in the
merger agreement be true, except where the failure to be true
would not have a material adverse effect on the other party;
. that the other party has complied in all material respects with
its covenants in the merger agreement; and
. the Unit common stock to be issued in the merger be approved for
listing on the New York Stock Exchange before the merger.
The conditions to the obligations of Unit to consummate the merger include:
. that the merger be treated as a "pooling of interests" under
applicable accounting principles; and
2
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. dissenting and fractional shares shall not exceed 5% of the total
outstanding shares.
See "The Merger Agreement -- Closing Conditions."
Termination
Unit and Questa may mutually agree to terminate the merger agreement at any
time, even after approval by Questa's shareholders. In addition, the merger
agreement may be terminated if any of the following occurs:
. the merger agreement is not adopted by Questa's shareholders;
. either Questa or Unit breaches any of its covenants or agreements
contained in the merger agreement, unless the breaching party is
exercising its reasonable best efforts to cure the breach;
. the representations and warranties of Questa or Unit contained in
the merger agreement are or become untrue, except where the
failure to be true and correct would not have a material adverse
effect on the party whose representations or warranties are or
become untrue;
. the merger is not consummated on or before March 30, 2000 or
within the specified extension period;
. the Questa board withdraws its recommendation of the merger
agreement or recommends that a competing acquisition proposal be
adopted by the shareholders of Questa;
. the Questa board determines that proceeding with the merger would
be inconsistent with its fiduciary duties because of the
existence of a competing acquisition proposal; or
. in the event the average closing price of Unit's common stock for
the 15 trading days immediately preceding three trading days
prior to the closing of the merger is less than $5.00 per share,
then Questa may terminate the merger agreement, and in the event
such average closing price of Unit's common stock exceeds $9.00
per share, then Unit may terminate the agreement.
Termination Fee
Questa must pay Unit a termination fee of $500,000 if it accepts a merger
or business combination with or acquisition by another company that Questa's
board considers more favorable to Questa's shareholders than the merger. Questa
must pay Unit a termination fee of $400,000 if:
. the Questa board withdraws or adversely modifies its
recommendation of the merger or recommends that a competing
acquisition proposal be adopted by the shareholders of Questa; or
. Questa's shareholders fail to approve the adoption of the merger
agreement, Questa receives a competing acquisition proposal prior
to the special meeting of its shareholders and Questa enters into
an agreement with respect to any acquisition proposal within 12
months of the termination of the merger agreement.
Notwithstanding the above, Questa may terminate the merger agreement in the
event the average closing price of Unit's common stock for the 15 trading days
immediately preceding three trading days prior to the closing of the merger is
less than $5.00 per share.
Other Information
Rights of Dissenting Shareholders
Under Colorado law, you will be entitled to exercise rights to dissent from
the merger and obtain payment of the fair value of your shares of Questa common
stock. See "Rights of Dissenting Questa Shareholders."
Federal Income Tax Consequences Of The Merger
The merger is intended to be a tax-free reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended. Assuming the
merger qualifies as a reorganization, you will not recognize any gain or loss
for United States federal income tax purposes upon exchange of your Questa
common stock for Unit common stock pursuant to the merger (except with respect
to any cash received instead of fractional shares of Unit common stock). For a
more detailed discussion of the material federal income tax consequences of the
merger, see "The Merger -- Material U.S. Federal Income Tax Consequences." You
are urged to consult your tax advisors as to the specific tax consequences of
the merger to you.
3
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The Special Meeting
At the special shareholder meeting, the holders of Questa common stock will
be asked to approve the merger agreement. You may vote at the special
shareholder meeting if you were the record owner of Questa common stock at the
close of business on February 7, 2000. You will have one vote for each share of
Questa common stock you own. On that date, there were 1,912,894 shares of Questa
common stock outstanding.
The vote of more than 50% of the outstanding shares of Questa common stock
entitled to vote is required to approve the merger agreement.
On the record date, the directors and executive officers of Questa as a
group owned beneficially an aggregate of 1,119,630 shares of Questa common stock
(approximately 58.5% of the shares then outstanding). Certain of the directors
and executive officers of Questa owning beneficially an aggregate of
approximately 55% of the outstanding shares of Questa common stock have entered
into agreements with Unit under which they have agreed, among other things, to
vote their shares in favor of the merger. If these persons vote their shares in
favor of the merger agreement, it will be approved by the shareholders of Questa
without regard to the vote of any other Questa shareholders.
See "The Special Meeting."
Risk Factors
In determining whether to vote to adopt the merger agreement, you should
carefully consider the risks related to the merger and an investment in Unit
following the merger set forth in this document under "Risk Factors" at page 8
along with the other information contained in this document and the documents to
which we have referred you to.
Comparison Of Rights Of Questa Shareholders And Unit Shareholders
As a result of different governing laws and organizational documents, you
will have different rights as a holder of Unit common stock than you currently
have as a holder of Questa common stock. See "Comparison of Shareholders'
Rights."
Recent Developments In Unit's Business And Operations
On September 30, 1999, Unit closed the acquisition of 13 land drilling rigs
from Parker Drilling Company and Parker Drilling Company North America, Inc.
Under the terms of this acquisition, Parker received 1,000,000 shares of Unit's
common stock and $40,000,000. Funding for the cash part of the purchase price
was obtained through the sale, by Unit, of 7,000,000 shares of its common stock
through an underwritten public offering which closed September 29, 1999. Total
proceeds of the offering were $50,435,000.
Selected Historical Consolidated Financial Data
In the tables below, we provide you with selected historical financial data
for Unit and Questa. We have derived this information from Unit's and Questa's
audited consolidated financial statements for each year in the five year period
ended December 31, 1998 and from Unit's and Questa's unaudited consolidated
financial statements for each of the nine-month periods ended September 30, 1998
and 1999.
When you read this selected historical financial data, it is important that
you read along with it the consolidated financial statements and related notes
in the annual and quarterly reports of Unit and Questa filed with the SEC and
incorporated by reference in this document, as well as the section of the annual
and quarterly reports titled "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and the consolidated financial statements
of Questa included elsewhere in this document. See "Where You Can Find More
Information."
4
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UNIT CORPORATION
<TABLE>
<CAPTION>
Nine Months
Ending
Year Ended December 31, September 30,
--------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited)
(in thousands, except per share amounts)
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Statement of Operations Data:
Revenues:
Contract drilling..................... $ 16,952 $ 20,211 $ 28,819 $ 46,199 $ 53,528 $ 43,870 $ 32,919
Oil and natural gas................... 26,001 31,187 43,013 45,581 39,703 29,859 28,454
Other................................. 942 1,676 238 84 106 201 416
-------- -------- -------- -------- -------- -------- --------
Total revenues.................... 43,895 53,074 72,070 91,864 93,337 73,930 61,789
-------- -------- -------- -------- -------- -------- --------
Expenses:
Contract drilling:
Operating costs..................... 14,909 18,041 24,259 36,419 43,729 35,251 29,918
Depreciation........................ 2,030 2,596 2,944 4,216 5,766 4,427 4,294
Oil and natural gas:
Operating costs..................... 8,799 12,003 13,409 13,201 14,328 10,789 10,249
Depreciation, depletion
and amortization................... 8,281 10,223 10,807 12,625 16,069 11,804 11,978
General and administrative............ 3,574 3,893 4,122 4,621 4,891 3,711 3,654
Interest.............................. 1,654 3,235 3,162 2,921 4,815 3,596 3,801
-------- -------- -------- -------- -------- -------- --------
Total expenses.................... 39,247 49,991 58,703 74,003 89,598 69,578 63,894
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes...... 4,648 3,083 13,367 17,861 3,739 4,352 (2,105)
-------- -------- -------- -------- -------- -------- --------
Total income taxes (benefit)........... 20 (668) 5,034 6,737 1,493 1,738 (647)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations............................. 4,628 3,751 8,333 11,124 2,246 2,614 (1,458)
-------- -------- -------- -------- -------- -------- --------
Discontinued operations:
Income (loss) from operations of
discontinued operations (net
of income tax benefit of
$69 in 1995)......................... 166 (112) - - - - -
Gain from sale of discontinued
operations (net of income taxes
of $221 in 1995)..................... - 360 - - - - -
-------- -------- -------- -------- -------- -------- --------
Income from discontinued
operations........................ 166 248 - - - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ 4,794 $ 3,999 $ 8,333 $ 11,124 $ 2,246 $ 2,614 $ (1,458)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common share:
Continuing operations:
Basic............................... $ .22 $ .18 $ .37 $ .46 $ .09 $ .10 $ (.06)
======== ======== ======== ======== ======== ======== ========
Diluted............................. $ .22 $ .18 $ .37 $ .45 $ .09 $ .10 $ (.06)
======== ======== ======== ======== ======== ======== ========
Net income (loss):
Basic............................... $ .23 $ .19 $ 37 $ .46 $ .09 $ .10 $ (.06)
======== ======== ======== ======== ======== ======== ========
Diluted............................. $ .23 $ .19 $ .37 $ .45 $ .09 $ .10 $ (.06)
======== ======== ======== ======== ======== ======== ========
Statement of Cash Flows Data:
Cash from (used by):
Operating activities.................. $ 13,093 $ 10,975 $ 20,644 $ 34,350 $ 33,513 $ 29,816 $ 18,186
Investing activities.................. (26,007) (15,652) (32,887) (43,026) (52,783) (45,206) (56,356)
Financing activities.................. 11,840 2,570 12,236 8,587 19,258 16,675 39,587
Balance Sheet Data (at end of period):
Working capital....................... $ 1,911 $ 2,919 $ 7,446 $ 6,319 $ 1,553 $ 950 $ 1,119
Property, plant and equipment, net.... 90,505 96,019 117,706 169,974 197,160 195,719 243,893
Total assets.......................... 103,933 110,922 137,993 202,497 223,064 225,049 270,385
Long-term debt........................ 37,300 41,100 40,600 54,100 72,900 70,200 62,100
Shareholders' equity.................. 52,607 56,606 78,210 108,865 111,290 111,726 169,096
</TABLE>
5
<PAGE>
QUESTA OIL & GAS CO.
<TABLE>
<CAPTION>
Nine Months
Ending
Year Ended December 31, September 30,
------------------------------------------------ --------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited)
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Oil and natural gas................... $ 2,397 $ 2,152 $ 3,276 $ 4,004 $ 3,272 $ 2,728 $ 2,944
Other................................. 527 505 502 618 665 316 353
------- ------- ------- ------- ------- ------- -------
Total revenues.................... 2,924 2,657 3,778 4,622 3,937 3,044 3,297
------- ------- ------- ------- ------- ------- -------
Expenses:
Oil and natural gas:
Operating costs..................... 982 1,093 1,402 1,226 1,374 875 1,143
Depreciation, depletion
and amortization................. 752 637 561 822 1,190 905 945
General and administrative............ 599 784 600 705 762 592 557
Interest.............................. 112 130 139 158 135 103 140
------- ------- ------- ------- ------- ------- -------
Total expenses.................... 2,445 2,644 2,702 2,911 3,461 2,475 2,785
------- ------- ------- ------- ------- ------- -------
Income before income taxes............. 479 13 1,076 1,711 476 569 512
Total income taxes (benefit)........... (73) (81) 255 560 75 145 130
------- ------- ------- ------- ------- ------- -------
Net income............................. $ 552 $ 94 $ 821 $ 1,151 $ 401 $ 424 $ 382
======= ======= ======= ======= ======= ======= =======
Net income per common share:
Basic............................... $0.59 $0.10 $0.42 $0.59 $0.21 $0.22 $0.20
======= ======= ======= ======= ======= ======= =======
Diluted............................. $0.54 $0.09 $0.42 $0.59 $0.21 $0.22 $0.20
======= ======= ======= ======= ======= ======= =======
Statement of Cash Flows Data:
Cash from (used by):
Operating activities.................. $ 1,068 $ 521 $ 1,613 $ 2,347 $ 1,329 $ 1,562 $ 2,288
Investing activities.................. (1,390) (1,000) (1,306) (2,478) (2,265) (1,535) (700)
Financing activities.................. 163 54 577 (406) 687 (291) (231)
Balance Sheet Data (at end of period):
Working capital....................... $ 415 $ (177) $ 684 $ 103 $ 98 $ (148) $ 1,020
Property, plant and equipment, net.... 5,217 5,682 6,625 8,428 9,504 8,930 8,853
Total assets.......................... 6,865 6,580 8,336 9,426 10,482 9,640 11,144
Long-term debt........................ 1,064 776 1,655 1,380 2,148 1,148 1,916
Shareholders' equity.................. 4,062 4,315 5,020 6,052 6,373 6,418 6,755
</TABLE>
6
<PAGE>
Selected Unaudited Pro Forma Combined Financial Data Of Unit
The following tables set forth certain unaudited pro forma combined
financial data which are presented to reflect the pro forma effect of the
merger. The unaudited pro forma combined statement of operations data gives
effect to Unit's acquisition of 13 drilling rigs from Parker (referred to herein
as the "Parker Division"), which acquisition was completed on September 30,
1999, and to the completion of the merger as if they had occurred on January 1,
1998. The unaudited pro forma combined balance sheet data gives effect to the
merger as if it had occurred on September 30, 1999. The unaudited pro forma
combined financial data set forth below have been derived from and should be
read in conjunction with the consolidated financial statements and related notes
of Unit, the Parker Division and Questa filed with the SEC and incorporated by
reference in this document. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
Nine Months
Year Ended Ending
December 31, 1998 September 30, 1999
------------------- ------------------
(in thousands, except per share amounts)
<S> <C> <C>
Statement of Operations Data:
Revenues:
Drilling....................................................................... $ 86,165 $ 47,319
Oil and natural gas............................................................ 43,346 31,670
Other.......................................................................... 750 945
-------- --------
Total revenues.............................................................. 130,261 79,934
-------- --------
Expenses:
Contract Drilling:
Operating costs............................................................... 68,655 41,499
Depreciation.................................................................. 9,019 5,885
Oil and natural gas:
Operating costs............................................................... 15,440 11,392
Depreciation, depletion and amortization...................................... 19,578 12,665
General and administrative..................................................... 5,593 4,160
Interest....................................................................... 4,220 3,419
-------- --------
Total expenses.............................................................. 122,505 79,020
-------- --------
Income before income taxes....................................................... 7,756 914
Income tax expense............................................................... 2,913 436
-------- --------
Net income....................................................................... $ 4,843 $ 478
======== ========
Net income per common share:
Basic.......................................................................... $0.14 $0.01
======== ========
Diluted........................................................................ $0.14 $0.01
======== ========
Balance Sheet Data (at end of period):
Working capital................................................................ N/A $ 2,139
Property, plant and equipment, net............................................. N/A 252,933
Total assets................................................................... N/A 281,716
Long-term debt................................................................. N/A 64,016
Shareholders' equity........................................................... N/A 175,967
</TABLE>
7
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information set forth in this document, before submitting a proxy card
or voting at the special meeting.
RISKS RELATING TO THE TRANSACTION
Questa shareholders may receive less value than they currently anticipate.
Changes in the relationship between the Questa common stock trading price
and the Unit common stock trading price may cause the value of the merger
consideration to decrease. Because the exchange ratio at which Questa common
stock will be exchanged for Unit common stock is fixed, if the trading price of
Unit's common stock decreases between the date of the Questa special meeting and
the date of the merger, the value of the shares of Unit common stock that
Questa's shareholders will receive in the merger will be less than they may
currently anticipate.
No opinion of financial advisor as to fairness of exchange ratio.
Questa's board of directors has not sought an opinion from any independent
third party regarding the fairness of the merger to Questa's shareholders from a
financial point of view. Questa's board itself has determined that the merger is
fair and has recommended that it be approved by Questa shareholders. However,
there is no assurance that an independent third party would conclude that the
merger is fair to Questa shareholders from a financial point of view or that
Questa shareholders will benefit more financially as a result of the merger than
they would if the merger was not effected.
Unit may not complete the merger.
The merger agreement provides that Questa may sue Unit in the event that
the merger agreement is terminated because of a breach by Unit. If the merger
agreement is terminated, Questa may be unable to procure another bidder that
will offer Questa's shareholders consideration of equivalent value to the merger
consideration. The merger agreement provides that if the agreement is terminated
by Questa because:
. Unit breaches any covenant or agreement set forth in the merger
agreement, unless Unit is exercising its reasonable best efforts
to cure the breach; or
. any representation or warranty of Unit in the merger agreement is
or becomes untrue, unless there is no material adverse effect on
Unit;
then Questa's remedy will be to sue for its damages. See "The Merger Agreement
- -- Termination" and "-- Fees, Expenses and Other Payments."
The merger agreement provides that Questa will owe Unit a fee if Questa
does not complete the merger under certain circumstances.
The merger agreement provides that if Questa does not complete the merger
as a result of another acquisition proposal, then Questa must pay Unit $500,000.
The requirement that this fee be paid may deter third parties from making offers
to acquire Questa in a competing acquisition transaction. Furthermore, the
payment of such a fee would reduce Questa's cash and could result in a lower
trading price for Questa's common stock. The merger agreement also provides that
Questa must pay to Unit $400,000 if Questa terminates the merger agreement under
the following circumstances:
. Questa's shareholders fail to adopt the merger agreement at the
special meeting, Questa receives a competing acquisition proposal
prior to the special meeting and within 12 months Questa enters
into an agreement concerning a competing acquisition proposal;
. the Questa board withdraws or adversely modifies its
recommendation that the Questa shareholders vote to adopt the
merger agreement; or
. the Questa board recommends that the shareholders vote for, fails
to recommend that the shareholders vote against, or takes no
position with respect to, a competing acquisition proposal.
See "The Merger Agreement -- Termination" and "-- Fees, Expenses and Other
Payments."
8
<PAGE>
The companies may not realize the benefits of the merger that they are
expecting.
Unit may not succeed in realizing the expected benefits from integrating
the Unit and Questa businesses. Although Unit and Questa expect that the merger
will result in benefits such as operating efficiencies, cost savings and other
synergies, achieving these benefits depends in part on successfully integrating
the businesses of Unit and Questa.
You will be exposed to risks associated with Unit's land drilling
operations after the merger.
Unlike Questa, which is primarily engaged in the acquisition, exploration
and development of oil and gas properties, a significant portion of Unit's
business consists of domestic land contract drilling of natural gas and oil
wells. Unit's land drilling operations are subject to unique risks which may
have an adverse effect on Unit's business and results of operations. You should
carefully consider the risk factors discussed below under "Risks Relating to
Unit and Its Business."
RISKS RELATING TO UNIT AND ITS BUSINESS
If the merger agreement is adopted by the shareholders of Questa and the
merger is consummated, the shareholders of Questa will receive shares of Unit
common stock. Ownership of Unit common stock involves risks and uncertainties.
In determining whether to adopt the merger agreement, Questa shareholders should
consider the following risks associated with an investment in Unit common stock.
The existence of these risks may materially and adversely affect Unit's
business, results of operations and financial condition.
Oil and gas prices are volatile, and low prices have negatively affected
Unit's financial results and could do so in the future.
Our revenues, operating results, cash flow and future rate of growth depend
substantially upon prevailing prices for oil and gas. Historically, oil and gas
prices and markets have been volatile, and they are likely to continue to be
volatile in the future. Oil and gas prices declined substantially in 1998 and,
despite recent improvement, could decline again. These declines had a
significant negative impact on our financial results for 1998 and the first nine
months of 1999. We incurred a net loss for the quarterly periods ending March 31
and June 30, 1999, and although we had a profit for the quarterly period ending
September 30, 1999, we had a net loss for the nine month period ending September
30, 1999. Depressed prices in the future would have a negative impact on our
future financial results. Because our reserves are predominantly gas, changes in
gas prices may have a particularly large impact on our financial results.
Prices for oil and gas are subject to wide fluctuations in response to
relatively minor changes in the supply of and demand for oil and gas, market
uncertainty and a variety of additional factors that are beyond our control.
These factors include:
. political conditions in oil producing regions, including the
Middle East;
. the ability of the members of the Organization of Petroleum
Exporting Countries to agree to and maintain oil price and
production controls;
. the price of foreign imports;
. actions of governmental authorities;
. the domestic and foreign supply of oil and gas;
. the level of consumer demand;
. weather conditions;
. domestic and foreign government regulations;
. the price, availability and acceptance of alternative fuels; and
. overall economic conditions.
These factors and the volatile nature of the energy markets make it impossible
to predict with any certainty the future prices of oil and gas.
Our contract drilling operations depend on levels of activity in the oil
and gas exploration and production industry.
Our contract drilling operations depend on the level of activity in oil and
gas exploration and production in our operating markets. Both short-term and
long-term trends in oil and gas prices affect the level of that activity.
Because oil and gas prices are volatile, the level of exploration and production
activity can also be volatile. Decreased oil and gas prices during 1998 and
early 1999 adversely affected our contract drilling activity by lowering the
utilization of our rigs and reducing the day rates we charge for our rigs.
During this period, a number of oil and gas companies announced reductions in
capital spending for exploration and development, and others have completed or
announced consolidating transactions that have or are likely to continue to
result in additional reductions.
9
<PAGE>
Although oil and gas prices have recently improved, we expect that in the near
term our customers will continue a cautious approach to exploration and
development spending until price gains prove to be sustainable. Any decrease
from current oil and gas prices would depress the level of exploration and
production activity. This, in turn, would likely result in a decline in the
demand for our drilling services and would have an adverse effect on our
contract drilling revenues, cash flows and profitability. As a result, the
future demand for our drilling services is uncertain.
We may not successfully integrate the Parker Acquisition.
On September 30, 1999, we closed the acquisition of 13 drilling rigs from
Parker Drilling Company and one of its subsidiaries. In doing so we increased
our drilling rig fleet by 13 rigs and significantly increased the number of
employees involved in our contract drilling operations. In order to benefit from
this transaction, we will have to integrate these assets and personnel in an
effective manner, which could require substantial attention of our management.
This transaction represents a greater commitment to our contract drilling
segment, which is a highly competitive and sometimes volatile business. If we
are unable to effectively integrate these assets and personnel or if the
contract drilling business suffers a significant decline, our business and
prospects generally could be adversely affected to a material extent.
Unit does not intend to pay cash dividends in the foreseeable future.
We have not declared or paid any cash dividends on our common stock and we
currently anticipate that, for the foreseeable future, we will retain any
earnings for the development of our business. Accordingly, we do not contemplate
declaring or paying cash dividends on our common stock. In addition, our
existing credit arrangements with our bank lenders prohibit our payment of cash
dividends (other than stock dividends), except in certain limited
circumstances.
The industries in which we operate are highly competitive, and many of our
competitors have greater resources than we do. In particular, the contract
drilling industry has intense price competition and excess rig supply.
The drilling industry in which we operate is very competitive. Most
drilling contracts are awarded on the basis of competitive bids, which also
results in intense price competition. In the markets in which we operate, the
number of rigs available for use exceeds the demand for rigs, which increases
this price competition. Many of our competitors in the contract drilling
industry have greater financial and human resources than we do. These resources
may enable them to better withstand periods of low rig utilization, to compete
more effectively on the basis of price and technology, to build new rigs or
acquire existing rigs and to provide rigs more quickly than we do in periods of
high rig utilization.
The oil and gas industry is also highly competitive. We compete in the
areas of property acquisitions and oil and gas exploration, development,
production and marketing with major oil companies, other independent oil and
natural gas concerns and individual producers and operators. In addition, we
must compete with major and independent oil and natural gas concerns in
recruiting and retaining qualified employees. Many of our competitors in the oil
and gas industry have substantially greater financial and other resources than
we do.
Shortages of experienced personnel for our contract drilling operations
could limit our ability to meet the demand for our services.
In recent years, the number of oil and gas drilling rigs in operation has
declined substantially. As a result, a large number of experienced personnel in
this industry have moved to other industries or fields. If the demand for
contract drilling services should increase, we and most other contract drilling
contractors may have difficulties in employing enough qualified and experienced
personnel to be able to meet that demand completely.
Our operations have significant capital requirements, and the amount of our
indebtedness could have important consequences to you.
We have experienced and expect to continue to experience substantial
working capital needs due to our growth in drilling operations and our active
exploration, development and exploitation programs. Historically, we have funded
our working capital needs through a combination of internally generated cash
flow, equity financing and borrowings under our credit facility. As a result of
our significant working capital requirements, we currently have, and will
continue to have, a significant amount of outstanding debt. At December 31,
1999, our long-term debt outstanding was $65.4 million. As of December 31, 1999,
the amount available for borrowing under our credit facility was $85 million, of
which $62.4 million was outstanding. Our level of indebtedness, the cash flow
needed to satisfy our indebtedness and the covenants governing our indebtedness
could:
. limit funds available for financing capital expenditures, our
drilling program or other activities or cause us to curtail these
activities;
10
<PAGE>
. limit our flexibility in planning for, or reacting to changes in, our
business;
. place us at a competitive disadvantage to some of our competitors that
are less leveraged than us;
. make us more vulnerable during periods of low oil and gas prices or in
the event of a downturn in our business; and
. prevent us from obtaining additional financing on acceptable terms or
limit amounts available under our existing or any future credit
facilities.
Our ability to meet our debt service obligations will depend on our future
performance. We cannot assure you that we will be able to meet our debt service
requirements. In addition, lower oil and gas prices could result in future
reductions in the amount available for borrowing under our credit facility,
reducing our liquidity and even triggering mandatory loan repayments.
If the requirements of our indebtedness are not satisfied, a default would be
deemed to occur and our lenders would be entitled to accelerate the payment of
the outstanding indebtedness. If this occurs, we cannot assure you that we would
have sufficient funds available or could obtain the financing required to meet
our obligations.
Our future performance depends upon our ability to find or acquire additional
oil and gas reserves that are economically recoverable.
In general, production from oil and natural gas properties declines as
reserves are depleted, with the rate of decline depending on reservoir
characteristics. Unless we successfully replace the reserves that we produce,
our reserves will decline, resulting eventually in a decrease in oil and gas
production and lower revenues and cash flow from operations. Historically, we
have succeeded in increasing reserves after taking production into account
through exploitation, development and exploration. We have conducted such
activities on our existing oil and gas properties as well as on newly acquired
properties. We may not be able to continue to replace reserves from such
activities at acceptable costs. Low prices of oil and gas may further limit the
kinds of reserves that can economically be developed. Lower prices also decrease
our cash flow and may cause us to decrease capital expenditures.
We are continually identifying and evaluating opportunities to acquire oil and
gas properties, including acquisitions that would be significantly larger than
those consummated to date by us. We cannot assure you that we will successfully
consummate any acquisition, that we will be able to acquire producing oil and
gas properties that contain economically recoverable reserves or that any
acquisition will be profitably integrated into our operations.
Our exploration and production operations involve a high degree of business
and financial risk which could adversely affect us.
Exploitation, development and exploration involve numerous risks that may
result in dry holes, the failure to produce oil and gas in commercial quantities
and the inability to fully produce discovered reserves. The cost of drilling,
completing and operating wells is substantial and uncertain. Numerous factors
beyond our control may cause the curtailment, delay or cancellation of drilling
operations, including:
. unexpected drilling conditions;
. pressure or irregularities in formations;
. equipment failures or accidents;
. adverse weather conditions;
. compliance with governmental requirements; and
. shortages or delays in the availability of drilling rigs or delivery
crews and the delivery of equipment.
Exploratory drilling is a speculative activity. Although we may disclose our
overall drilling success rate, those rates may decline. Although we may discuss
drilling prospects that we have identified or budgeted for, we may ultimately
not lease or drill these prospects within the expected time frame, or at all.
Lack of drilling success will have an adverse effect on our future results of
operations and financial condition.
Our hedging arrangements might limit the benefit of increases in natural gas
prices.
In order to reduce our exposure to short-term fluctuations in the price of oil
and gas, we sometimes enter into hedging arrangements. Our hedging arrangements
apply to only a portion of our production and provide only partial price
protection against declines in oil and gas prices. These hedging arrangements
may expose us to risk of financial loss and limit the benefit to us of increases
in prices.
11
<PAGE>
Estimates of our reserves are uncertain and may prove to be inaccurate, and
oil and gas price declines may lead to an impairment of our oil and gas
assets.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and their values, including many factors beyond the control of the
producer. The reserve data included or incorporated by reference in this
document represent only estimates. Reservoir engineering is a subjective and
inexact process of estimating underground accumulations of oil and gas that
cannot be measured in an exact manner. Estimates of economically recoverable oil
and gas reserves depend on a number of variable factors, including historical
production from the area compared with production from other producing areas,
and assumptions concerning:
. the effects of regulations by governmental agencies;
. future oil and gas prices;
. future operating costs;
. severance and excise taxes;
. development costs; and
. workover and remedial costs.
Some or all of these assumptions may vary considerably from actual results.
For these reasons, estimates of the economically recoverable quantities of oil
and gas attributable to any particular group of properties, classifications of
those reserves based on risk of recovery, and estimates of the future net cash
flows from reserves prepared by different engineers or by the same engineers but
at different times may vary substantially. Accordingly, reserve estimates may be
subject to downward or upward adjustment. Actual production, revenues and
expenditures with respect to our reserves will likely vary from estimates, and
those variances may be material.
The information regarding discounted future net cash flows included in or
incorporated by reference in this document should not be considered as the
current market value of the estimated oil and gas reserves attributable to our
properties. As required by the SEC, the estimated discounted future net cash
flows from proved reserves are based on prices and costs as of the date of the
estimate, while actual future prices and costs may be materially higher or
lower. Actual future net cash flows also will be affected by the following
factors:
. the amount and timing of actual production;
. supply and demand for oil and gas;
. increases or decreases in consumption; and
. changes in governmental regulations or taxation.
In addition, the 10% discount factor, which is required by the SEC to be used
in calculating discounted future net cash flows for reporting purposes, is not
necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with our operations or the oil and
gas industry in general.
We periodically review the carrying value of our oil and gas properties under
the full cost accounting rules of the SEC. Under these rules, capitalized costs
of proved oil and gas properties may not exceed the present value of estimated
future net revenues from proved reserves, discounted at 10%. Application of the
ceiling test generally requires pricing future revenue at the unescalated prices
in effect as of the end of each fiscal quarter and requires a write-down for
accounting purposes if the ceiling is exceeded, even if prices were depressed
for only a short period of time. We may be required to write down the carrying
value of our oil and gas properties when oil and gas prices are depressed or
unusually volatile. If a write-down is required, it would result in a charge to
earnings, but would not impact cash flow from operating activities. Once
incurred, a write-down of oil and gas properties is not reversible at a later
date.
Our operations present inherent risks of loss that, if not insured or
indemnified against, could adversely affect our results of operations.
Our drilling operations are subject to many hazards inherent in the drilling
industry, including blowouts, cratering, explosions, fires, loss of well
control, loss of hole, damaged or lost drilling equipment and damage or loss
from inclement weather. Our exploration and production operations are subject to
these and similar risks Any of these events could result in personal injury or
death, damage to or destruction of equipment and facilities, suspension of
operations, environmental damage and damage to the property of others.
Generally, drilling contracts provide for the division of responsibilities
between a drilling company and its customer, and we seek to obtain
indemnification from our drilling customers by contract for some of these risks.
To the extent that we
12
<PAGE>
are unable to transfer these risks to drilling customers by contract or
indemnification agreements, we seek protection through insurance which our
management considers to be adequate. However, we cannot assure you that our
insurance or indemnification agreements will adequately protect us against
liability from all of the consequences of the hazards described above. The
occurrence of an event not fully insured or indemnified against, or the failure
of a customer to meet its indemnification obligations, could result in
substantial losses. In addition, we cannot assure you that insurance will be
available to cover any or all of these risks. Even if available, the insurance
might not be adequate to cover all of our losses, or we might decide against
obtaining that insurance because of high premiums or other costs.
In addition, we are not the operator of some of our wells. As a result, our
operating risks for those wells and our ability to influence the operations for
those wells are less subject to our control. Operators of those wells may act in
ways that are not in our best interests.
Governmental and environmental regulations could adversely affect our
business.
Our business is subject to federal, state and local laws and regulations on
taxation, the exploration for and development, production and marketing of oil
and gas and safety matters. Many laws and regulations require drilling permits
and govern the spacing of wells, rates of production, prevention of waste,
unitization and pooling of properties and other matters. These laws and
regulations have increased the costs of planning, designing, drilling,
installing, operating and abandoning our oil and gas wells and other facilities.
In addition, these laws and regulations, and any others that are passed by the
jurisdictions where we have production, could limit the total number of wells
drilled or the allowable production from successful wells, which could limit our
revenues.
Our operations are also subject to complex environmental laws and regulations
adopted by the various jurisdictions where we operate. We could incur liability
to governments or third parties for any unlawful discharge of oil, gas or other
pollutants into the air, soil or water, including responsibility for remedial
costs. We could potentially discharge these materials into the environment in
any number of ways including the following:
. from a well or drilling equipment at a drill site;
. from gathering systems, pipelines, transportation facilities and storage
tanks;
. damage to oil and natural gas wells resulting from accidents during
normal operations; and
. blowouts, cratering and explosions.
Because the requirements imposed by laws and regulations are frequently
changed, we cannot assure you that laws and regulations enacted in the future,
including changes to existing laws and regulations, will not adversely affect
our business. In addition, because we acquire interests in properties that have
been operated in the past by others, we may be liable for environmental damage
caused by the former operators.
Our stockholders Rights Plan and provisions of Delaware law and our by-laws
and charter could discourage change in control transactions and prevent
stockholders from receiving a premium on their investment.
Our by-laws provides for a classified board of directors with staggered terms
and authorizes the board of directors to set the terms of preferred stock. In
addition, our charter and Delaware law contain provisions that impose
restrictions on business combinations with interested parties. We have also
adopted a stockholders' rights plan. Because of our stockholders' rights plan
and these provisions of our by-laws, charter and Delaware law, persons
considering unsolicited tender offers or other unilateral takeover proposals may
be more likely to negotiate with our board of directors rather than pursue non-
negotiated takeover attempts. As a result, these provisions may make it more
difficult for our stockholders to benefit from transactions that are opposed by
an incumbent board of directors.
FORWARD-LOOKING STATEMENTS
This document, including the information incorporated by reference,
information included in, or incorporated by reference from, future filings by
Unit or Questa with the SEC, as well as information contained in written
material, press releases and oral statements
13
<PAGE>
issued by or on behalf of Unit or Questa, contain, or may contain, certain
statements that may be deemed to be "forward-looking statements" within the
meaning of federal securities laws. All statements, other than statements of
historical facts, included or incorporated by reference in this document, which
address activities, events or developments which Unit or Questa expect or
anticipate will or may occur in the future are forward-looking statements. The
words "believes," "intends," "expects," "anticipates," "projects," "estimates,"
"predicts" and similar expressions are also intended to identify forward-looking
statements.
These forward-looking statements include, among others, such things as:
. Year 2000 plans;
. the amount and nature of future capital expenditures;
. wells to be drilled or reworked;
. oil and gas prices and demand;
. exploitation and exploration prospects;
. estimates of proved oil and gas reserves;
. reserve potential;
. development and infill drilling potential;
. drilling prospects;
. expansion and other development trends of the oil and gas industry;
. business strategy;
. production of oil and gas reserves;
. expansion and growth of our business and operations; and
. drilling rig utilization, revenues and costs.
These statements are based on certain assumptions and analyses made by Unit or
Questa in light of our experience and our perception of historical trends,
current conditions and expected future developments as well as other factors we
believe are appropriate in the circumstances. However, whether actual results
and developments will conform to our expectations and predictions is subject to
a number of risks and uncertainties which could cause actual results to differ
materially from our expectations, including:
. the risk factors discussed in this proxy statement/prospectus and in the
documents we incorporate by reference;
. general economic, market or business conditions;
. the nature or lack of business opportunities that may be presented to
and pursued by Unit or Questa;
. demand for land drilling services;
. changes in laws or regulations; and
. other factors, most of which are beyond our control.
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical book value per share and
earnings per share for Unit common stock and Questa common stock. The table also
reflects the equivalent per share earnings and book value with respect to one
share of Questa common stock on a pro forma basis giving effect to the merger.
You also should read the separate historical consolidated financial statements
of Unit and Questa and the related notes included or incorporated by reference
in this proxy statement/prospectus. Neither Unit nor Questa has declared any
cash dividends during the periods presented. For purposes of calculating the pro
forma combined per share data, the merger is assumed to be effective as of the
date presented for purposes of book value data and as of the beginning of the
earliest date presented for purposes of earnings data. For purposes of
calculating pro forma earnings data, the results of the acquisition of the
Parker Division have been included in the pro forma information for the year
ended December 31, 1998 and for the nine months ended September 30, 1999. You
should not rely on the pro forma per share data as being necessarily indicative
of actual results had the merger occurred on the dates assumed, or of future
results.
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<PAGE>
<TABLE>
<CAPTION>
As of As of
December 31, September 30,
1998 1999
---- ----
<S> <C> <C>
Book value per share:
Unit historical.................................... $4.36 $5.00
Questa historical.................................. 3.33 3.53
Unit pro forma combined............................ 4.29 4.94
Questa equivalent pro forma combined(1)............ 4.08 4.69
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ending
-------------------------------------- September 30,
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) per share:
Unit historical - basic................................. $ .37 $ .46 $ .09 $(0.06)
Unit historical - diluted............................... 0.37 0.45 0.09 (0.06)
Questa historical - basic............................... 0.42 0.59 0.21 0.20
Questa historical - diluted............................. 0.42 0.59 0.21 0.20
Unit pro forma combined - basic......................... 0.38 0.47 0.14 0.01
Unit pro forma combined - diluted....................... 0.38 0.46 0.14 0.01
Questa equivalent pro forma combined -- basic(1)........ 0.37 0.45 0.13 0.01
Questa equivalent pro forma combined -- diluted(1)...... 0.36 0.44 0.13 0.01
</TABLE>
- ----------------------------
(1) The Questa pro forma equivalents are calculated by multiplying the unaudited
pro forma combined per share data by .95 (the exchange ratio for the merger).
COMPARATIVE MARKET VALUE DATA
The following table sets forth the closing sales prices for Unit's common
stock and Questa's common stock as of (a) December 9, 1999, the last day of
trading prior to the public announcement of the merger and (b) February 4, 2000.
The equivalent per share price of a share of Questa common stock is calculated
by multiplying the price of a share of Unit common stock by .95, the exchange
ratio for the merger.
<TABLE>
<CAPTION>
Unit Questa Questa
Historical Historical Equivalent
----------------- ----------------- -----------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
December 9, 1999:
Closing price per share of common stock....... $5.125 $4.875 $4.869
February 4, 2000:
Closing price per share of common stock....... $7.625 $6.375 $7.243
</TABLE>
Questa shareholders are encouraged to obtain current market quotations prior
to making any decision with respect to the merger.
COMPARATIVE PER SHARE PRICES AND DIVIDENDS DATA
The following table sets forth the range of high and low sales prices for
Unit's common stock and the high and low bid prices for Questa's common stock
for the periods indicated, as reported on the New York Stock Exchange for Unit
and the Nasdaq SmallCap Market for Questa. Questa's common stock trades under
the symbol "QUES" and Unit's common stock trades under the symbol "UNT." The bid
prices for Questa common stock represent prices between dealers, do not include
retail markups, markdowns or commissions, and may not represent actual
transactions.
15
<PAGE>
<TABLE>
<CAPTION>
Unit Questa
----------------- -----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1997
First Quarter.............................. $12.25 $7.50 $3.63 $2.75
Second Quarter............................. 11.87 7.87 5.56 3.32
Third Quarter.............................. 15.37 9.62 8.32 4.13
Fourth Quarter............................. 15.81 8.44 8.25 4.25
1998
First Quarter.............................. $ 9.81 $6.44 $6.37 $3.88
Second Quarter............................. 9.87 5.50 7.00 4.50
Third Quarter.............................. 6.31 3.75 5.75 3.50
Fourth Quarter............................. 6.94 3.62 4.25 3.38
1999
First Quarter.............................. $ 7.00 $3.50 $5.50 $3.50
Second Quarter............................. 8.25 4.87 4.75 3.75
Third Quarter.............................. 9.00 6.75 5.43 4.00
Fourth Quarter............................. 7.75 4.87 6.13 3.50
2000
First Quarter (through February 4, 2000)... $ 8.12 $6.62 $7.50 $6.43
</TABLE>
We advise you to obtain current market quotations for Unit's common stock and
Questa's common stock. The market prices of Unit's common stock and Questa's
common stock at any time before the merger, and the market price of Unit's
common stock at any time after the merger, may fluctuate. The exchange ratio
will not be adjusted for any increases or decreases in the market price of
Unit's common stock that occur before the merger becomes effective. If the
market price of Unit common stock decreases or increases before the merger, the
value of the Unit common stock to be received in the merger in exchange for
Questa common stock will correspondingly decrease or increase.
Neither Questa nor Unit has ever paid cash dividends on its shares of common
stock. Questa has agreed not to pay cash dividends before the merger without
Unit's written consent. If the merger is not completed, Questa presently intends
that it would continue to retain all earnings to finance the expansion of its
business. Similarly, Unit has no present intention to pay cash dividends on its
common stock before or after the merger.
THE SPECIAL MEETING
This document is being furnished to shareholders of Questa in connection with
the solicitation of proxies on behalf of the Questa board for use at the special
meeting of Questa shareholders.
Time and Place; Purpose
The Questa special meeting will be held on March 14, 2000, at 10:00 a.m.,
local time, at the offices of Questa, located at 7030 South Yale, Suite 700,
Tulsa, Oklahoma 74136, to consider and vote upon:
. a proposal to approve the merger agreement among Unit, a wholly-
owned subsidiary of Unit, and Questa; and
. such other business as may properly come before the special meeting
or any adjournment or postponement of such meeting.
A complete list of Questa shareholders will be available for examination by
any shareholder for any purpose germane to the special meeting at Questa's
principal place of business, located at 7030 South Yale, Suite 700, Tulsa,
Oklahoma 74136, for a period of at least ten days before the meeting.
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<PAGE>
The Questa board has unanimously determined that the merger agreement and the
merger are in the best interests of, and are fair to, the shareholders of Questa
and has unanimously approved the merger agreement. Accordingly, the Questa board
unanimously recommends that all Questa shareholders vote for the approval of the
merger agreement.
Record Date; Shares Entitled To Vote
The Questa board has fixed the close of business on February 7, 2000, as
the record date for determining the Questa shareholders entitled to receive
notice of and to vote at the special meeting. As of the record date, 1,912,894
shares of Questa common stock were outstanding and held of record by
approximately 540 holders. Each outstanding share of Questa common stock is
entitled to one vote on all matters coming before the special meeting.
Quorum
The presence, either in person or by proxy, of the holders of 637,632
shares, representing one-third of the issued and outstanding shares of Questa
common stock on the record date, is necessary to constitute a quorum for the
transaction of business at the special meeting.
Vote Required
Under Questa's articles of incorporation, the affirmative vote of the
holders of a majority of Questa's common stock is required to adopt the merger
agreement.
Effect Of Abstentions And Broker Non-Votes
Shares of Questa common stock represented by properly executed proxies that
reflect abstentions or "broker non-votes" will be counted as present for
purposes of determining the presence of a quorum at the special meeting. "Broker
non-votes" represent shares held by brokerage firms in "street-name" with
respect to which the broker has not received instructions from the customer or
otherwise does not have discretionary authority to vote. Brokerage firms will
not have discretionary authority to vote these "street-name" shares with respect
to the proposal to approve the merger agreement. Because approval of the merger
agreement requires the approval of a majority of Questa's outstanding shares,
abstentions and broker non-votes will have the same effect as votes against the
approval of the merger agreement.
Voting Of Proxies
Shares of Questa common stock represented by properly executed proxies
received at or before the special meeting, and which have not been revoked, will
be voted at the special meeting, or any reconvened meeting after any adjournment
or postponement of the special meeting, in accordance with the instructions of
such proxies. If a proxy is properly executed and returned by a shareholder of
Questa without indicating any voting instructions, the shares of Questa common
stock represented by such proxy will be voted at the special meeting FOR the
approval of the merger agreement.
If any other matters are properly presented for consideration at the
special meeting, including, among other things, consideration of a motion to
adjourn or postpone the special meeting to another time or place, then the
persons named on the enclosed proxy card as the proxies for Questa common stock
will have discretion to vote on these matters in accordance with their best
judgment.
Revocation Of Proxies
A shareholder may revoke a returned proxy card at any time before it is
exercised by:
. giving written notice of such revocation to the Corporate
Secretary of Questa;
. appearing and voting in person at the special meeting; or
. properly completing and executing a later dated proxy and delivering
it to the Corporate Secretary of Questa at or before the special
meeting.
Attendance at the special meeting will not in and of itself revoke a proxy.
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<PAGE>
Solicitation Of Proxies; Expenses
In connection with the special meeting, proxies are being solicited by, and
on behalf of, the Questa board. Questa will bear the cost of the solicitation of
proxies from its shareholders. In addition to the solicitation of proxies by use
of mail, the directors, officers and employees of Questa and Unit may solicit
proxies from shareholders personally or by telephone, facsimile or other means
of communication. Such directors, officers and employees will not receive extra
compensation for such solicitation but may be reimbursed for out-of-pocket
expenses related to the solicitation. Arrangements will also be made with
brokerage houses, banks, fiduciaries and other custodians for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons, and Questa will reimburse such persons for their reasonable
out-of-pocket expenses in connection with the solicitation.
Shareholders Should Not Send In Their Stock Certificates With Their Proxy Card.
Shares Held By Questa Management And Others
As of the record date, the directors and executive officers of Questa as a
group owned beneficially an aggregate of 1,119,630 outstanding shares of Questa
common stock. This amount represents approximately 58.5% of the total shares
outstanding as of the record date. Certain of the directors and executive
officers of Questa owning an aggregate of approximately 55% of the outstanding
shares of Questa common stock have entered into voting agreements with Unit,
whereby they have agreed to vote shares beneficially owned by them in favor of
the proposal to approve the merger agreement. If these persons vote their shares
in favor of the merger agreement, it will be approved by the shareholders of
Questa without regard to the vote of any other Questa shareholders. See "The
Merger Agreement -- Related Agreements."
THE MERGER
This section of the proxy statement/prospectus describes the proposed merger.
While we believe that this description covers the material terms of the merger,
this summary may not contain all of the information that is important to you.
You should carefully read this entire proxy statement/prospectus and the other
documents we refer you to for a more complete understanding of the merger.
General
Questa, Unit and Unit's acquisition subsidiary have entered into the merger
agreement which provides that Unit will acquire Questa and each outstanding
share of Questa common stock, other than shares held by Questa which will be
canceled, will be converted into the right to receive .95 shares of Unit common
stock. Questa will be the surviving corporation in the merger and will become a
wholly owned subsidiary of Unit. Upon completion of the merger, Questa
shareholders will own in the aggregate approximately 5% of the outstanding
shares of Unit common stock.
Background Of The Merger
In October of 1994 representatives of Unit and Questa held preliminary
discussions regarding a possible acquisition of Questa by Unit. As a result of
these discussions, on December 20, 1994, the two companies signed a letter of
intent pursuant to which the companies would pursue the possible acquisition of
Questa by Unit. However, shortly after signing the letter of intent, the parties
mutually decided to not continue their negotiations primarily due to the then
prices of the companies respective stock.
Subsequent to the termination of their negotiations, representatives of both
companies, primarily Mr. John Nikkel, President of Unit, and Mr. Warren L.
Meeks, Chairman of Questa, would meet on a social basis from time to time. These
meetings were on an infrequent basis and of a social nature and not as a result
of any ongoing negotiations regarding a merger of the companies.
During the past several years, Questa had been approached on a regular basis
by other oil and gas companies interested in pursuing a merger transaction with
Questa or the acquisition of its oil and gas properties. However, Questa's board
determined in each case that either the consideration offered in the merger or
acquisition proposal was too low or that the proposal was being made by a party
lacking the financial ability to complete the proposed transaction.
In December 1998, the price of oil fell below $11.00 a barrel, its lowest
level during the past several years on an inflation-adjusted basis. Oil prices
improved during the spring of 1999. Taking into consideration the increase in
the value of Questa's reserves resulting from improved prices and that Questa's
chief executive officer, Warren Meeks, would reach retirement age in December
1999, in June 1999 Questa's board of directors directed Questa's management to
approach Unit concerning Unit's possible interest in a potential acquisition of
Questa.
In June 1999, an investor group contacted Questa concerning a potential cash
offer for all of Questa's common stock. Questa's management met with this group
on July 10, 1999, in Tulsa, Oklahoma, and on July 21, 1999, Questa furnished
this group with copies
18
<PAGE>
of its oil and gas reserve report. Subsequent to July 21, 1999, Questa's
management had several telephone conversations with this group and furnished the
group with additional information. Questa had no communications with this group
after September 1999 and, therefore, assumed the group lacked the financial
ability to complete the acquisition.
On July 9, 1999, Mr. Nikkel met with Mr. Meeks. It was during this meeting
that Mr. Meeks told Mr. Nikkel that Questa's board was interested in pursuing a
possible merger between the companies. Mr. Nikkel indicated that Unit would be
interested in exploring a possible merger with Questa as a means of acquiring
additional oil and gas properties. Mr. Nikkel and Mr. Meeks agreed to further
explore the possibilities of a merger transaction and to exchange limited
information with each other.
Subsequent to this meeting, Unit began its preliminary review of Questa's
operations which consisted of evaluating Questa's publicly filed financial
information and reviewing the oil and gas reserve data provided by Questa.
On July 26, 1999, Mr. Nikkel met with Mr. Alan Meeks, President of Questa. At
this meeting Mr. Nikkel proposed a preliminary value of $6.50 per share for
Questa's common stock to be paid half in cash and half in Unit's common stock.
Mr. Nikkel advised Mr. Meeks that this determination was preliminary and subject
to further revision or change dependent on Unit's further review of Questa.
On August 13, 1999, Questa provided Unit with current oil and gas reserve
information regarding Questa's oil and gas properties. This information was
analyzed by Unit's technical staff.
On August 30, 1999, Mr. Nikkel met with Warren Meeks. At this meeting Mr.
Meeks expressed the view that Unit's initial offer was inadequate. Mr. Nikkel
stressed that Unit's valuation of Questa was preliminary and subject to Unit's
further review of Questa. Subsequent to this meeting, Unit conducted further
analysis of information regarding Questa.
On September 27, 1999, Mr. Nikkel and Warren Meeks had further discussions
over the telephone concerning the possible business combination. In this
discussion, Mr. Nikkel informed Mr. Meeks that, subject to further due diligence
review and other matters, Unit was willing to increase its valuation of the
outstanding shares of Questa common stock to $7.25 per share. Mr. Nikkel met
with Messrs. Warren Meeks and Alan Meeks on September 29, 1999, at Unit's office
to discuss further the proposed structure of the merger and the consideration to
be paid by Unit. At this meeting, Warren Meeks indicated his belief that the
proposed consideration would be acceptable to Questa's board of directors.
On October 8, 1999, representatives of Unit met with representatives of
Questa to discuss the status of Questa's drilling operations in West Texas.
On October 14, 1999, Unit and Questa entered into a letter of intent
providing, among other things, for Unit's acquisition of Questa in a merger
transaction pursuant to which Questa shareholders would receive approximately
50% of the merger consideration value in cash and 50% in shares of Unit common
stock.
On October 15, 1999, Unit commenced its due diligence review of Questa's non-
public records and its operations. From October 20 to November 10, 1999, Questa
representatives and Unit representatives held discussions and negotiated the
terms and provisions of the merger agreement.
On November 12, 1999, John Nikkel and Larry Pinkston, Vice President and
Chief Financial Officer of Unit, met with Messrs. Warren Meeks and Alan Meeks.
At this meeting, Mr. Nikkel advised the Meeks that a preliminary review of the
resulting tax ramifications of the proposed merger, as then contemplated, made
the transaction untenable for Unit. Mr. Nikkel indicated that Unit had not
finalized its review of the tax issues and that he would advise Questa of Unit's
final determination.
On November 18, 1999 Messrs. Nikkel and Pinkston met with Messrs. Warren and
Alan Meeks. At this meeting Unit advised the Meeks that due to unfavorable tax
ramifications Unit would not be able to proceed with the acquisition unless it
was restructured to qualify as a pooling of interests for accounting and
financial reporting purposes. Mr. Nikkel proposed an all-stock transaction with
an exchange ratio of .95 shares of Unit common stock for each outstanding share
of Questa common stock. Mr. Warren Meeks indicated in response that the board of
Questa would need to review Unit's new proposal. Subsequent to this meeting,
Unit provided Questa with additional information concerning Unit.
Sometime during the first part of the week of November 22, 1999, Warren Meeks
informed Mr. Nikkel that he believed the proposed structure of the merger and
the exchange ratio would be acceptable to Questa's board.
On or before December 9, 1999, information concerning the material terms and
provisions of the merger agreement was distributed to Questa's board members. On
December 9, 1999, the Questa board determined that the terms of the merger
agreement and the transactions contemplated thereby were fair to, and in the
best interests of, Questa and its shareholders, unanimously approved
19
<PAGE>
the merger agreement and resolved to recommend that the Questa shareholders vote
for the approval and adoption of the merger agreement at the special meeting.
See "--Reasons For The Merger; Recommendation Of The Questa Board" below.
Reasons For The Merger; Recommendation Of The Questa Board
The Questa board unanimously approved the merger agreement, believes that the
merger is in the best interests of, and fair to, the Questa shareholders and
unanimously recommends approval of the merger agreement by the holders of Questa
common stock at the special meeting.
In determining to approve the merger, the Questa board considered the
following factors:
. Questa's common stock has historically traded at a price/earnings
multiple per share which is lower than the multiple at which the
shares of other oil and gas companies are traded;
. The market for Unit's common stock is superior to the market for
Questa's common stock due to larger market capitalization, greater
liquidity and enhanced visibility and interest; and
. Unit's common stock has a greater potential for appreciation than
Questa's common stock.
The Questa board believes that Unit's common stock trades at a higher
price/earnings multiple due to the fact that Unit is much larger than Questa and
trades on the New York Stock Exchange, thereby attracting greater investor
interest. By way of example, during the nine months ending September 30, 1999
Unit had a loss of $(0.06) per share. Approximately 1,777,000 shares of Unit's
common stock traded during November 1999 at prices ranging between $5.75 and
$7.43 per share. In contrast, and despite Questa's earnings of $0.20 per share
during the nine months ending September 30, 1999, only 60,800 shares of Questa's
common stock traded during November 1999 at prices ranging between $4.75 and
$5.93 per share. No shares of Questa's common stock were traded on November 10,
22, or 29, 1999 and less than 1,000 shares traded on November 1 and November 17,
1999.
In reaching its determination that the merger is in the best interests of,
and fair to, the Questa shareholders, the Questa board of directors considered
all of the above factors as a whole and did not assign specific or relative
weights to these factors. Individual members of the Questa board may have given
different weights to different factors. Moreover, the foregoing discussion of
the factors considered by the Questa board of directors is not intended to be
exhaustive. However, the discussion is believed to include all material factors
considered by the Questa board of directors.
Closing and Effective Time of the Merger
Subject to the terms and conditions of the merger agreement, the closing of
the merger will occur on the third business day immediately following the day on
which the conditions to closing set forth in the merger agreement are fulfilled
or waived, unless Questa and Unit agree otherwise. It is anticipated that the
last of the conditions to the closing to be fulfilled will be the approval of
the merger agreement by the Questa shareholders.
At the closing of the merger, articles of merger relating to the merger will
be filed by Questa with the Colorado Secretary of State and by Unit with the
Oklahoma Secretary of State. The time when the Colorado Secretary of State
issues a certificate of merger in response to the filing of the articles of
merger, or such later time as is specified in the articles of merger, is
referred to as the "effective time" of the merger.
Exchange Of Certificates
As of the effective time, Unit will deposit with an exchange agent
certificates representing the aggregate whole number of shares of Unit common
stock to be issued in the merger (as well as the estimated amount of cash to be
paid instead of fractional shares of Unit common stock). As soon as reasonably
practicable after the effective time, the exchange agent will mail to each
holder of record of Questa common stock transmittal materials and instructions
for use in exchanging the old Questa certificates for certificates representing
shares of Unit common stock (and, if applicable, cash instead of a fractional
share of Unit common stock).
Shareholders Should Not Send In Their Stock Certificates Until They Receive
A Transmittal Form.
Federal Securities Laws Consequences; Resale Restrictions
The shares of Unit common stock to be issued to the shareholders of Questa in
the merger have been registered under the Securities Act of 1933. Accordingly,
all such shares of Unit common stock will be freely transferable under the
Securities Act of 1933, except that shares of Unit common stock received by
persons who are deemed to be "affiliates," as such term is defined under
20
<PAGE>
the Securities Act of 1933, of Questa before the merger or who become
"affiliates" of Unit after the merger may be resold by them only in transactions
permitted by the resale provisions of Rule 145 promulgated under the Securities
Act of 1933 or as otherwise permitted under the Securities Act of 1933. Rule 145
generally provides that "affiliates" of an acquired company may not sell
securities of the issuer unless the securities are sold:
. in accordance with the volume, manner of sale and public information
requirements of Rule 144; or
. without regard to the volume or manner of sale requirements of Rule
144, but subject to its public information requirements, if the
persons do not become "affiliates" of Unit after the merger and have
held the shares acquired in the merger for at least one year.
Rule 144 generally requires that the quantity of shares sold in any three-
month period not exceed the greater of 1% of the outstanding shares of the
issuer or the average weekly reported volume of trading in such shares for the
four weeks preceding the notice of sale. Rule 144 also requires that such sales
be made in unsolicited, open market "brokers' transactions." Persons who may be
deemed to be "affiliates" of Unit or Questa generally include individuals or
entities that control, are controlled by, or are under common control with, such
party and may include certain officers and directors of such party as well as
principal shareholders of such party. The merger agreement requires Questa to
use its best efforts to obtain from each of its "affiliates" a written agreement
to the effect that such person will not sell, transfer or otherwise dispose of
any of the shares of Unit common stock issued to such person in the merger in
violation of the Securities Act of 1933 or the rules and regulations promulgated
by the SEC.
In addition, each of Questa's executive officers and directors, each of
whom may be deemed to be an "affiliate" of Questa, as that term is defined under
Rule 145 of the Securities Act, signed a letter agreement with Unit, agreeing
that:
. for 30 days before the merger, the affiliate will not sell, transfer
or otherwise dispose of (except by gift) or reduce his or her risk in
(as defined by SEC accounting rules) more than a de minimus number of
the shares of Questa common stock or Unit stock held by the
affiliate; and
. until Unit has publicly filed or announced results covering at least
30 days of combined operations of Unit and Questa, the affiliate will
not sell, otherwise dispose of or reduce his or her risk in more than
a de minimus number of the shares of Unit common stock that the
affiliate receives in the merger.
In return, Unit has agreed to publish results of operations covering at
least 30 days of combined operations as soon as practicable after the end of a
calendar month that is at least 30 days after the effective time of the merger.
The results of operations may be in the form of an earnings report, an effective
registration statement or report filed with the SEC, or any other public filing
or announcement that includes sales and net income.
New York Stock Exchange Listing Of Unit Common Stock
In the merger agreement, Unit has agreed to use its best efforts to cause
the shares of Unit common stock to be issued in the merger to be approved for
listing on the New York Stock Exchange before the merger. The obligations of
Questa, Unit and Unit's acquisition subsidiary to close the merger are
conditioned upon, among other things, such shares of Unit common stock being
listed on the New York Stock Exchange.
Certain Effects Of The Merger
If the merger is consummated, Questa will become a wholly-owned subsidiary
of Unit. As a result, public trading of the shares of Questa common stock will
cease, the shares of Questa common stock will cease to be listed and traded on
the Nasdaq SmallCap Market and the registration of the shares of Questa common
stock under the Securities Exchange Act of 1934 will be terminated.
For information concerning the federal income tax consequences of the
merger, see "Material U.S. Federal Income Tax Consequences."
Regulatory Matters
Unit and Questa are not aware of any governmental or regulatory approvals
that are required for consummation of the merger. This merger will be exempt
from review by the Antitrust Division of the Department of Justice or the
Federal Trade Commission under the Hart-Scott-Rodino Act and the rules and
regulations adopted under that act.
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<PAGE>
Source Of Funds
Unit intends to pay for any fractional shares with its working capital.
Management Of Questa Following The Merger
Under the merger agreement, at the effective time, the board of directors
of the Unit acquisition subsidiary as well as its officers will be the directors
and officers of Questa. None of the officers of Questa will become officers of
the Unit acquisition subsidiary or Unit after the merger.
Rights of Dissenting Shareholders
Under Colorado law, shareholders of Questa will be entitled to exercise
rights to dissent from the merger. See "Rights of Dissenting Questa
Shareholders."
Material U.S. Federal Income Tax Consequences
The following discussion summarizes the opinion of Conner & Winters, a
Professional Corporation, as to the material federal income tax consequences of
the merger. We have filed this opinion with the SEC as an exhibit to the
registration statement related to this proxy statement/prospectus. This
discussion is based upon the Internal Revenue Code of 1986, as amended, the
regulations promulgated under the Code, Internal Revenue Service rulings, and
judicial and administrative rulings in effect as of the date hereof, all of
which are subject to change, possibly with retroactive effect. This discussion
does not address all aspects of federal income taxation that may be relevant to
a shareholder in light of the shareholder's particular circumstances, such as
shareholders who are not citizens or residents of the United States, financial
institutions, tax-exempt organizations, insurance companies, dealers in
securities, shareholders who acquired their Questa common stock pursuant to the
exercise of options or similar derivative securities or otherwise as
compensation or shareholders who hold their Questa common stock as part of a
straddle or conversion transaction. This discussion assumes that holders of
Questa common stock hold their shares of Questa common stock as capital assets
within the meaning of Section 1221 of the Code.
The legal opinion of Conner & Winters was rendered in reliance on
assumptions, representations and covenants made by Unit, Questa and Unit
Acquisition Company, including representations and covenants continued in
certificates of officers of Unit, Questa and Unit Acquisition Company. If any of
those factual assumptions is inaccurate, or becomes inaccurate between the time
of the rendition of the preliminary opinion and the consummation of the merger,
the tax consequences of the merger could differ from those described here. The
opinion regarding the tax-free nature of the merger neither binds the IRS nor
precludes the IRS from adopting a contrary position. Neither Questa nor Unit
intends to obtain a ruling from the IRS with respect to the tax consequences of
the merger.
Treatment of Questa, Unit and Unit Acquisition Company. Questa, Unit and
Unit Acquisition Company will each be a party to a reorganization within the
meaning of Section 368(b) of the Code and for federal income tax purposes, none
of Questa, Unit or Unit Acquisition Company will recognize any gain or loss as a
result of the merger.
Treatment of Holders of Questa Common Stock. A holder of Questa common
stock who exchanges Questa common stock for Unit common stock pursuant to the
merger generally will not recognize any gain or loss for federal income tax
purposes upon the exchange, except with respect to cash, if any, the holder
receives in lieu of a fractional share of Unit common stock. A holder of Questa
common stock who receives cash in lieu of a fractional share of Unit common
stock pursuant to the merger generally will recognize gain or loss equal to the
difference between the amount of cash received and his or her tax basis in the
Questa common stock that is allocable to the fractional share of Unit common
stock. A holder of Questa common stock will have an aggregate tax basis in the
shares of Unit common stock exchanged for his or her Questa common stock equal
to the holder's aggregate tax basis in the Questa common stock exchanged for
Unit common stock. The holding period of the shares of Unit common stock
received by a holder of Questa common stock in the merger will include the
holding period of the Questa common stock for which the shares of Unit common
stock are exchanged.
We intend this discussion to provide only a summary of the material federal
income tax consequences of the merger. We do not intend that it be a complete
analysis or description of all potential federal income tax consequences of the
merger. In addition, we do not address tax consequences which may vary with, or
are contingent upon, individual circumstances. Moreover, we do not address any
non-income tax or any foreign, state or local tax consequences of the merger.
Accordingly, we strongly urge you to consult your tax advisor to determine your
particular United States federal, state, local or foreign income or other tax
consequences resulting from the merger, with respect to your individual
circumstances.
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<PAGE>
Accounting Treatment
Unit expects to account for the merger using the pooling-of-interests
method of accounting in accordance with generally accepted accounting
principles. Under the pooling-of-interests method of accounting, the assets,
liabilities and shareholders' equity of Questa and Unit will be carried forward
by Unit at their historical amounts and periods prior to consummation of the
merger are restated as though the companies had been combined from inception.
Unit's obligation to effect the merger, but not Questa's, is subject to the
receipt by Unit of a letter from PricewaterhouseCoopers LLP, Unit's independent
accountants, that they concur with the conclusion of Unit's and Questa's
management that no conditions exist with respect to each company which would
preclude accounting for the merger as a pooling of interests. Affiliates of
Questa have entered into agreements with Unit imposing restrictions on the
transferability of shares of Unit common stock to be received by them in the
merger in order, among other things, to ensure the availability of pooling of
interests accounting treatment. See "--Federal Securities Law Consequences;
Resale Restrictions" above for further information concerning the transfer
restrictions.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement, a copy of which is attached as Appendix A to this document and is
incorporated by reference in this document. Because this summary may not contain
all the information that may be important to you, you are encouraged to
carefully read the entire merger agreement before you decide how to vote.
The Merger
Upon the terms and conditions of the merger agreement, and in accordance
with the Colorado Business Corporation Act, at the effective time, Unit's
acquisition subsidiary will be merged with and into Questa and Questa will
continue as the surviving corporation in the merger. As a result of the merger,
Questa will become a wholly-owned subsidiary of Unit.
Representations And Warranties
The merger agreement contains various representations and warranties by one
or more of Unit, Unit's acquisition subsidiary and Questa with respect to, among
other things:
. organization, qualification and corporate power;
. capital structure;
. corporate authority relative to the merger agreement;
. SEC reports and financial statements;
. absence of undisclosed liabilities;
. absence of violations of law;
. environmental laws and regulations;
. employee benefit matters;
. absence of certain changes or events;
. litigation;
. tax matters;
. required vote of shareholders to approve the merger;
. insurance;
. intangible property;
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<PAGE>
. brokers' or advisors' fees; and
. title to oil and gas properties.
Unit and Unit's acquisition subsidiary have also made certain
representations and warranties with respect to the ownership of Unit's
acquisition subsidiary and its activities.
A number of the representations and warranties made by Questa and Unit in
the merger agreement contain qualifications which limit the scope of the
representations and warranties to matters which would have a material adverse
effect on the applicable company and its subsidiaries, taken as a whole. In
general, the merger agreement provides that a material adverse effect will be
deemed to have occurred with respect to Questa when a result or consequence that
would materially adversely affect the condition (financial or otherwise),
results of operations, or business of Questa, or the value of its assets, would
materially impair the ability of Questa to own, hold, develop, and operate its
assets, or would impair Questa's ability to perform its obligations under the
merger agreement and when used with respect to Unit, a result or consequence
that would materially adversely affect the condition (financial or otherwise),
results of operations, or business of Unit or its subsidiaries (taken as a
whole) or the aggregate value of their assets, would materially impair the
ability of Unit and its subsidiaries (taken as a whole) to own, hold, develop,
and operate their assets, or would impair Unit's ability to perform its
obligations under the merger agreement.
Covenants and Agreements
Questa has agreed that until the merger, except as contemplated in the
merger agreement or with the consent of Unit, it will, among other things:
. operate its business only in the usual and ordinary course consistent
with past practice and in compliance in all material respects with
applicable laws and regulations;
. use its best efforts to preserve substantially intact its business
organizations, maintain its rights and franchises and maintain its
material relationships with its customers, suppliers, creditors and
joint venture or other business partners;
. operate and maintain its oil and gas properties and interests in
accordance with good and prudent oil and gas field practices and
applicable leases; and
. keep in full force and effect its present policies of insurance.
With certain exceptions or the prior written consent of Unit, the merger
agreement restricts the ability of Questa to, among other things:
. declare or pay any dividend or other distribution in respect of
outstanding shares of capital stock;
. redeem, purchase or otherwise acquire its shares or options, warrants
or other rights to acquire securities of Questa or effect any
recapitalization, or split, combination or reclassification of any of
the stock of Questa;
. issue any shares of capital stock or any security that are
convertible into or exercisable for Questa's capital stock;
. acquire any equity interest in any business or entities or acquire
any assets in excess of $25,000, except, in each case, in accordance
with ordinary business operations;
. dispose of any assets in excess of $25,000, subject to certain
exceptions;
. amend its articles of incorporation or bylaws;
. resign or otherwise relinquish any right to operate any of its oil
and gas properties;
. spend more than $20,000 in the aggregate on any capital expenditures;
. enter into any contract, agreement or arrangement that would be
material to the business, financial condition or results of
operations of Questa;
. fail to pay, discharge or satisfy any taxes, claims, liabilities or
obligations, subject to certain exceptions;
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<PAGE>
. incur or assume any debt, subject to certain exceptions;
. make any loans, advances or capital contributions to, or investments
in, any other person or enter into any material commitment or
transaction; or
. take any action that would, or is reasonably likely to, result in any
of its representations or warranties being untrue or in any of the
conditions to the merger not being satisfied.
Unit has agreed that, until the merger, except as contemplated in the
merger agreement or with the consent of Questa, it will not, and will cause
Unit's acquisition subsidiary not to, among other things:
. amend its certificate of incorporation or bylaws;
. split, combine, subdivide or reclassify its outstanding shares of
stock or declare or pay any dividends or distributions on outstanding
shares of stock; or
. take any action that would, or is reasonably likely to, result in any
of Unit's or Unit's acquisition subsidiary's representations or
warranties being untrue or in any of the conditions to the merger not
being satisfied.
The merger agreement contains certain mutual covenants of the parties,
including covenants relating to:
. not taking any action that would jeopardize the tax treatment of the
merger or prevent the merger from qualifying for "pooling of
interests" accounting treatment;
. access to information;
. confidential treatment of non-public information;
. preparation and filing of this document and of the registration
statement on Form S-4 of which this document is a part;
. public announcements;
. notification of certain matters; and
. further assurances.
No Solicitation of Acquisition Proposals
The Questa board has agreed to recommend approval and adoption of the
merger agreement to the Questa shareholders. The Questa board is permitted under
the merger agreement to withdraw or change in a manner adverse to Unit its
recommendation for approval of the merger agreement to Questa shareholders if it
determines in good faith that such action is necessary for the Questa board to
comply with its fiduciary duty to shareholders under Colorado law after
receiving written advice of legal counsel.
The merger agreement prohibits Questa and its directors, officers,
employees, representatives and agents, from, directly or indirectly:
. initiating, soliciting or encouraging, including by way of furnishing
information or assistance, or taking any other action to facilitate,
the types of acquisition proposals described below and referred to in
this document as "company acquisition proposals;"
. entering into discussions or negotiating with any person or entity in
furtherance of a company acquisition proposal;
. entering into an agreement with respect to the types of acquisition
transactions described below and referred to in this document as
"company acquisition transactions" or agreeing to or endorsing any
company acquisition proposal; or
. authorizing or permitting any of the officers, directors or employees
of Questa or any investment banker, financial advisor, attorney,
accountant or other representative retained by Questa to take any
such action.
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The merger agreement requires Questa to advise Unit of any company
acquisition proposal or request for information within 48 hours of receiving
such proposal and to provide timely updates as to material developments to Unit.
However, the merger agreement does not prohibit the Questa board of
directors from:
. complying with Rule 14e-2 promulgated under the Securities Exchange
Act of 1934 with regard to a company acquisition proposal; or
. furnishing information to, or entering into discussions or
negotiations with, any person or entity in connection with an
unsolicited, bona fide, written company acquisition proposal obtained
before shareholder approval of the merger and recommending the same
to Questa's shareholders or otherwise communicating with Questa's
shareholders regarding such proposal in a manner permitted by law,
if, and only to the extent that:
. the Questa board of directors, after receiving written advice of
legal counsel, determines in good faith that such action is required
for the Questa board of directors to comply with its fiduciary duties
to shareholders imposed by the Colorado Business Corporation Act and
other applicable Colorado law; and
. before furnishing such information to, or entering into discussions
or negotiations with, such person or entity, Questa obtains from such
person or entity a customary confidentiality agreement.
The Questa board has agreed to recommend approval and adoption of the
merger agreement to the Questa shareholders. The Questa board is permitted under
the merger agreement to withdraw or change in a manner adverse to Unit its
recommendation for approval of the merger agreement to Questa shareholders if it
determines in good faith that such action is necessary for the Questa board to
comply with its fiduciary duty to shareholders under Colorado law after
receiving written advice of legal counsel
A "company acquisition proposal" is any inquiry or proposal which relates
to or contemplates a company acquisition transaction.
A "company acquisition transaction" means any of the following
transactions:
. direct or indirect acquisition or purchase of a business or assets
that constitute 20% or more of the net revenues, net income or the
assets of Questa;
. direct or indirect acquisition or purchase of 20% or more of any
class of equity securities of Questa;
. tender offer or exchange offer that if consummated would result in
any person beneficially owning 20% or more of any class of equity
securities of Questa; or
. merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Questa.
Closing Conditions
The obligations of Unit and Questa to consummate the merger are subject to
the satisfaction of the following conditions:
. the merger agreement shall have been approved and adopted by the
shareholders of Questa;
. the absence of any order, injunction, or other legal restraint or
prohibition making illegal or prohibiting the consummation of the
merger;
. the effectiveness of the registration statement on Form S-4 of which
this document is a part and the SEC not issuing a stop order
suspending the effectiveness of the registration statement; and
. the approval of the shares of Unit common stock to be issued in the
merger for listing on New York Stock Exchange, subject to notice of
issuance.
Unit's obligation to consummate the merger is subject to the satisfaction
or waiver of certain additional conditions, including:
. Questa's representations and warranties, with such exceptions as
provided in the merger agreement, shall be true and correct in all
material respects;
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. Questa's performance in all material respects of its obligations
under the merger agreement;
. the effectiveness of certain agreements with affiliates of Questa
relating to restrictions on resales of Unit common stock;
. the absence of any action or proceeding by any governmental authority
seeking to restrain or prohibit Unit's ownership or operation of
Questa;
. the absence of any event or occurrence having, or reasonably
expecting to have, a material adverse effect on Questa since
September 30, 1999;
. receipt by Unit of an opinion from its independent accountants that
the merger will be treated as a "pooling of interests" under
applicable accounting principles; and
. dissenting and factional shares shall not exceed 5% of the total
outstanding shares.
Questa's obligation to consummate the merger is subject to the satisfaction
or waiver of certain additional conditions, including:
. Unit's and Unit's acquisition subsidiary's representations and
warranties, with such exceptions as provided in the merger agreement,
shall be true and correct in all material respects;
. Unit's performance in all material respects of its obligations under
the merger agreement; and
. the absence of any event or occurrence having, or reasonably
expecting to have, a material adverse effect on Unit since the date
of the merger agreement.
Termination
The merger agreement may be terminated at any time before the merger,
whether before or after approval by the shareholders of Questa:
(1) by mutual written consent of Unit and Questa;
(2) by Unit if:
(A) there has been a material breach of any representation or
warranty of Questa where the conditions to the merger agreement
would not be satisfied and the breach is not cured by Questa
within 15 days after notice of the breach; or
(B) Questa has failed to perform or comply in any material
respect with any of its agreements or covenants in the merger
agreement and such failure has not been cured within a reasonable
time after notice and demand for cure;
(3) by Questa if:
(A) there has been a material breach of any representation or
warranty of Unit where the conditions to the merger agreement
would not be satisfied and the breach is not cured by Unit within
15 days after notice of the breach; or
(B) Unit has failed to perform or comply in any material respect
with any of its agreements or covenants in the merger agreement
and such failure has not been cured within a reasonable time
after notice and demand for cure;
(4) by either Unit or Questa if certain final, nonappealable orders,
decrees or rulings prevent the consummation of the merger;
(5) by either Unit or Questa, if the merger does not occur on or before
March 30, 2000, subject to a one month extension if certain conditions
are met, unless the failure to consummate the merger by such date
results from the action or failure to act of the party seeking to
terminate the merger agreement;
(6) by either Unit or Questa if Questa's shareholders fail to approve
the merger agreement;
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(7) by Unit, if the Questa board fails to recommend or withdraws, or
materially modifies or materially changes in a manner adverse to Unit,
its recommendation of the merger agreement or the merger or fails to
call the special meeting or recommends a company acquisition proposal or
the Questa board resolves to do any of the foregoing;
(8) by Questa if the Questa board has authorized Questa to enter into a
binding agreement providing for a company acquisition transaction that,
if consummated, would result, in the Questa board's good faith judgment,
in a more favorable transaction than the merger with Unit; provided
that:
(A) Questa give Unit advance notice of its intention to enter
into the agreement and provide Unit with a copy of the agreement
or its material terms and conditions;
(B) Unit does not, within three business days of its receipt of
the notice, make an offer that the Questa Board determines in
good faith to be at least as favorable to the shareholders of
Questa; and
(C) Questa pays Unit the termination fee; and
(9) By Questa if the average per share closing sale price of Unit's
common stock for the 15 day period prior to the third trading day before
the effective date of the merger is less than $5.00, and by Unit if the
average closing sale price during that same period is greater than
$9.00.
Termination Fees and Expenses
Unit and Questa will each bear their own costs and expenses incurred in
connection with the merger agreement and the related transactions.
The merger agreement provides that Questa shall pay Unit a termination fee
of $500,000 if the merger agreement is terminated by Questa under the
circumstances described in item (8) above under "--Termination." Questa shall
pay Unit a termination fee of $400,000 if the merger agreement is terminated:
. by Unit under the circumstances described under item (7) above under
"--Termination," unless the conditions to Questa's obligation to
consummate the merger described under "--Closing Conditions" would
not have been satisfied and would not have been reasonably capable of
being satisfied; or
. by either Unit or Questa under the circumstances described under item
(6) above under "--Termination" and, prior to the special meeting of
Questa's shareholders, Questa receives a company acquisition proposal
and, within 12 months of the termination of the merger agreement,
Questa enters into an agreement with respect to any company
acquisition proposal.
Amendment; Waiver
The merger agreement may be amended by Unit or Questa by action of their
respective boards of directors at any time before the merger. However, after the
approval of the merger agreement by the shareholders of Questa, no amendment may
be made which, under the Colorado Business Corporation Act, requires the further
approval of shareholders.
At any time before the merger, Unit and Questa may extend the time for the
performance of any of the obligations or other acts of the other party, waive
any inaccuracies in the representations and warranties of the other party, or
waive compliance by the other parties with any of the agreements or conditions,
other than those required to be complied with by applicable law.
Related Agreements
As a condition to entering into the merger agreement, Unit required certain
of Questa's directors and executive officers to enter into voting agreements.
These voting agreements require such directors and executive officers to vote
all of the shares of Questa common stock they beneficially own in favor of the
merger. As of February 7, 2000, the record date, these directors and executive
officers collectively beneficially owned 1,059,264 shares of Questa common
stock, which represented approximately 55% of Questa's outstanding common
stock.
RIGHTS OF DISSENTING QUESTA SHAREHOLDERS
The following is a brief summary of the rights of holders of Questa common
stock to dissent from the merger and receive cash equal to the fair value of
their Questa common stock instead of receiving shares of Unit common stock. This
summary is not
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exhaustive, and you should read the applicable sections of Article 113 of the
Colorado Business Corporation Act, which is attached to this proxy
statement/prospectus as Appendix B.
If you are contemplating the possibility of dissenting from the merger, you
should carefully review the text of Appendix B, particularly the procedural
steps required to perfect dissenters' rights, which are complex. You should also
consult your legal counsel. If you do not fully and precisely satisfy the
procedural requirements of the applicable Colorado law, you will lose your
dissenters' rights.
Requirements For Exercising Dissenters' Rights
To exercise dissenters' rights, you must:
. file with Questa before the vote is taken at the special meeting
written notice of your intent to demand the fair value for your
Questa common stock if the merger is consummated and becomes
effective; and
. not vote your shares of Questa common stock at the special meeting in
favor of the proposal to approve the merger agreement.
If you do not satisfy each of these requirements, you cannot exercise
dissenters' rights and will be bound by the terms of the merger agreement.
Submitting a proxy card that does not direct how the Questa common stock
represented by that proxy is to be voted will constitute a vote in favor of the
merger and a waiver of your statutory dissenters' rights. In addition, voting
against the proposal to approve the merger will not satisfy the notice
requirement referred to above. You must file the written notice of the intent to
exercise dissenters' rights with Questa at: Questa Corporation, 7030 South Yale
Ave., Suite 700, Tulsa, Oklahoma 74136, Attn: Warren L. Meeks.
Appraisal Procedure
Within 10 days after the proposed merger has been approved, Questa will
send written notice to all shareholders who have given written notice under the
dissenters' rights provisions and have not voted in favor of the merger as
described above. The notice will contain:
. the address where the demand for payment and certificates
representing shares of Questa common stock must be sent and the date
by which they must be received;
. any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
. a form for demanding payment that requests the dissenting
shareholder's address for sending payment and states the date of the
first announcement to the news media or to shareholders of the
proposed merger and requires certification of the date the
shareholder, or the beneficial owner on whose behalf the shareholder
dissents, acquired the Questa common stock or an interest in it; and
. a copy of the dissenters' rights provisions of Colorado Business
Corporation Act, attached as Appendix B.
If you wish to assert dissenters' rights, you must demand payment and
deposit your Questa certificates within 30 days after the notice is given. If
you fail to make demand for payment and deposit your Questa certificates within
the 30-day period, you will lose the right to receive fair value for your shares
under the dissenters' rights provisions, even if you filed a timely notice of
intent to demand payment.
Except as provided below, upon the later of the effective time of the
merger or Questa's receipt of a valid demand for payment within the 30-day
deadline, Questa will remit to each dissenting shareholder who complied with the
requirements of the Colorado Business Corporation Act the amount Questa
estimates to be the fair value of the shareholder's Questa common stock, plus
accrued interest. Questa will include the following information with the
payment:
. financial statements relating to Questa;
. Questa's estimate of the fair value of the shares and a brief
description of the method used to reach that estimate;
. a description of how the interest was calculated;
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. a copy of Article 113 of the Colorado Business Corporation Act; and
. a brief description of the procedures to be followed in demanding
supplemental payment.
For dissenting shareholders who were not the beneficial owner of the shares
of Questa common stock before December 10, 1999, Questa may withhold payment and
instead send a statement setting forth its estimate of the fair value of their
shares and offering to pay such amount, with interest, as a final settlement of
the dissenting shareholder's demand for payment.
If you believe the amount paid or offered is less than the fair value of
your shares or that interest was incorrectly calculated, you may, within 30 days
of the payment or offer for payment, notify Questa in writing of and demand
payment of your estimate of the fair value of your shares and the amount of
interest due. If any dissenting shareholder's demand for payment is not settled
within 60 days after its receipt by Questa, Questa must commence a court
proceeding to determine the fair value of the shares and accrued interest,
naming all the dissenting shareholders whose demands remain unsettled as parties
to the proceeding.
The court may appoint one or more appraisers to receive evidence and make
recommendations to the court as to the amount of the fair value of the shares.
The fair value of the shares as determined by the court is binding on all
dissenting shareholders and may be less than, equal to or greater than the
market price of the Unit common stock to be issued to nondissenting shareholders
for their Questa common stock if the merger is consummated. If the court
determines that the fair value of the shares is in excess of any amount remitted
or offered by Questa, then the court will enter a judgment for cash in favor of
the dissenting shareholders in an amount by which the value determined by the
court, plus interest, exceeds the amount previously remitted or offered by
Questa.
The court will determine the costs and expenses of the court proceeding and
assess them against Questa, except that the court may assess part or all of the
costs against any dissenting shareholders whose actions in demanding
supplemental payments are found by the court to be arbitrary, vexatious or not
in good faith. If the court finds that Questa did not substantially comply with
the relevant provisions of Article 113 of the Colorado Business Corporation Act,
the court may also assess against Questa any fees and expenses of attorneys or
experts that the court deems equitable. The court may also assess those fees and
expenses against any party if the court finds that the party has acted
arbitrarily, vexatiously or not in good faith in bringing the proceedings. The
court may award, in its discretion, fees and expenses of an attorney for the
dissenting shareholders out of the amount awarded to the shareholders, if it
finds the services of the attorney were of substantial benefit to the other
dissenting shareholders and that those fees should not be assessed against
Questa.
A shareholder of record may assert dissenters' rights as to fewer than all
of the shares registered in the shareholder's name only if he or she dissents
with respect to all shares beneficially owned by any one person and notifies
Questa in writing of the name and address of each person on whose behalf he or
she asserts dissenters' rights. The rights of the partial dissenting shareholder
are determined as if the shares as to which he or she dissents and his or her
other shares were registered in the names of different shareholders.
Beneficial owners of Questa common stock who desire to exercise dissenters'
rights themselves must obtain and submit the registered owner's written consent
at or before the time they file the notice of intent to demand fair value.
For purposes of the Colorado Business Corporation Act, "fair value" means
the value of Questa common stock immediately before the effective time of the
merger, excluding any appreciation or depreciation in anticipation of the
merger, unless that exclusion would be inequitable.
COMPARISON OF SHAREHOLDERS' RIGHTS
Upon completion of the merger, your shares of Questa common stock will be
converted into shares of Unit common stock and you will become a shareholder of
Unit. The rights of Unit shareholders are governed by Delaware law, its
certificate of incorporation and bylaws and the rights of Questa shareholders
are governed by Colorado law, its articles of incorporation and bylaws . The
following table summarizes some of the material differences between the rights
of common shareholders of Questa and Unit under there respective articles or
certificate of incorporation and bylaws of the companies and under Colorado and
Delaware law.
- --------------------------------------------------------------------------------
Questa Unit
- --------------------------------------------------------------------------------
Authorized Capital Questa has authorized capital Unit has authorized capital
consisting of 50,000,000 shares consisting of 45,000,000
of common stock. As of December shares of common stock and
31, 1999, there were 1,912,894 5,000,000 shares of
shares of Questa common stock preferred stock. As of
outstanding. December 31, 1999, there
were 33,815,926 shares of
common stock and no shares
of preferred stock
outstanding.
- --------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Questa Unit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Number of Directors, Questa's articles of incorporation Unit's bylaws provide that the board of
Elections and provides that the number of directors directors shall be divided into three
Classification shall not be less than three or more classes, as nearly equal in number as
than seven, as fixed from time to time possible, and each director shall hold
by resolution of the entire board of office until the third succeeding annual
directors or of the shareholders at meeting following his election, or his
any shareholders meeting. The Questa earlier death, resignation or removal.
bylaws do not provide for a classified Unit's certificate of incorporation
board of directors, all directors are provides that the board of directors shall
elected annually. determine the number of directors which
shall not be less than three nor more than
ten. Holders of at least 80% of Unit's
outstanding shares must approve any
amendment or repeal of this size limitation
on Unit's board.
- -------------------------------------------------------------------------------------------------------------------
Removal of Directors Questa's articles of incorporation and Under Delaware law, unless otherwise
bylaws provide that the shareholders provided in the certificate of
holding a majority of the outstanding incorporation, directors serving on a
shares entitled to vote may remove classified board such as Unit's board may
directors, with or without cause, at only be removed by the stockholders for
any time at any special shareholders cause.
meeting called for such purpose.
- -------------------------------------------------------------------------------------------------------------------
Shareholder Action By Questa's bylaws provide that any Under Delaware law, unless otherwise
Consent in Lieu of action permitted to be taken at any provided in a corporation's certificate of
Meeting shareholders meeting may be taken incorporation, stockholder action required
without a meeting, without prior or permitted to be taken at an annual or
notice and without a vote, if the special meeting of the stockholders may be
holders of all of shares entitled to taken by written consent if such consent is
vote with respect to the subject signed by the holders of outstanding stock
matter to be voted on, sign a written having not less than the minimum number of
consent setting forth the action taken. votes that would be necessary to take such
action at a meeting at which the holders of
all shares entitles to vote on the action
were present and voted. Unit's certificate
of incorporation does not restrict
stockholder action by written consent.
- -------------------------------------------------------------------------------------------------------------------
Special Meeting of Questa's bylaws provide that the board Unit's bylaws provide that the board of
Shareholders of directors or the President may call directors or the President may call special
special shareholders meetings, and the shareholders meetings at any time. Unit's
President shall call special stockholders are not permitted to call a
shareholders meetings at the request special meeting or to require the Unit
of shareholders owning one-tenth of board to call a special meeting of
the shares of Questa common stock stockholders.
outstanding and entitled to vote at a
special shareholders meeting.
- -------------------------------------------------------------------------------------------------------------------
Notice of Special Questa's bylaws provide that notice of Unit's bylaws provide that notice of the
Meetings of the time and place of every time and place of every shareholders
Shareholders shareholders meeting shall be given meeting shall be given not less than ten
not less than ten nor more than 50 nor more than 50 days before the meeting
days before the meeting date date.
- -------------------------------------------------------------------------------------------------------------------
Amendment of Charter An amendment to Questa's articles of An amendment to Unit's certificate of
incorporation requires the approval incorporation relating to the limitation on
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Questa Unit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
of a majority of Questa's board of the number of directors which may
directors and the approval of the constitute Unit's board requires the
holders of a majority of the voting approval of holders of at least 80% of
power of the then outstanding capital Unit's outstanding shares. Any other
stock of Questa. amendment requires the approval of a
majority of Unit's board of directors and
the approval of the holders of a majority
of the voting power of the then outstanding
shares of capital stock.
- -------------------------------------------------------------------------------------------------------------------
Amendment of Bylaws Questa's bylaws may be amended by the Unit's bylaws may be amended by the
affirmative vote of a majority of the affirmative vote of a majority of the board
board of directors or by the of directors or by the affirmative vote of
affirmative vote of a the stockholders the stockholders holding a majority of the
holding a majority of the voting power voting power of the shares of capital stock
of the shares of capital stock present in person or represented by proxy
present in person or represented by at the meeting of stockholders held to
proxy at the meeting of stockholders consider any amendment.
held to consider any amendment.
- -------------------------------------------------------------------------------------------------------------------
Fair Price Provisions Questa's articles of incorporation do Unit's certificate of incorporation
not contain a similar provision. contains certain "fair price provisions"
designated to provide safeguards for
shareholders when an "interested
shareholder" (defined as a stockholder
owning 5% or more of our voting stock)
attempts to effect a "business combination"
with us. The term "business combination"
includes:
. any merger or consolidation of us
involving the interested shareholder,
. certain dispositions of our assets,
. any issuance of our securities meeting
certain threshold amounts, to the
interested shareholder,
. adoption of any plan of liquidation or
dissolution of us proposed by the
interested shareholder, and
. any reclassification of our securities
having the effect of increasing the
proportionate share of ownership of the
interested shareholder.
In general, a business combination between
us and the interested shareholder must be
approved by the affirmative vote of 80% of
the outstanding voting stock unless the
transaction is approved by a majority of
the members of the board of directors who
are not affiliated with the interested
shareholder or certain minimum price and
form of consideration requirements are
satisfied
- -------------------------------------------------------------------------------------------------------------------
Delaware Business Questa is a Colorado corporation and Unit is incorporated under the laws of the
Combination Statute is not subject to Section 203 of the State of Delaware. Section 203 of the
Delaware General Corporation law. Delaware General Corporation Law prevents
an "interested shareholder" (defined as a
shareholder owning 15% or more of a
corporation's voting stock) from engaging
in a business combination with that
corporation for a period of three years
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Questa Unit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
from the date the shareholder became an
interested shareholder unless:
. the corporation's board of directors had
earlier approved either the business
combination or the transaction by which the
shareholder became an interested
shareholder;
. upon attaining that status, the
interested shareholder had acquired at
least 85% of the corporation's voting stock
(not counting shares owned by persons who
are directors and also officers); or
. the business combination is later
approved by the board of directors and
authorized by a vote of two-thirds of the
shareholders (not including the shares held
by the interested shareholder).
Unit has not amended its certificate of
incorporation or by-laws to exclude the
application of Section 203. Accordingly,
Section 203 may inhibit an interested
shareholder's ability to acquire additional
shares of common stock or otherwise engage
in a business combination with us.
- -------------------------------------------------------------------------------------------------------------------
Shareholders Rights Questa does not have a shareholders Each share of Unit's common stock includes
Plans rights plan. one right ("Right") entitling the
registered holder to purchase from us one
one-hundredth of a share (a "Fractional
Share") of Series A Participating
Cumulative Preferred Stock (the " Preferred
Shares"), at a purchase price per
Fractional Share of $12.75, subject to
adjustment (the "Purchase Price").
With certain exceptions, upon the earlier
of (1) 10 days following the date Unit
learns that a person or group of affiliated
or associated persons (an "Acquiring
Person") has acquired, or obtained the
right to acquire, beneficial ownership of
15% or more of Unit's outstanding shares of
common stock, or (2) 10 business days
following the commencement of a tender
offer or exchange offer that would result
in a person becoming an Acquiring Person, a
"Distribution Date" will occur and the
Rights will be separated from the common
stock. In certain circumstances, Unit's
board of directors may defer the
Distribution Date. Certain inadvertent
acquisitions will not result in a person
becoming an Acquiring Person if the person
promptly divests itself of sufficient
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Questa Unit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
common stock. Until the Distribution Date,
(1) the Rights are evidenced by the
certificates representing outstanding
shares of common stock and will be
transferred with and only with such
certificates, which contain a notation
incorporating the Rights Agreement by
reference, and (2) the surrender for
transfer of any certificate for common
stock will also constitute the transfer of
the Rights associated with the common stock
represented by such certificate.
The Rights are not exercisable until the
Distribution Date and will expire at the
close of business 10 years after the Rights
are issued, unless earlier redeemed or
exchanged by us as described below.
As soon as practicable after the
Distribution Date, Rights certificates will
be mailed to holders of record of the
common stock as of the close of business on
the Distribution Date and, from and after
the Distribution Date, the separate Rights
certificates alone will represent the
Rights. All shares of common stock issued
prior to the Distribution Date will be
issued with Rights. Shares of common stock
issued after the Distribution Date in
connection with certain employee benefit
plans or upon conversion of certain
securities will be issued with Rights.
Except as otherwise determined by the board
of directors, no other shares of the common
stock issued after the Distribution Date
will be issued with Rights.
In the event (a "Flip-In Event") that a
person becomes an Acquiring Person (except
pursuant to a tender or exchange offer for
all outstanding shares of common stock at a
price and on terms that a majority of our
independent directors determines to be fair
to and otherwise in our and our
shareholders best interests (a "Permitted
Offer")), each holder of a Right will
thereafter have the right to receive, upon
exercise of such Right, the number of
Fractional Shares equivalent to the number
of shares of common stock (or, in certain
circumstances, cash, property or other
securities) having a market value equal to
two times the Purchase Price.
Notwithstanding the foregoing, following
the occurrence of any Triggering Event (as
defined below), all Rights that are, or
(under certain circumstances specified in
the Rights Agreement) were, beneficially
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Questa Unit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
owned by or transferred to an Acquiring
Person (or by certain related parties) will
be null and void in the circumstances set
forth in the Rights Agreement.
In the event (a "Flip-Over Event") that, at
any time from and after the time an
Acquiring Person becomes such, (1) we are
acquired in a merger or other business
combination transaction (other than certain
mergers that follow a Permitted Offer) or
(2) 50% or more of our assets or earning
power is sold or transferred, each holder
of a Right (except Rights that are voided
as set forth above) shall thereafter have
the right to receive, upon exercise, a
number of shares of common stock of the
acquiring company having a market value
equal to two times the exercise price of
the Right as set by the Board of Directors.
Flip-In Events and Flip-Over Events are
collectively referred to as "Triggering
Events."
The number of outstanding Rights associated
with a share of common stock, or the number
of Preferred Shares issuable upon exercise
of a Right and the Purchase Price, are
subject to adjustment in the event of a
stock dividend on, or a subdivision,
combination or reclassification of, the
common stock occurring prior to the
Distribution Date. The Purchase Price
payable, and the number of Fractional
Shares of Preferred Shares or other
securities or property issuable, upon
exercise of the Rights are subject to
adjustment from time to time to prevent
dilution in the event of certain
transactions affecting the Preferred Shares.
At any time until ten days following the
first date of public announcement of the
occurrence of a Flip-In Event, we may
redeem the Rights in whole, but not in
part, at a price of $0.01 per Right,
payable, at our option, in cash, shares of
common stock or such other consideration as
the board of directors may determine.
Immediately upon the effectiveness of the
action of the board of directors ordering
redemption of the Rights, the Rights will
terminate and the only right of the holders
of Rights will be to receive the $0.01
redemption price.
Until a Right is exercised, the holder
thereof, as such, will have no rights as a
shareholder, including, without limitation,
the right to vote or to receive dividends.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Questa Unit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other than the redemption price, the board
of directors may amend any of the
provisions of the Rights Agreement as long
as the Rights are redeemable.
The Rights have certain antitakeover
effects. They will cause substantial
dilution to any person or group that
attempts to acquire us without the approval
of our board of directors. As a result,
the overall effect of the Rights may be to
render more difficult or discourage any
attempt to acquire us, even if such
acquisition may be favorable to the
interests of our shareholders. Because the
board of directors can redeem the Rights or
approve a Permitted Offer, the Rights
should not interfere with a merger or other
business combination approved by the board
of directors. The Rights were issued to
protect our shareholders from coercive or
abusive takeover tactics and inadequate
takeover offers and to afford our board of
directors more negotiating leverage in
dealing with prospective acquirors.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
INFORMATION ABOUT UNIT
This section of the proxy statement/prospectus provides you with certain
information regarding Unit and its business. You should read this information
in connection with the other information provided to you in this document as
well as the other documents we refer you to.
Business of Unit
Unit is engaged in the land contract drilling of natural gas and oil wells and
the exploration, development, acquisition and production of natural gas and oil
properties. The majority of its contract drilling and exploration and
production activities are oriented toward drilling for and producing natural
gas. Unit estimates that over 90% of the wells it drilled for third parties
over the past three years were natural gas prospects and, as of December 31,
1998, 89% of its reserves were natural gas. Unit was founded in 1963 as a
contract drilling company and its current contract drilling operations are
focused primarily in the natural gas producing provinces of the Oklahoma and
Texas areas of the Anadarko and Arkoma Basins, and the Texas Gulf Coast and the
Rocky Mountain regions. Its primary exploration and production operations are
also conducted in the Anadarko and Arkoma Basins and in the Texas Gulf Coast
area.
Unit generated record revenues and production volumes during 1998 despite a
21% decline in average natural gas prices and a 33% decline in oil prices Unit
received as compared with 1997. Unit also enjoyed a rig utilization rate of
approximately 67% during this same period, which compares favorably to the
industry average. For 1998, revenues were $93.3 million compared to $91.9
million for 1997. For the nine months ended September 30, 1999, revenues were
$61.8 million compared to $73.9 million for the same period during 1998.
Oil and Gas Properties
In 1979, Unit began to develop its exploration and production operations to
diversify its source of revenues, which, up to that time, were derived from
contract drilling. Unit develops, produces and sells oil and natural gas and
acquire producing properties, through it's wholly owned subsidiary, Unit
Petroleum Company.
As of December 31, 1998, Unit had 3,245 Mbbls and 161,318 MMcf of estimated
proved oil and natural gas reserves. Its producing oil and natural gas
interests, undeveloped leaseholds and related assets are located primarily in
Oklahoma, Texas, Louisiana
36
<PAGE>
and New Mexico and to a lesser extent in Arkansas, North Dakota, Colorado,
Wyoming, Montana, Alabama, Mississippi, Arkansas, Illinois, Nebraska and Canada.
As of December 17, 1999, Unit had an interest in a total of 2,453 wells in the
United States and served as the operator of 519 wells. Unit also had an interest
in 64 wells located in Canada. Unit's technical staff generates the majority of
its development and exploration prospects. When Unit is the operator of a
property, it generally employs its own drilling rigs and its own engineering
staff supervises the drilling operation.
Well and Leasehold Data. Unit's oil and natural gas exploration and
development drilling activities and the number of wells in which Unit had an
interest, which were producing or capable of producing, were as follows for the
periods indicated:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
Year Ended December 31, 1999
---------------------------------------------------- ----------------------
1996 1997 1998
---- ---- ----
Gross Net Gross Net Gross Net Gross Net
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wells drilled:
Exploratory:
Oil...................... - - - - - - - -
Natural gas.............. - - - - - - - -
Dry...................... - - - - 1 .26 - -
--------- --------- --------- --------- --------- --------- --------- ---------
Total................. - - - - 1 .26 - -
========= ========= ========= ========= ========= ========= ========= =========
Development
Oil...................... 10 8.35 10 4.84 4 .44 - -
Natural gas.............. 55 19.46 57 23.85 52 19.26 25 9.38
Dry...................... 7 4.26 15 9.27 21 10.62 6 3.51
--------- --------- --------- --------- --------- --------- --------- ---------
Total................. 72 32.07 82 37.96 77 30.32 31 12.89
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
As of
September 30,
Year Ended December 31, 1999
---------------------------------------------------- ----------------------
1996 1997 1998
---- ---- ----
Gross Net Gross Net Gross Net Gross Net
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oil and natural gas
wells producing or
capable of producing:
Oil - USA................ 717 197.71 684 197.67 726 196.64 693 206.88
Oil - Canada............. - - - - - - - -
Gas - USA................ 1,530 242.09 1,545 260.40 1,773 286.73 1,790 315.79
Gas - Canada............. 64 1.60 64 1.60 64 1.60 64 1.60
--------- --------- --------- --------- --------- --------- --------- ---------
Total................... 2,311 441.40 2,293 459.67 2,563 484.97 2,547 524.27
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
The following table summarizes Unit's acreage as of the end of each of the years
indicated:
<TABLE>
<CAPTION>
Developed Acreage Undeveloped Acreage
---------------------------- ----------------------------
Gross Net Gross Net
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
- ----
USA....................... 455,713 115,326 29,245 19,124
Canada.................... 39,040 976 - -
------- ------- ------- -------
Total................. 494,753 116,302 29,245 19,124
======= ======= ======= =======
1997
- ----
USA....................... 432,824 118,926 37,844 26,116
Canada.................... 39,040 976 18,970 18,970
------- ------- ------- -------
Total................. 471,864 119,902 56,814 45,086
======= ======= ======= =======
1998
- ----
USA....................... 569,076 130,440 52,958 35,371
Canada.................... 39,040 976 22,763 22,763
------- ------- ------- -------
Total................. 608,116 131,416 75,721 58,134
======= ======= ======= =======
</TABLE>
37
<PAGE>
Price and Production Data. Unit's average sales price, oil and natural gas
production volumes and average production cost per Mcfe of production for the
periods indicated were as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
Year Ended December 31, 1999
--------------------------------------------------- -------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C> <C>
Average sales price per barrel
of oil produced:
USA...................................... $ 20.40 $ 19.19 $ 12.81 $ 15.74
Canada................................... N/A N/A N/A N/A
Average sales price per Mcf of
natural gas produced:
USA...................................... $ 2.21 $ 2.43 $ 1.90 $ 1.88
Canada................................... $ 1.18 $ 0.93 $ 1.46 $ 1.77
Oil production (Mbbls):
USA...................................... 579 493 443 279
Canada................................... - - - -
----------- ----------- ----------- -----------
Total................................ 579 493 443 279
=========== =========== =========== ===========
Natural gas production (MMcf):
USA...................................... 12,974 13,742 16,427 11,634
Canada................................... 51 74 38 26
----------- ----------- ----------- -----------
Total................................ 13,025 13,816 16,465 11,660
=========== =========== =========== ===========
Average production expense per
Mcfe:
USA...................................... $ 0.68 $ 0.64 $ 0.61 $ 0.61
Canada................................... $ 0.27 $ 0.33 $ 0.54 $ 0.57
</TABLE>
Reserves. The following table sets forth Unit's estimated proved developed
and undeveloped oil and natural gas reserves at the end of each of the years
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Oil (Mbbls):
USA....................................... 5,204 4,131 3,245
Canada.................................... - - -
------- ------- -------
Total................................. 5,204 4,131 3,245
======= ======= =======
Natural gas (MMcf):
USA....................................... 128,408 144,661 160,795
Canada.................................... 753 723 523
------- ------- -------
Total................................. 129,161 145,384 161,318
======= ======= =======
</TABLE>
Land Contract Drilling Operations
Unit drills onshore oil and natural gas wells for a wide range of customers
through its wholly owned subsidiary, Unit Drilling Company. A land drilling rig
consists, in part, of engines, drawworks or hoists, derrick or mast,
substructure, pumps to circulate the drilling fluid, blowout preventers and
drill pipe. Unit conducts an active maintenance and replacement program under
which components are upgraded on an individual basis. Over the life of a
typical rig, due to the normal wear and tear of operating 24 hours a day,
several of the major components, such as engines, mud pumps and drill pipe, are
replaced or rebuilt on a periodic basis as required, while other components,
such as the substructure, mast and drawworks, can be utilized for extended
periods of time with proper maintenance. Unit also own additional equipment
used in the operation of its rigs, including large air compressors, trucks and
other support equipment.
On November 20, 1997, Unit acquired Hickman Drilling Company pursuant to a
merger in which all of the holders of the outstanding capital stock of Hickman
Drilling received, in aggregate, 1,300,000 shares of Unit's common stock and
promissory notes
38
<PAGE>
in the aggregate principal amount of $5,000,000, payable in five equal annual
installments commencing January 2, 1999. The acquisition included nine land
contract drilling rigs with depth capacities ranging from 9,500 to 17,000 feet,
spare drilling equipment and approximately $2.1 million in working capital. As
part of the acquisition, Unit retained Hickman Drilling Company's Woodward,
Oklahoma corporate office as a regional office for its contract drilling
operations.
In December 1997, Unit also purchased a Mid-Continent U-36A, 650 horsepower
rig with a 13,000 foot depth capacity and spare components from two additional
rigs for $1,000,000, of which $200,000 was paid at closing and the balance is to
be paid over a period ending no later than three years.
On September 30, 1999, Unit completed the acquisition of 13 land drilling rigs
from Parker Drilling Company and Parker Drilling Company North America, Inc. for
$40,000,000 and 1,000,000 shares of Unit's common stock.
With these acquisitions Unit's drilling rig fleet expanded to 47 rigs with
depth capacities ranging from 9,500 to 40,000 feet. At December 17, 1999, 31 of
Unit's rigs were located in the Anadarko and Arkoma Basins of Oklahoma and Texas
while 9 of its rigs were located in South Texas and 7 in the Rocky Mountain
region. In the Anadarko and Arkoma Basins, Unit's primary focus is on the
utilization of its medium depth rigs which drill primarily in the depth ranges
from 8,000 to 14,000 feet. These medium depth rigs are suited to the contract
drilling currently undertaken by operators in these two basins.
At present, Unit does not have a shortage of drilling rig related equipment.
During 1996 and through 1997, Unit increased its drill pipe acquisitions since
certain grades of drill pipe were in high demand due to increased rig
utilization. However, at any given time, Unit's ability to utilize its full
complement of drilling rigs is dependent upon the availability of qualified
labor, drilling supplies and equipment as well as demand. Should industry
conditions improve rapidly, there is no assurance that sufficient supplies of
drill pipe, other drilling equipment and qualified labor will be readily
available, not only within Unit, but in the industry as a whole.
The following table sets forth, for each of the periods indicated, certain
data concerning Unit's contract drilling operations:
<TABLE>
<CAPTION> Nine Months
Ended
September 30,
Year Ended December 31, 1999
---------------------------------------------------------- -------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Number of operational rigs at period end 25 22 24 34(1) 34 47(2)
Average number of rigs owned during period 25 25 22.7 25.1 34 34
Average number of rigs utilized (3) 9.5 10.9 14.7 20.0 22.9 19.3
Utilization rate (3) 38% 44% 65% 80% 67% 57%
Average revenue per day (4) $ 4,894 $ 5,081 $ 5,351 $ 6,309 $ 6,394 $ 6,240
Total footage drilled (feet in thousands) 1,027 1,196 1,468 1,736 2,203 1,427
Number of wells drilled 95 111 130 167 198 129
</TABLE>
_____________
(1) Includes 10 rigs acquired in the fourth quarter of 1997.
(2) Includes 13 rigs acquired in September 1999.
(3) Utilization rates are based on a 365-day year and are calculated by dividing
the number of rigs utilized by the total number of rigs owned during the
period, including stacked rigs. A rig is considered utilized when it is
operating or being moved, assembled or dismantled under contract.
(4) Represents total revenues from contract drilling operations divided by the
number of days rigs were being utilized for the period.
The following table sets forth, as of December 17, 1999, the type and
approximate depth capability of each of Unit's drilling rigs:
<TABLE>
<CAPTION>
Approximate Depth
Capability
Rig Number Type (feet)
---------- ---- -----------------
<S> <C> <C>
1 U-15 Unit Rig 11,000
2 BDW 650 13,000
3 BDW 650 13,500
4 U-15 Unit Rig 11,000
5 U-15 Unit Rig 11,000
6 BDW 800 15,000
7 U-15 Unit Rig 11,000
</TABLE>
39
<PAGE>
Approximate Depth
Capability
Rig Number Type (feet)
---------- ---- ------
8 Gardner Denver 800 15,000
9 BDW 800 15,000
10 BDW 450T 9,500
11 Gardner Denver 700 15,000
12 BDW 800 15,000
14 Gardner Denver 700 15,000
15 Mid-Continent 914-C 20,000
16 U-15 Unit Rig 11,000
17 Brewster N-75A 15,000
18 BDW 650 12,000
19 Gardner Denver 500 12,000
20 Gardner Denver 700 15,000
21 Gardner Denver 700 15,000
22 BDW 800 15,000
23 Gardner Denver 700 15,000
24 Gardner Denver 700 15,000
25 Gardner Denver 700 15,000
29 Brewster N-75A 15,000
30 BDW 1350-M 20,000
31 SU-15 North Texas Machine 12,000
32 Brewster N-75 15,000
34 National 110-UE 20,000
35 Continental Emsco C-1-E 20,000
36 Gardner Denver 1500-E 25,000
37 Mid-Continent 914-EC 20,000
38 Mid-Continent 1220-E 25,000
39 U-36-A 13,000
112 Ideco E-3000 30,000
166 OIME E-3000 30,000
180 OIME E-3000 30,000
182 OIME E-3000 30,000
184 OIME E-3000 30,000
201 OIME E-4000 40,000
203 OIME E-2000 20,000
232 Continental Emsco D-3 E 16,000
233 Continental Emsco C-1 E 20,000
234 Continental Emsco D-3 E 16,000
235 Continental Emsco C-1 E 20,000
237 Continental Emsco C-1 E 20,000
254 OIME E-2000 25,000
During the past 15 years, Unit's contract drilling services encountered
significant competition due to depressed levels of activity in contract
drilling. In the last six months of 1996 and throughout 1997 and the first three
quarters of 1998, Unit's drilling operation showed significant improvements in
rig utilization. However, in late 1998 and through the first six months of 1999,
Unit and the industry as a whole experienced a significant reduction in demand.
Although Unit has started to experience an increase in demand during the third
and fourth quarters of 1999, Unit anticipates that competition within the
industry will, for the foreseeable future, continue to adversely affect it.
Drilling Contracts. Most of Unit's drilling contracts are obtained through
competitive bidding. Generally, the contracts are for a single well with the
terms and rates varying depending upon the nature and duration of the work, the
equipment and services supplied and other matters. The contracts obligate Unit
to pay certain operating expenses, including wages of drilling personnel,
maintenance expenses and incidental rig supplies and equipment. Usually, the
contracts are terminable by the customer on short notice upon payment of a fee.
Unit generally indemnifies its customers against certain types of claims by its
employees and claims arising from surface pollution caused by spills of fuel,
lubricants and other solvents within its control. Customers generally indemnify
Unit against claims arising from other surface and subsurface pollution other
than claims resulting from Unit's gross negligence.
40
<PAGE>
The contracts may provide for compensation to Unit on a day rate, footage
or turnkey basis, with additional compensation for special risks and unusual
conditions. Under daywork contracts, Unit provides the drilling rig with the
required personnel to the operator who supervises the drilling of the contracted
well. Unit's compensation is based on a negotiated rate for each day the rig is
utilized. Footage contracts usually require Unit to bear some of the drilling
costs in addition to providing the rig. Unit is compensated on a rate per foot
drilled basis upon completion of the well. Under turnkey contracts, Unit
contract to drill a well to a specified depth and provide most of the equipment
and services required. Unit bears the risk of drilling the well to the contract
depth and are compensated when the contract provisions have been satisfied.
Turnkey drilling operations, in particular, might result in losses if Unit
underestimates the costs of drilling a well or if unforeseen events occur. To
date, Unit has not experienced significant losses in performing turnkey
contracts. For 1998, turnkey revenue represented approximately 15% of Unit's
contract drilling revenues while for the first nine months of 1999 it
represented 24%. Because the proportion of turnkey drilling is currently
dictated by market conditions and the desires of customers using Unit's
services, Unit are unable to predict whether the portion of drilling conducted
on a turnkey basis will increase or decrease in the future.
Customers. During the fiscal year ended December 31, 1998, ten contract
drilling customers accounted for approximately 24% of Unit's total revenues.
Approximately 5% of Unit's total revenues were generated by drilling on oil and
natural gas properties of which Unit was the operator (including properties
owned by limited partnerships for which Unit acted as general partner). This
drilling was pursuant to contracts containing terms and conditions comparable to
those contained in Unit's customary drilling contracts with non-affiliated
operators.
INFORMATION ABOUT QUESTA
This section of the proxy statement/prospectus provides you with certain
information regarding Questa and its business. You should read this information
in connection with the other information provided to you in this document as
well as the other documents we refer you to.
Business of Questa
Questa was incorporated in Colorado on February 24, 1981 as Trinity Oil &
Gas, Inc. The company's name was changed to Questa Oil & Gas Co. on March 31,
1986. Questa is engaged in the oil and gas business in the continental United
States. Its activities include the acquisition and exploration of oil and gas
property interests and selling, developing, operating and otherwise dealing in
oil and gas property interests of all types.
Questa's headquarters are located in Tulsa, Oklahoma. Questa's staff
supervises, manages and monitors 5 drilling partnerships and, as of December 15,
1999, approximately 324 producing wells. At December 15, 1999 Questa employed 4
persons on a full time basis.
Questa evaluates undeveloped oil and gas prospects and participates in
drilling activities on those prospects that in the opinion of Questa's
management are favorable for the production of oil or gas. Questa finances its
drilling activities by entering into joint ventures or other arrangements under
which Questa acquires oil and gas acreage, performs basic geological work on the
prospect, and obtains the necessary equipment to complete a well if it is
successful. There is no assurance that any such arrangements will result in the
discovery of oil or gas or the generation of income to Questa. Questa also
acquires interests in producing oil and gas leases for the purposes of reworking
the wells to improve production and to further develop the area.
Questa's principal line of business is oil and gas exploration, development
and production. Questa is faced with strong competition from many other
companies and individuals engaged in the oil and gas business, many are very
large, well-established energy companies with substantial capabilities and
established earnings records. Questa may be at a competitive disadvantage in
acquiring oil and gas prospects since it must compete with these individuals and
companies, many of which have greater financial resources and larger technical
staffs. It is nearly impossible to estimate the number of competitors; however,
it is known that there are a large number of companies and individuals in the
oil and gas business.
Questa's business is not dependent on a single customer and its management
does not believe that it will be in the foreseeable future since oil and gas
purchasers are readily available in today's markets.
Oil and gas may be considered raw materials essential to Questa's business.
Questa's search for oil and gas is concentrated in the continental United
States. However, the acquisition, exploration, development, production and sale
of oil and gas are subject to many factors that are outside Questa's control.
These factors include worldwide and domestic economic conditions; oil import
quotas; availability of drilling rigs, casing and other supplies; proximity to
pipelines; the supply and price of other fuels and the regulation of prices,
production, transportation and marketing by Federal and State government
authorities. The oil and gas industry has at times been faced with shortages in
tubular steel, increased prices in used steel casing and a shortage of drilling
rigs which have in the past
41
<PAGE>
delayed drilling activities by oil and gas operators. Pumping units and other
wellhead equipment have also been in short supply from time to time.
Questa is engaged in a facet of exploiting natural resources. It is subject
to various federal, state and local laws and regulations regarding environmental
and ecological matters. Environmental laws may necessitate significant capital
outlays, which may materially affect Questa's earnings potential and could cause
material changes in Questa's proposed business. At the present time, however,
environmental laws have not materially hindered nor adversely affected Questa's
business.
Working capital is needed in the oil and gas industry to finance the
drilling and completion of wells, to acquire undeveloped leasehold interests,
the acquisition of proved producing properties, and to fund lease operating
expenses and general and administrative expenses. At present, Questa is
generating sufficient revenue from operations and has sufficient credit lines to
supply its current working capital requirements.
Questa has never been a party to any bankruptcy, receivership,
reorganization, readjustment or similar proceeding. No material changes have
been made in the mode of conducting business. Since Questa is engaged in the oil
and gas business, it does not allocate funds to product research and development
in the conventional sense. Questa has no material patents, trademarks, licenses,
franchises or concessions. Backlog is not material to an understanding of
Questa's business. Questa's business is not subject to renegotiation of profits
or termination of contracts or subcontracts at the election of federal
government.
Oil and Gas Properties
The following tables set forth information with respect to Questa's oil and
gas interests. This information is as of December 15, 1999, unless otherwise
indicated. Questa owns interests in wells located in Kansas, North Dakota,
Colorado, Oklahoma and Texas:
<TABLE>
<CAPTION>
Gross Net
----- ---
<S> <C> <C>
Total developed leasehold acreage......... 62,955 12,751
</TABLE>
<TABLE>
<CAPTION>
Total Oil Gas
----- --- ---
<S> <C> <C> <C>
Gross productive wells.................... 324 120 204
Net productive wells...................... 117.3 21.4 95.9
</TABLE>
The following table sets forth information with respect to production and
average unit prices and costs for the years indicated.
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Oil production (Bbl).................. 40,114 41,798 43,304
Gas production (Mcf).................. 1,078,857 1,179,299 1,267,488
Average sales price:
Oil (per Bbl).................... $19.52 $19.05 $12.33
Gas (per Mcf).................... $ 2.29 $ 2.69 $ 2.02
Average production cost per
equivalent unit of oil.............. $ 4.28 $ 4.34 $ 4.46
</TABLE>
The following table sets forth certain information regarding Questa's oil
and gas reserves as of December 31, 1998, and the number of wells drilled for
the periods indicated. The reserve information set out in the table was
calculated using two pricing scenarios. Scenario I uses the price paid for
production at December 31, 1998, which was $ 9.07/Bbl for oil and $1.87/Mcf for
gas. Scenario II uses the average price for production sold for the twelve
months in 1998, which was $12.33/Bbl for oil and $2.02/Mcf for gas. In the
opinion of Questa's management, Scenario II uses a more realistic estimate of
Questa's reserve volumes and values.
42
<PAGE>
<TABLE>
<CAPTION>
Scenario I Scenario II
---------- ------------
<S> <C> <C>
Proved reserves:
Oil (Bbls)......................... 383,733 444,120
Gas (Mcf).......................... 15,089,373 15,442,796
Estimated future net revenues from oil $13,189,000 $15,672,000
and gas reserves:..................
Present value of estimated future net $ 7,254,000 $8,547,000
revenues:..........................
</TABLE>
<TABLE>
<CAPTION>
Wells drilled: Total Oil Gas Dry
----- --- --- ---
<S> <C> <C> <C> <C>
1999 (through December 15, 1999).. 12 1 9 2
1998.............................. 18 2 10 6
1997.............................. 12 2 8 2
1996.............................. 9 3 4 2
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Ended
September
Year Ended December 31, 30, 1999
---------------------------------- ------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C> <C>
Types of wells drilled:
Net productive development........ 1.71 1.91 4.14 1.74
Net dry development............... 1.63 .23 1.23 .21
</TABLE>
Legal Proceedings
Questa is not engaged in any legal proceedings and, to the knowledge of its
management, no such legal proceedings are threatened.
Market for Questa Common Stock and Related Stockholder Matters
Questa's common stock is listed on the Nasdaq SmallCap Market system and
trades under the symbol "QUES". The following table sets forth the high and low
bid prices for Questa's common stock for each quarter for the past two fiscal
years. The bid prices represent prices between dealers, do not include retail
markups, markdowns or commissions, and may not represent actual transactions.
The bid prices are adjusted to reflect the stock split on February 18, 1998.
<TABLE>
<CAPTION>
1998 1997
---------------------- -------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter........... $6.37 $3.88 $3.63 $2.75
Second Quarter.......... 7.00 4.50 5.56 3.32
Third Quarter........... 5.75 3.50 8.32 4.13
Fourth Quarter.......... 4.25 3.38 8.25 4.25
</TABLE>
Questa's shareholders are entitled to receive such dividends as may legally
be declared by Questa's board of directors. Questa has not paid any dividends on
its common stock and does not anticipate paying any cash dividends on its common
stock in the foreseeable future.
The following sets forth the approximate number of record holders of
Questa's equity securities as of December 31, 1999.
<TABLE>
<CAPTION>
Title of Class Approximate Number of Record Holders
-------------- ------------------------------------
<S> <C>
Common Stock, $.001 par value 540
</TABLE>
43
<PAGE>
Selected Financial Data
The table below provides you with selected historical financial data for
Questa. This information has been derived from Questa's audited consolidated
financial statements for each year in the five year period ended December 31,
1998 and from Questa's unaudited consolidated financial statements for each of
the nine-month periods ended September 30, 1998 and 1999.
When you read this selected historical financial data, it is important that
you read along with it the historical financial statements and related notes in
the annual and quarterly reports of Questa filed with the SEC, as well as the
section of the annual and quarterly reports titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." See "Where You Can
Find More Information."
<TABLE>
<CAPTION>
Nine Months
Ending
Year Ended December 31 September 30,
------------------------------------------------------ ----------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Oil and natural gas........... $ 2,397,079 2,151,792 $3,275,769 $4,004,137 $3,272,429 $2,727,668 $2,943,704
Other......................... 527,266 505,760 502,255 617,852 665,121 316,297 353,355
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total revenues........ 2,924,345 2,657,552 3,778,037 4,621,989 3,937,550 3,043,965 3,297,059
------------ ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Oil and natural gas:
Operating costs............ 982,412 1,093,480 1,402,240 1,225,705 1,374,064 875,280 1,143,333
Depreciation, depletion
and amortization....... 751,596 636,547 560,595 821,993 1,189,551 904,937 945,176
General and administrative.... 599,526 784,340 599,769 705,133 762,199 591,430 556,419
Interest ..................... 111,843 130,084 139,070 157,817 135,403 103,181 139,703
------------ ----------- --------- ----------- ---------- ---------- ----------
Total expenses........ 2,445,377 2,644,451 2,701,674 2,910,648 3,461,217 2,474,828 2,784,631
------------ ----------- ----------- ----------- ---------- ---------- ----------
Income before income taxes...... 478,968 13,101 1,076,363 1,711,341 476,333 569,137 512,428
Total income taxes (benefit).... (73,173) (81,151) 255,000 560,000 75,000 145,000 130,000
------------ ----------- ----------- ----------- ---------- ---------- ----------
Net income...................... $ 552,141 $ 94,252 $ 821,363 $ 1,151,341 $ 401,333 $ 424,137 $ 382,428
------------ ----------- ----------- ----------- ---------- ---------- ----------
Net income per common share:
Basic...................... $ 0.59 $ 0.10 $ 0.42 $ 0.59 $ 0.21 $ 0.22 $ 0.20
============ =========== =========== ========== ========== ========== ==========
Diluted.................... $ 0.54 $ 0.09 $ 0.42 $ 0.59 $ 0.21 $ 0.22 $ 0.20
============ =========== =========== ========== ========== ========== ==========
Statement of Cash Flows Data:
Cash from (used by):
Operating activities.......... $ 1,068,494 $ 521,284 $ 1,613,172 $2,347,156 $1,329,492 $1,562,131 $2,288,284
Investing activities.......... (1,390,260) (1,000,065) (1,306,400) (2,478,453) (2,265,404) (1,535,380) (699,897)
Financing activities.......... 162,732 53,980 577,489 (406,108) 687,035 (290,601) (231,468)
Balance Sheet Data (at end of
period):
Working capital............... $ 415,309 $ (177,485) $ 684,094 $ 102,950 $ 98,497 $ (148,036) $1,019,581
Property, plant and equipment,net.. 5,216,715 5,682,168 6,625,119 8,428,010 9,503,863 8,930,039 8,853,214
Total assets.................. 6,864,873 6,579,921 8,335,517 9,425,990 10,481,714 9,640,094 11,143,579
Long-term debt................ 1,063,749 775,692 1,655,367 1,379,963 2,147,585 1,147,583 1,915,880
Shareholders' equity.......... 4,061,607 4,314,854 5,019,709 6,051,860 6,373,131 6,417,776 6,755,271
</TABLE>
Managements Discussion and Analysis of Financial Condition and Results of
Operations
At September 30, 1999, Questa had current assets of $2,290,000 compared to
current liabilities of $1,270,000 resulting in positive working capital of
$1,020,000. As of September 30, 1999, the total outstanding bank loan balance
was $2,200,000 compared to $2,425,000 as of December 31, 1998. In December 1998,
Questa increased its term loan with the bank, increasing the balance by
$1,075,000. With the current line of credit of $1,000,000 and cash flows from
operations Questa is in a positive position for future drilling and
acquisitions. Working capital will continue to fluctuate during the year as
Questa wells are drilled, completed and connected to a sales outlet.
Average oil prices received during the first nine months of 1999 were
higher than during the same period in 1998. Average natural gas prices received
during the first nine months of 1999 were lower than during the same period in
1998. The average oil price received by Questa during the first nine months of
1999 was $14.04 per barrel which was a $.90 per barrel increase when compared to
1998. Average natural gas prices decreased to $2.02 per Mcf, a $.31 per Mcf drop
when compared to 1998. Oil prices within the industry remain largely dependent
upon world markets for crude oil. Prices for natural gas are influenced by
weather conditions and supply imbalances. Natural gas comprises approximately
81% of the Questa's revenues. A large drop in the natural gas prices will
44
<PAGE>
have a significant effect on Questa's earning potential. Such decreases, if
sustained, will adversely effect Questa's cash flow in future quarters.
Questa has a line of credit and a term loan with a local bank. The
aggregate borrowings of the loans are $3,500,000 ($2,500,000 term loan and
$1,000,000 line of credit). Interest on the loans is at New York banks prime
rate. At September 30, 1999 Questa's balance on the term loan was $2,020,000 and
zero had been borrowed on the line of credit. Certain of Questa's interest in
oil and gas properties secure the loan. Questa also has two automobile loans
with the bank aggregating $25,648.36. The loans are for 60 months at an interest
rate of 7.5% and 7.75%, with final payment due September, 2002.
During the first nine months of 1999 Questa participated in the drilling of
ten wells; two dry holes and eight producing gas wells. Questa's working
interest in the ten wells range from .5% to 43% with Questa acting as operator
on three of the wells and being an outside joint owner in the other seven. All
of the new wells drilled are on line and will provide additional net cash flow.
Questa is currently participating in the drilling three wells and anticipates
participating in the drilling of two more wells before the end of the year.
Expenditures for drilling during the first nine months of 1999 were
$612,000 and $70,000 written off as dry hole expense. Additional drilling is
projected for the last quarter of 1999. Questa's exploration budget for 1999 was
$1,500,000 with an additional $500,000 slated for acquisitions. Questa's
management feels the continued upswing in oil and gas prices will open new
prospects for drilling. Questa wrote off $225,000 relating to an acreage
acquisition made in 1998 in Kiowa and Caddo County, Oklahoma. Questa
participated in the drilling of three wells in this area with two successful
wells. Questa will be participating in another well in this area and anticipates
a successful gas well.
Questa's information system and equipment is Year 2000 compliant and the
associated costs had no material adverse effect on Questa's financial condition.
Questa cannot currently determine the impact of Year 2000 compliance on the part
third party suppliers and customers will have on Questa's Year 2000 exposure,
but it intends to continue to evaluate their Year 2000 compliance and develop
contingency plans if deemed necessary as a result of its evaluation. As of the
date of this document, Questa has not experienced any business disruptions as a
result of the changeover to Year 2000.
In the fourth quarter of 1998, Questa's board of directors authorized
Questa to purchase up to 30,000 shares of its outstanding common stock on the
open market. Questa will periodically make these purchases, based upon terms
determined by management. If the maximum number of shares is purchased, it will
represent 4% of the public float of Questa's common stock.
Results of Operations
Nine Months 1999 compared to nine months 1998
Oil and gas sales during the first nine moths of 1999 increased from
$2,728,000 to $2,944,000 over the comparable period last year as the result of
higher oil and gas production (oil production increased by 12% and gas
production increased by 19%). Oil prices increased by 7% and gas prices
decreased by 13%.
The lease operating expenses for the first nine months increased from
$764,000 to $782,000 over the same period last year. This increase is the result
of the increase in the number of producing wells and workovers of existing
wells. Dry hole expense increased $250,000 in 1999. Increases in depletion,
depreciation, and amortization from $905,000 to $945,000 are due to the increase
in oil and gas production. Changes in Questa's general and administrative
expenses was due to no bonuses being paid in 1999
Interest income decreased due to smaller cash balances in the bank accounts
the first six months of 1999, but larger balances the last half of 1999 should
be expected. Interest expenses increased due to the renegotiated term loan in
December, 1998. Questa sold its interest in a producing property resulting in a
gain of $47,000 in September, 1999, offset by various miscellaneous
expenditures.
Net income for the first nine month period of 1999 was lower when compared
with 1998 due primarily to the write off of leasehold acreage. First nine months
net income for 1999 was $382,428 and $424,137 for 1998.
1998 Compared to 1997
Oil and gas sales during the year 1998 decreased from $4,004,000 in 1997 to
$3,272,000 as the result of lower oil and gas prices (oil prices have dropped
35% and gas prices dropped 21%).
Lease operating expenses for the year decreased from $1,160,000 to
$1,112,000. This decrease is the result of lower severance taxes due to lower
sale prices. Dry hole expense increased $197,000 in 1998, from $65,000 to
$262,000. Increases in depletion, depreciation, and amortization from $821,000
to $1,189,000 are due to reductions in Questa's reserves, as a direct result of
lower oil
45
<PAGE>
and gas prices. Changes in Questa's general and administrative expenses were due
to salary increases, expenses associated with two shareholder meetings, and the
hiring of a contract exploration analyst.
Interest income decreased due to smaller cash balances in the bank
accounts. Interest expenses decreased due to the lower principal balance on the
term loan, prior to the new negotiated term loan dated December 15, 1998.
Miscellaneous income came from the settlement of outstanding payables and other
non-oil and gas related items.
Questa had a fourth quarter net loss of $23,000. Fourth quarter revenues
were $893,000, operating expenses were $986,000 and income tax provision was
adjusted to ($70,000). Oil and gas prices in the fourth quarter were down 10%
from the first three quarters of 1998.
1997 Compared to 1996
Oil and gas sales for 1997 increased from $3,276,000 in 1996 to $4,004,000.
This increase was due to steady gas prices and increases in production volumes.
Questa's average gas price increased by 17% in 1997 and gas volumes increased by
10%. Questa' income from drilling partnerships increased in 1997 by 228% (from
$49,000 in 1996 to $163,000 in 1997).
Production costs increased from $1,003,000 to $1,161,000, primarily as a
result of acquisitions made in late 1996 and in 1997. Production tax expense
increased due to the increase in product sales volume and prices. General and
administrative expenses increased due to increases in bonuses, salaries, office
rent, and related employee expenses. Interest expense increased slightly due to
higher borrowing base.
Net income for 1997 increased due to the increases in sales volumes and gas
prices, the increase in drilling partnership income and a decrease in dry hole
expenses. Questa also had a positive unusual item in 1997 of $40,000.
PRINCIPAL SHAREHOLDERS OF QUESTA .
The following table sets forth certain information concerning the number of
shares of Questa common stock owned beneficially, as of December 15, 1999, by
(i) each person known to Questa to own more than 5% of the outstanding shares of
Questa common stock, (ii) each director of Questa, (iii) Questa's chief
executive officer and each executive officer of Questa whose compensation in
1998 exceeded $100,000, and (iv) all directors and executive officers of Questa
as a group. No shares of any other class of equity securities are outstanding.
<TABLE>
<CAPTION>
Number of Shares Percent of Total
---------------- ----------------
<S> <C> <C>
Warren L. Meeks................................. 590,814 (1) 30.9%
Alan W. Meeks................................ 468,450 (2) 24.5%
Lowell C. Sund............................... 33,500 1.8%
Bruce L. Sturdevant.......................... 20,400 1.1%
S. Alex Sund................................. 600 0.03%
All directors and officers as a group (6 persons) 1,119,630 (1)(2) 58.53%
----------------------------
</TABLE>
(1) Includes 286,000 shares owned by the Warren and Faith UniTrust, dated
September 10, 1999, and 26,114 shares owned by American Petro Management, Inc.
for which Warren L. Meeks is deemed the beneficial owner.
(2) Includes 28,450 shares owned by the minor children of Alan W. Meeks.
LEGAL MATTERS
The validity of the shares of common stock to be issued to Questa's
shareholders pursuant to the merger and the federal income tax consequences
related to the merger will be passed upon by Conner & Winters, A Professional
Corporation, Tulsa, Oklahoma.
EXPERTS
The estimated reserve evaluations and related calculations of Ryder Scott
Company, petroleum engineers, with respect to the oil and gas reserves of Unit
incorporated by reference in this document, have been incorporated in reliance
upon the authority of said firm as experts in petroleum engineering.
46
<PAGE>
The estimated reserve evaluations and related calculations of Lee Keeling
and Associates, petroleum engineers, with respect to the oil and gas reserves of
Questa included or incorporated by reference in this document, have been
incorporated in reliance upon the authority of said firm as experts in petroleum
engineering.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Unit as of December 31, 1997 and
1998, and for each of the three years in the period ended December 31, 1998,
incorporated in this document by reference to the Annual Report on Form 10-K of
Unit for the year ended December 31, 1998, have been incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting. With respect to
Unit's unaudited consolidated financial information for the three month periods
ended March 31, 1998 and 1999, the six month periods ended June 30, 1998 and
1999 and the nine month periods ended September 30, 1998 and 1999, incorporated
by reference in this document, PricewaterhouseCoopers LLP reported that they
have applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports dated April 24,
1999, August 9, 1999, and October 26, 1999 and incorporated herein, state that
they did not audit and they do not express an opinion on that unaudited
consolidated financial information. Accordingly, the degree of reliance on their
reports on such information should be restricted in light of the limited nature
of the review procedures applied. PricewaterhouseCoopers LLP is not subject to
the liability provisions of Section 11 of the Securities Act of 1933 for their
report on the unaudited consolidated financial information because that report
is not a "report" or a "part" of the registration statement prepared or
certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11
of the Securities Act.
The financial statements of the Parker Division, a division of Parker
Drilling Company North America, Inc., as of August 31, 1998 and for the year
then ended, incorporated in this document by reference to the Form 8-K/A of Unit
dated December 10, 1999, have been incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Questa as of December 31, 1997 and 1998, and
for each of the three years in the period ended December 31, 1996, 1997 and
1998, included in this document have been so included in reliance on the report
of Magee Rausch & Shelton LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
SHAREHOLDER PROPOSALS
Due to the contemplated merger, Questa does not currently expect to hold
another annual shareholders meeting because Questa will be a wholly-owned
subsidiary of Unit following the merger. In the event the merger does not occur,
Questa must have received at its principal executive offices, not later than
February 1, 2000, any shareholder proposals to be included in the proxy
statement to be mailed to all Questa shareholders entitled to vote at the next
Questa annual shareholders meeting.
For any shareholder proposal to be considered for inclusion in Unit's proxy
statement relating to its 2000 annual meeting of shareholders, a shareholder
proposal submitted pursuant to Rule 14a-8 must be received by Unit at its
principal offices, 1000 Kensington Tower I, 7130 South Lewis, Tulsa, Oklahoma
74136, addressed to the Secretary of the Company, no later than November 25,
1999. Any shareholder who intends to present a proposal at the 2000 annual
meeting of stockholders and has not sought inclusion of the proposal in Unit's
proxy statement pursuant to Rule 14a-8, must provide Unit with notice of such
proposal no later than February 8, 2000.
OTHER MATTERS
As of the date of this document, the Questa board knows of no matters that
will be presented for consideration at the special meeting other than as
described in this document. If any other matters shall properly come before
either the special meeting or any adjournments or postponements thereof and be
voted upon, the enclosed proxies will be deemed to confer discretionary
authority on the individuals named as proxies therein to vote the shares
represented by such proxies as to any such matters. The persons named as proxies
intend to vote or not to vote in accordance with the recommendation of the
Questa board.
WHERE YOU CAN FIND MORE
INFORMATION
Unit and Questa file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document that the companies file with the SEC at the SEC's public reference
rooms located at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington,
D.C. 20549; at regional offices of the SEC at the Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and at 7
World Trade Center, New York, New York 10048. You may call the SEC at 1-800-SEC-
0330 for further information on the public reference rooms. These filings are
also available to the public from
47
<PAGE>
the SEC's Internet web site at http://www.sec.gov. Information concerning Unit
may also be inspected at the New York Stock Exchange offices located at 20 Broad
Street, New York, New York 10005.
Unit has filed a registration statement on Form S-4 with the SEC relating
to the shares of Unit common stock that Unit will issue in the merger. This
document does not contain all the information appearing in Unit's registration
statement. You may obtain the additional information in the registration
statement from the SEC in any of the ways noted in the first paragraph.
Descriptions of the contents of contracts or other documents found in this
document are not necessarily complete and such descriptions are qualified by
reference to the copy of the contract or other document filed as an exhibit to
Unit's registration statement. If you would like more information, please read
the copies of the contracts and documents filed as exhibits to the registration
statement.
You should rely only on the information contained or incorporated by
reference into this document. Questa has supplied the information relating to it
and Unit has supplied the information relating to it. Neither Questa nor Unit
has authorized anyone to provide you with information that is different from
what is contained in this document. You should not assume that the information
contained in this document is accurate as of any date other than such date as
this document indicates.
The SEC allows Questa and Unit to "incorporate by reference" into this
document the information that each of us files with them, which means that
Questa and Unit can disclose important information to you by referring you to
those documents. The information incorporated by reference is considered to be
part of this document and information that either of us files later with the SEC
will automatically update and supersede the information in this document. This
document incorporates by reference the documents set forth below that Questa and
Unit have previously filed with the SEC .
UNIT
----
Period or
Date Filed
----------
Commission Filings (File No. 1-9260)
- -----------------------------------
Annual Report on Form 10-K.................. Year ended December 31, 1998
Quarterly Report on Form 10-Q............... Quarter ended March 31, 1999
Quarterly Report on Form 10-Q............... Quarter ended June 30, 1999
Quarterly Report on Form 10-Q............... Quarter ended September 30, 1999
Current Report on Form 8-K.................. September 27, 1999
Current Report on Form 8-K.................. October 12, 1999
Current Report on Form 8-K/A................ December 10, 1999
Current Report on Form 8-K.................. December 15, 1999
QUESTA
------
Period or
Date Filed
----------
Commission Filings (File No. 0-9965_)
- ------------------------------------
Annual Report on Form 10-K.................. Year ended December 31, 1998
Quarterly Report on Form 10-Q............... Quarter ended March 31, 1999
Quarterly Report on Form 10-Q............... Quarter ended June 30, 1999
Quarterly Report on Form 10-Q............... Quarter ended September 30, 1999
All documents filed by Unit and Questa under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, after the date of this
document and before the date of the special meeting of Questa shareholders will
be deemed to be incorporated by reference into this document.
The documents of Unit that are incorporated by reference are available,
without charge, upon oral or written request to Mark E. Schell , Corporate
Secretary, Unit Corporation, 7130 South Lewis, Tulsa, Oklahoma 74136; telephone
number (918) 493-7700. Exhibits to such documents are not available unless such
exhibits are specifically incorporated by reference into this document. In order
to ensure timely delivery of the documents before the Questa special meeting,
you should make a request by March 7, 2000.
48
<PAGE>
The documents of Questa that are incorporated by reference are available,
without charge, upon oral or written request to Lowell C. Sund, Corporate
Secretary, Questa Oil & Gas Co., 7030 South Yale Ave, Suite 700, Tulsa, Oklahoma
74136; telephone number (918) 494-6055. Exhibits to such documents are not
available unless such exhibits are specifically incorporated by reference into
this document. In order to ensure timely delivery of the documents before the
Questa special meeting, you should make a request by March 7, 2000.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNIT CORPORATION
Unaudited Pro Forma Consolidated Condensed
Balance Sheet as of September 30, 1999...............................................................F-2
Unaudited Pro Forma Consolidated Condensed Statement
of Operations for the Year Ended December 31, 1996...................................................F-3
Unaudited Pro Forma Consolidated Condensed Statement
of Operations for the Year Ended December 31, 1997...................................................F-4
Unaudited Pro Forma Consolidated Condensed Statement
of Operations for the Year Ended December 31, 1998...................................................F-5
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the Nine Months Ended September 30, 1999..............................................F-6
Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements.................................................................................F-7
QUESTA OIL & GAS CO.
Independent Auditors' Report............................................................................F-9
Balance Sheets at December 31, 1997 and 1998............................................................F-10
Statement of Operations for the years ended
December 31, 1996, 1997 and 1998.....................................................................F-11
Statement of Changes in Stockholders' Equity for the
period from January 1, 1996 through December 31, 1998................................................F-13
Statement of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.....................................................................F-14
Notes to Financial Statements...........................................................................F-15
Unaudited Consolidated Balance Sheet at
December 31, 1998 and September 30, 1999.............................................................F-25
Unaudited Consolidated Statement of Operations for
the nine months ended September 30, 1998 and 1999....................................................F-26
Unaudited Consolidated Statement of Cash Flows for
the nine months ended September 30, 1998 and 1999....................................................F-27
Notes to Unaudited Financial Statements.................................................................F-28
</TABLE>
F-1
<PAGE>
UNIT CORPORATION
Unaudited Pro Forma Consolidated Condensed Financial Statements
The following tables set forth unaudited pro forma consolidated condensed
financial statements which are presented to reflect the pro forma effect of the
merger. The unaudited pro forma consolidated condensed financial statements of
operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999 give effect to Unit's acquisition of 13 drilling rigs from
Parker Drilling Company (referred to herein as the "Parker Division"), which
acquisition was completed on September 30, 1999, and to the reduction of debt
from excess proceeds of an equity offering as if they had occurred on January 1,
1998. Additionally, the unaudited pro forma statements of operations for the
nine months ended September 30, 1999 and the years ended December 31, 1996, 1997
and 1998 reflect the merger accounted for on the basis of a pooling of
interests. The unaudited pro forma consolidated condensed balance sheet gives
effect to the merger as if it had occurred on September 30, 1999. The unaudited
pro forma consolidated condensed financial statements set forth below have been
derived from and should be read in conjunction with the consolidated financial
statements and related notes of Unit, the Parker Division and Questa filed with
the SEC and incorporated by reference in this document. See "Where You Can Find
More Information."
UNIT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1999
<TABLE>
<CAPTION>
Pro Forma
----------------------------------
Unit Questa Adjustments Combined
------------ ------------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............... $ 1,863 $ 1,598 $ - $ 3,461
Accounts receivable (less allowance
for doubtful accounts)............... 12,325 691 - 13,016
Prepaid expenses and other.............. 5,980 2 - 5,982
------------ ------------- ------------- ------------
Total current assets............. 20,168 2,291 - 22,459
------------ ------------- ------------- ------------
Net Property and Equipment.................. 243,893 8,853 187 (a) 252,933
------------ ------------- ------------- ------------
Other Assets................................ 6,324 - - 6,324
------------ ------------- ------------- ------------
Total Assets................................ $ 270,385 $ 11,144 $ 187 $ 281,716
============ ============= ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term liabilities
and debt............................. $ 1,730 $ 300 $ - $ 2,030
Accounts payable........................ 8,564 838 - 9,402
Accrued liabilities..................... 8,755 133 - 8,888
------------ ------------- ------------- ------------
Total current liabilities........ 19,049 1,271 - 20,320
------------ ------------- ------------- ------------
Other Long-Term Liabilities................. 2,195 67 - 2,262
------------ ------------- ------------- ------------
Long-Term Debt.............................. 62,100 1,916 - 64,016
------------ ------------- ------------- ------------
Deferred Income Taxes....................... 17,945 1,135 71 9(a) 19,151
------------ ------------- ------------- ------------
Shareholders' Equity:
Preferred stock......................... - - - -
Common stock............................ 6,749 27 336 (b) 7,112
Capital in excess of par value.......... 139,684 1,026 (336) (b) -
(974) (c) 139,400
Retained earnings....................... 22,663 6,676 116 (a) 29,455
Treasury stock.......................... - (974) 974 (c) -
------------ ------------- ------------- ------------
Total shareholders' equity....... 169,096 6,755 116 175,967
------------ ------------- ------------- ------------
Total Liabilities and Shareholders' Equity.. $ 270,385 $ 11,144 $ 187 $ 281,716
============ ============= ============= ============
</TABLE>
See accompanying notes.
F-2
<PAGE>
UNIT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Pro Forma
----------------------------------
Unit Questa Adjustments Combined
------------ ------------- ------------- ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Contract drilling.................. $ 28,819 $ - $ - $ 28,819
Oil and natural gas................ 43,013 3,615 - 46,628
Other.............................. 238 163 (97) (i) 304
------------ ------------- ------------- ------------
Total revenues................. 72,070 3,778 (97) 75,751
------------ ------------- ------------- ------------
Expenses:
Contract drilling:
Operating costs................ 24,259 - - 24,259
Depreciation................... 2,944 - - 2,944
Oil and natural gas:
Operating costs................ 13,409 1,402 (400) (j) 14,411
Depreciation, depletion and
amortization................. 10,807 561 55 (k) 11,423
General and administrative......... 4,122 600 (83) (j) 4,639
Interest........................... 3,162 139 - 3,301
------------ ------------- ------------- ------------
Total expenses................. 58,703 2,702 (428) 60,977
------------ ------------- ------------- ------------
Income Before Income Taxes.............. 13,367 1,076 331 14,774
------------ ------------- ------------- ------------
Income Tax Expense:
Current............................ 4 45 - 49
Deferred........................... 5,030 210 126 (g) 5,366
------------ ------------- ------------- ------------
Total income taxes............. 5,034 255 126 5,415
------------ ------------- ------------- ------------
Net Income.............................. $ 8,333 $ 821 $ 205 $ 9,359
============ ============= ============= ============
Net Income Per Common
Share:
Basic.............................. $ 0.37 $ 0.42 $ 0.38
============ ============= ============= ============
Diluted............................ $ 0.37 $ 0.42 $ 0.38
============ ============= ============= ============
Weighted Shares Outstanding:
Basic.............................. 22,463 1,977 (99) (l) 24,341
============ ============= ============
Diluted............................ 22,765 1,977 (99) (l) 24,643
============ ============= ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
UNIT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Pro Forma
----------------------------------
Unit Questa Adjustments Combined
------------ ------------- ------------- ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Contract drilling.................. $ 46,199 $ - $ - $ 46,199
Oil and natural gas................ 45,581 4,358 - 49,939
Other.............................. 84 264 (8) (i) 340
------------ ------------- ------------- ------------
Total revenues................. 91,864 4,622 (8) 96,478
------------ ------------- ------------- ------------
Expenses:
Contract drilling:
Operating costs................ 36,419 - - 36,419
Depreciation................... 4,216 - - 4,216
Oil and natural gas:
Operating costs................ 13,201 1,226 (65) (j) 14,362
Depreciation,
depletion and
amortization................. 12,625 822 50 (k) 13,497
General and administrative......... 4,621 705 (95) (j) 5,231
Interest........................... 2,921 158 - 3,079
------------ ------------- ------------- ------------
Total expenses................. 74,003 2,911 (110) 76,804
------------ ------------- ------------- ------------
Income Before Income Taxes.............. 17,861 1,711 102 19,674
------------ ------------- ------------- ------------
Income Tax Expense (Benefit):
Current............................ 118 95 1 (g) 214
Deferred........................... 6,619 465 38 (g) 7,122
------------ ------------- ------------- ------------
Total income taxes............. 6,737 560 39 7,336
------------ ------------- ------------- ------------
Net Income.............................. $ 11,124 $ 1,151 $ 63 $ 12,338
============ ============= ============= ============
Net Income Per Common
Share:
Basic.............................. $ 0.46 $ 0.59 $ 0.47
============ ============= ============
Diluted............................ $ 0.45 $ 0.59 $ 0.46
============ ============= ============
Weighted Shares Outstanding:
Basic.............................. 24,327 1,955 (97) (l) 26,185
============ ============= ============
Diluted............................ 24,707 1,955 (97) (l) 26,565
============ ============= ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
UNIT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Parker Pro Forma Pro Forma
------------------------ ------------------------
Unit Division Adjustments Combined Questa Adjustments Combined
---- -------- ----------- -------- ------ ----------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Contract drilling........... $53,528 $32,637 $ - $ 86,165 $ - $ - $ 86,165
Oil and natural gas......... 39,703 - - 39,703 3,643 - 43,346
Other....................... 106 350 - 456 294 - 750
------- ------- --------- -------- -------- -------- --------
Total revenues.......... 93,337 32,987 - 126,324 3,937 - 130,261
------- ------- --------- -------- -------- -------- --------
Expenses:
Contract drilling:
Operating costs......... 43,729 24,926 - 68,655 - - 68,655
Depreciation............ 5,766 3,005 248 (d) 9,019 - - 9,019
Oil and natural gas:
Operating costs......... 14,328 - - 14,328 1,374 (262) (j) 15,440
Depreciation, depletion
and amortization..... 16,069 - - 16,069 1,190 2,319 (k) 19,578
General and administrative.. 4,891 5,496 (5,496) (e)
50 (e) 4,941 762 (110) (j) 5,593
Interest.................... 4,815 - (730) (f) 4,085 135 - 4,220
------- ------- --------- -------- -------- -------- --------
Total expenses.......... 89,598 33,427 (5,928) 117,097 3,461 1,947 122,505
------- ------- --------- -------- -------- -------- --------
Income (Loss) Before Income
Taxes......................... 3,739 (440) 5,928 9,227 476 (1,947) 7,756
------- ------- --------- -------- -------- -------- --------
Income Tax Expense (Benefit):
Current..................... 139 (167) 361 (g) 333 75 (69) 339
Deferred.................... 1,354 - 1,891 (g) 3,245 - (671) (g) 2,574
------- ------- --------- -------- -------- -------- --------
Total income taxes
(benefit)............. 1,493 (167) 2,252 3,578 75 (740) 2,913
------- ------- --------- -------- -------- -------- --------
Net Income (Loss)................ $ 2,246 ($273) $ 3,676 $ 5,649 $ 401 ($1,207) $ 4,843
======= ======= ========= ======== ======== ======== ========
Net Income Per Common Share:
Basic....................... $ 0.09 $ 0.17 $ 0.21 $ 0.14
======= ======== ======== ========
Diluted..................... $ 0.09 $ 0.17 $ 0.21 $ 0.14
======= ======== ======== ========
Weighted Shares Outstanding:
Basic....................... 25,544 8,000 (h) 33,544 1,922 (96) (l) 35,370
======= ======== ======== ========
Diluted..................... 25,884 8,000 (h) 33,884 1,922 (96) (l) 35,710
======= ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
UNIT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Parker Pro Forma Pro Forma
------------------------ ------------------------
Unit Division Adjustments Combined Questa Adjustments Combined
---- -------- ----------- -------- ------ ----------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Contract drilling............ $32,919 $14,400 $ - $ 47,319 $ - $ - $ 47,319
Oil and natural gas.......... 28,454 - - 28,454 3,216 - 31,670
Other........................ 416 493 - 909 81 (45) (i) 945
------- ------- --------- -------- -------- --------- --------
Total revenues......... 61,789 14,893 - 76,682 3,297 (45) 79,934
------- ------- --------- -------- -------- --------- --------
Expenses:
Contract drilling:
Operating costs........... 29,918 11,581 - 41,499 - - 41,499
Depreciation.............. 4,294 1,973 (382) (d) 5,885 - - 5,885
Oil and natural gas:
Operating costs........... 10,249 - - 10,249 1,143 - (j) 11,392
Depreciation, depletion
and amortization....... 11,978 - - 11,978 945 (258) (k) 12,665
General and administrative... 3,654 4,463 (4,463) (e) 557 (89) (j)
38 (e) 3,692 4,160
Interest..................... 3,801 - (522) (f) 3,279 140 - 3,419
------- ------- --------- -------- -------- --------- --------
Total expenses......... 63,894 18,017 (5,329) 76,582 2,785 (347) 79,020
------- ------- --------- -------- -------- --------- --------
Income (Loss) Before Income
Taxes......................... (2,105) (3,124) 5,329 100 512 302 914
------- ------- --------- -------- -------- --------- --------
Income Tax Expense (Benefit):
Current...................... (11) - 34 (g) 23 10 2 (g) 35
Deferred..................... (636) (1,187) 1,991 (g) 168 120 113 (g) 401
------- ------- --------- -------- -------- --------- --------
Total income tax
(benefit)............ (647) (1,187) 2,025 191 130 115 436
------- ------- --------- -------- -------- --------- --------
Net Income (Loss)................ ($1,458) ($1,937) $ 3,304 ($91) $ 382 $ 187 $ 478
======= ======= ========= ======== ======== ========= ========
Net Income (Loss) Per Common
Share:
Basic........................ ($0.06) $ - $ 0.20 $ 0.01
======= ======== ======== ========
Diluted...................... ($0.06) $ - $ 0.20 $ 0.01
======= ======== ======== ========
Weighted Shares Outstanding:
Basic ....................... 25,790 8,000 (h) 33,790 1,913 (96) (l) 35,607
======= ======== ========
Diluted...................... 25,790 8,000 (h) 33,790 1,913 (96) (l)
======= ======== ========
271 (m) 35,878
========
</TABLE>
See accompanying notes.
F-6
<PAGE>
UNIT CORPORATION
Notes To Unaudited Pro Forma Consolidated Condensed Financial Statements
1. THE ACQUISITION
On September 30, 1999, Unit completed the acquisition of 13 land contract
drilling rigs and related equipment (the "Parker Acquisition") from Parker
Drilling Company and Parker Drilling Company North America, Inc. (the
"Sellers"). Under the terms of the Parker Acquisition, the Sellers received
1,000,000 shares of Unit's common stock valued at $8,138,000 and $40,000,000 in
cash. The cash portion of the consideration paid was funded through an offering
of 7,000,000 shares of Unit's common stock which closed on September 29, 1999.
The net proceeds received by Unit from the offering were $50,435,000.
2. THE MERGER
On December 10, 1999, Unit announced that it had entered into a definitive
agreement and plan of merger with Questa. The merger agreement provides, subject
to certain conditions set forth therein, that a wholly owned subsidiary of Unit
will be merged (the "merger") with and into Questa, with Questa continuing as
the surviving corporation and a wholly owned subsidiary of Unit. At the
effective time of the merger, each share of common stock, par value $.001, of
Questa issued and outstanding (excluding any treasury shares held by Questa), at
the effective time of the merger, will be converted into .95 shares of common
stock, par value $.20 per share, of Unit.
3. BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated condensed financial
statements are presented to reflect the equity offering and the consummation of
the Parker Acquisition and the merger with Questa. The unaudited pro forma
consolidated condensed balance sheet as of September 30, 1999, is presented as
if the Questa merger, accounted for as a pooling of interests, occurred as of
that date. The unaudited pro forma consolidated condensed statements of
operations are presented as if the Parker Acquisition and the merger occurred on
January 1, 1998, which results may not be indicative of the results that would
have occurred if the acquisition had been effective on the dates indicated or of
the results that may be obtained in the future. The accompanying pro forma
financial statements should be read in conjunction with the historical financial
statements and notes to financial statements of Unit, the Parker Division and
Questa.
4. PRO FORMA ADJUSTMENTS
The accompanying unaudited pro forma consolidated condensed financial
statements include the following adjustments:
(a) Adjustment to change Questa from the successful efforts method of
accounting for oil and natural gas properties to the full cost method
of accounting utilized by Unit.
(b) Adjustments to convert 1,912,894 shares of Questa common stock to
1,817,249 shares of Unit common stock at a par value of $0.20 using a
conversion factor of .95 Unit shares for each Questa share.
(c) Adjustment to eliminate the treasury shares owned by Questa at the
time of the merger.
(d) Adjustment provides depreciation expense computed on the $48,138,000
purchase price of the acquired assets. Depreciation and amortization
of drilling equipment was calculated using the units-of-production
method based on a useful life of 15 years for the acquired rigs,
including a minimum provision of 20% of the active rate when the
equipment is idle. Depreciation for drill pipe and drill collars was
calculated using the composite method which calculates depreciation by
footage actually drilled compared to total estimated remaining
footage. Depreciation of other property and equipment was computed
using the straight-line method over the estimated useful lives of the
assets ranging from 3 to 10 years.
(e) Historical general and administrative expense from the Parker Division
was reversed since they represent allocated corporate overhead from
the parent company and such costs will not be incurred by Unit. Unit's
general and administrative expense will increase by approximately
$50,000 annually due to the additional expense associated with the
increase in office employees required to account for the acquired
rigs.
(f) The adjustment to interest expense represents reduced interest on
$10.4 million of long-term debt paid from proceeds from the equity
offering. The average interest rate paid by Unit on bank debt in 1998
and the first nine months of 1999 was 7.0 and 6.4%, respectively.
F-7
<PAGE>
(g) The adjustment to income tax expense represents the increase in taxes
associated with the combined pro forma results of operations based on
the statutory (federal and state) tax rate.
(h) Adjustments to the number of common shares outstanding represent the
issuance of 7,000,000 shares of common stock from the equity offering
to finance the cash portion of the Parker Acquisition and the issuance
of 1,000,000 shares of common stock to the sellers for the stock
portion of the Parker Acquisition.
(i) The adjustment removes the gain on sale of oil and natural gas
properties recorded by Questa under the successful efforts method of
accounting to reflect the change to the full cost method of accounting
for oil and natural gas properties utilized by Unit.
(j) The adjustment capitalizes exploration costs and geological and
geophysical costs that were previously expensed by Questa under the
successful efforts method of accounting.
(k) The adjustment records the amortization of the Questa oil and natural
gas properties under the full cost method of accounting using a
composite units-of-production method based on proved oil and natural
gas reserves. The December 31, 1998 adjustment also includes a
$2,623,000 write down of oil and natural gas properties resulting from
the application of full cost accounting. At September 30, 1998, the
unamortized cost of the oil and natural gas properties of Questa being
amortized after converting to the full cost method of accounting
exceeded the full cost ceiling, as defined by the SEC.
(l) The adjustment converts the weighted average shares outstanding of
Questa common stock to shares of Unit common stock using a conversion
factor of .95 Unit shares for each Questa share.
(m) Represents the effect of Unit's stock options which are dilutive based
on the pro forma combined results.
F-8
<PAGE>
To the Board of Directors and Stockholders
Questa Oil and Gas Co.
Tulsa, Oklahoma
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Questa Oil and Gas Co. as of
December 31, 1998 and 1997 and the related statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
Questa Oil and Gas Co. management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Questa Oil and Gas Co. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
Magee Rausch & Shelton, LLP
March 22, 1999
F-9
<PAGE>
QUESTA OIL AND GAS CO.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 490,388 $ 241,511
Accounts receivable:
Joint interest owners 167,922 449,235
Oil and gas revenues 302,097 249,792
Other 17,285 27,513
Equipment inventory 16,793 9,499
Other current assets 3,495 301
----------- -----------
Total current assets 997,980 977,851
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and automobiles 149,260 149,260
Oil and gas properties, using the successful efforts method:
Proved properties 13,045,317 14,809,082
Undeveloped properties 190,326 701,742
------------ -----------
13,384,903 15,660,084
Less accumulated depreciation, depletion and amortization 4,956,893 6,156,221
----------- -----------
Net property and equipment 8,428,010 9,503,863
----------- -----------
Total Assets $ 9,425,990 $10,481,714
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 308,504 $ 307,979
Accounts payable trade and accrued expenses 334,093 244,992
Advances from drilling partners 13,513 -
Undistributed revenue 218,066 326,383
Payable to affiliates 20,854 -
----------- -----------
Total current liabilities 895,030 879,354
----------- -----------
OTHER LONG-TERM LIABILITIES 84,137 66,644
----------- -----------
LONG-TERM DEBT, less current portion 1,379,963 2,147,585
----------- -----------
DEFERRED INCOME TAXES 1,015,000 1,015,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; authorized 50,000,000
shares; 2,716,656 and 2,704,024 issued and outstanding
in 1997 and 1998 13,583 13,517
Capital in excess of par value 1,098,050 1,040,157
Retained earnings 5,892,548 6,293,881
----------- -----------
7,004,181 7,347,555
Less treasury stock, at cost, 783,672 shares in 1997
and 794,368 shares in 1998 (952,321) (974,424)
----------- -----------
Total stockholders' equity 6,051,860 6,373,131
----------- -----------
Total Liabilities and Stockholder's Equity $ 9,425,990 $10,481,714
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
QUESTA OIL AND GAS CO.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Oil and gas sales $3,275,782 $4,004,137 $3,272,429
Gas contract settlement - 15,596 -
Administrative charges 282,064 280,267 323,223
Management fees 57,600 57,600 47,400
Gain (loss) on sale of assets 97,146 8,143 -
Interest and dividend income 15,944 53,634 18,975
Other 49,501 202,612 275,523
---------- ---------- ----------
3,778,037 4,621,989 3,937,550
---------- ---------- ----------
COSTS AND EXPENSES:
Production costs 1,002,622 1,160,609 1,112,026
Dry hole and exploration 399,618 65,096 262,038
Depreciation, depletion and amortization 560,595 821,993 1,189,551
General and administrative 599,769 705,133 762,199
Interest 139,070 157,817 135,403
---------- ---------- ----------
2,701,674 2,910,648 3,461,217
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,076,363 1,711,341 476,333
---------- ---------- ----------
PROVISION FOR INCOME TAXES:
Current 45,000 95,000 75,000
Deferred expense 210,000 465,000 -
---------- ---------- ----------
255,000 560,000 75,000
---------- ---------- ----------
NET INCOME $ 821,363 $1,151,341 $ 401,333
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
QUESTA OIL AND GAS CO.
STATEMENT OF OPERATIONS
(Continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE:
Basic $ .42 $ .59 $ .21
========== ========== ==========
Diluted $ .42 $ .59 $ .21
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic 1,977,118 1,955,480 1,921,717
========== ========== ==========
Diluted 1,977,118 1,955,480 1,921,717
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
QUESTA OIL AND GAS CO.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
-------------------- ------------------
CAPITAL IN
PAR EXCESS OF RETAINED
SHARES VALUE PAR VALUE EARNINGS SHARES COST
--------- ------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JAN. 1, 1996 2,716,656 $27,166 $1,084,467 $3,919,844 715,866 $716,623
Purchase of treasury stock - - - - 42,620 116,508
Net income - - - 821,363 - -
--------- ------- ---------- ---------- ------- --------
BALANCES, DEC. 31, 1996 2,716,656 27,166 1,084,467 4,741,207 758,486 833,131
Purchase of treasury stock - - - - 25,186 119,190
Net Income - - - 1,151,341 - -
--------- ------- ---------- ---------- ------- --------
BALANCES, DEC. 31, 1997 2,716,656 27,166 1,084,467 5,892,548 783,672 952,321
Purchase of treasury stock - - - - 10,696 22,103
Retirement of common stock (12,632) (132) (57,827) - - -
Net Income - - - 401,333 - -
--------- ------- ---------- ---------- ------- --------
BALANCES, DEC. 31, 1998 2,704,024 $27,034 $1,026,640 $6,293,881 794,368 $974,424
========= ======= ========== ========== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE>
QUESTA OIL AND GAS CO.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------ ----------- -------------
1996 1997 1998
------------ ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Operations:
Net income $ 821,363 $ 1,151,341 $ 401,333
Plus adjustments to reconcile net income
to net cash flows from operating activities:
Loss (gain) on sale of assets (97,146) (8,143) -
Depreciation, depletion and amortization 560,595 821,993 1,189,551
Provision for deferred income taxes, net 210,000 465,000 -
Changes in operating assets and liabilities:
Receivables (187,713) 73,174 (239,236)
Equipment inventory 7,905 (1,999) 7,294
Other current assets 1,424 3,838 3,194
Accounts payable trade and accrued expenses 159,168 (74,737) (89,101)
Advances from drilling partners 33,832 (20,319) (13,513)
Undistributed revenue 93,359 (14,364) 108,317
Advances from affiliates 10,385 (8,628) (20,854)
Other - (40,000) (17,493)
------------ ----------- -------------
Net cash provided by operating activities 1,613,172 2,347,156 1,329,492
------------ ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase and development of property and
equipment:
Oil and gas properties (1,931,678) (2,585,570) (2,265,404)
Furniture, fixtures and automobiles (6,739) (16,488) -
Proceeds from sales of property and equipment 532,017 23,605 -
Decrease in notes receivable 100,000 100,000 -
------------ ----------- -------------
Net cash used in investing activities (1,306,400) (2,478,453) (2,265,404)
------------ ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in note payable - bank (200,000) (300,000) 775,000
Proceeds from borrowing 1,950,000 48,990 -
Payment of debt (1,056,003) (35,908) (7,903)
Purchase of treasury stock (116,508) (119,190) (22,103)
Purchase of common stock - - (57,959)
------------ ----------- -------------
Net cash provided by (used in) financing
activities 577,489 (406,108) 687,035
------------ ----------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 884,261 (537,405) (248,877)
CASH AND CASH EQUIVALENTS, beginning of year 143,532 1,027,793 490,388
------------ ----------- -------------
CASH AND CASH EQUIVALENTS, end of year $ 1,027,793 $ 490,388 $ 241,511
============ =========== =============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 139,070 $ 157,817 $ 135,403
============ =========== =============
Cash paid during the year for income taxes $ - $ 45,000 $ 110,000
============ =========== =============
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operational Activities - The primary business of Questa Oil and Gas Co.
("Company") is acquiring, exploring and developing oil and gas properties.
All properties owned by the Company are located in the United States.
Inventory - Inventory is comprised primarily of used oil and gas wellhead
equipment and gas production units recorded at the lower of cost or market,
using the specific identification method.
Oil and Gas Properties - The Company uses the successful efforts method of
accounting for its oil and gas activities. Costs of drilling oil and gas
properties are deferred until drilling and completion results are evaluated.
At such time, costs of wells with economically recoverable oil and gas
reserves and development dry holes are capitalized as developed oil and gas
properties, and cost of unsuccessful or uneconomical wells (other than
development dry holes) are expensed. Exploration costs, including geological
and geophysical and cost of carrying and retaining unproved properties, are
charged to operations as incurred.
Depreciation, depletion and amortization of the Company's capitalized costs
of undeveloped oil and gas properties are computed using the unit-of-
production method based upon recoverable reserves as determined by Lee
Keeling and Associates (independent petroleum engineers). Costs are not
capitalized in an amount which exceeds estimated future undiscounted net
revenues of the Company's proved reserves.
The Company is currently the managing general partner of a total of five oil
and gas limited partnerships. These partnership interests, which represent
interests in producing properties, have been included in developed oil and
gas properties. The Company's share of partnership revenue and expenses is
in the statement of operations. As general partner, the Company makes and
receives advances to the partnerships which are recorded as receivables from
affiliates and advances from affiliates in the accompanying balance sheets.
Furniture and Fixtures - Furniture and fixtures are depreciated using
accelerated methods over their useful lives of five years. Maintenance and
repair costs are expensed when incurred, while major improvements are
capitalized. Gains or losses on retirement or replacement of furniture and
fixtures are included in operations.
Income Taxes - The Company computes income tax expenses using Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
SFAS No. 109 requires the measurement of deferred tax assets for deductible
temporary differences and operating loss carry forwards and of deferred tax
liabilities for taxable temporary differences. Measurement of current and
deferred tax liabilities and assets is based on provisions of enacted tax
law; the effects of future changes in tax laws or rates are not anticipated.
Deferred tax assets primarily result from net operating loss carry forwards
and unused minimum tax and tight sand gas credits and deferred tax
liabilities from the recognition of depreciation, depletion and amortization
in different periods for financial reporting and tax purposes.
F-15
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Concentrations of Credit Risk - The Company's primary business is
exploration and development of oil and gas properties primarily in Texas and
Oklahoma. The Company grants credit to outside joint interest owners who are
located throughout the United States.
Cash and Cash Equivalents - The Company defines cash and cash equivalents to
be cash on hand, cash in checking accounts, certificates of deposit, cash in
money market accounts and certain investments with short-term maturities.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent asset and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. NOTE PAYABLE:
The Company has a line of credit with a local bank. This line of credit
allows maximum borrowing of $1,000,000, with a maturity date of June 30,
1999, bears interest at prime (7.75% at December 31, 1998), and is secured
by certain of the Company's oil and gas interests. At December 31, 1998 the
Company had not borrowed on the line of credit.
F-16
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
3. LONG-TERM DEBT:
Long-term debt consists of the following:
1997 1998
------------ ------------
Note payable to a local bank bearing
interest at prime (7.75% at December 31,
1998), payable in quarterly installments
of $75,000, with all remaining principal
and accrued interest due at maturity on
June 30, 2001, secured by certain of the
Company's oil and gas interests. $ 1,650,000 $ 2,425,000
Note payable to a local bank bearing
interest at 7.5% per annum payable in 60
monthly installments of $304 including
interest, secured by automotive
equipment. 14,522 11,868
Note payable to a local bank bearing
interest at 7.75% per annum payable in
60 monthly installments of $539
including interest, secured by
automotive equipment. 23,945 18,696
------------ ------------
1,688,467 2,455,564
Less current maturities 308,504 307,979
------------ ------------
$ 1,379,963 $ 2,147,585
============ ============
The annual principal repayment requirements are as follows:
1999 $ 307,979
2000 308,612
2001 1,838,973
2002 -
2003 -
F-17
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
4. STOCKHOLDERS' EQUITY:
On March 31, 1986, the stockholders of the Company and the stockholders of
Trinity Oil and Gas, Inc. ("Trinity") approved an agreement whereby the
Company acquired all of the outstanding common stock of Trinity in exchange
for 125,361 shares of the Company's common stock (as adjusted for the stock
split in 1988). The transaction was accounted for as a purchase of Trinity
by the Company. The fair value of the net assets of Trinity on the purchase
date was determined to be $222,532 by the Company's Board of Directors. The
common stock of the Company issued to Trinity stockholders was valued at
this amount. The agreement also provided that former stockholders of Trinity
would receive an additional 12,000 shares of the Company's common stock (as
adjusted for the stock split in 1988) when and if net production from
certain Trinity properties reaches a specific level. This level was not
reached as of December 31, 1998.
During 1998, the Company consummated a one for ten reverse stock split and a
twenty for one stock split. All share and per share information has been
restated to retroactively show the effect of this stock split. Weighted
average shares outstanding used in the calculation of earnings per share
were 1,977,118, 1,955,480 and 1,921,717 for the periods December 31, 1996,
1997, and 1998, respectively.
5. NET EARNINGS PER SHARE:
Basic net earnings per share are computed by dividing net income by the
weighted average number of shares of common stock during the period.
For diluted net earnings per share, the weighted average number of shares
includes common stock and all potential common shares, if any.
6. EMPLOYEE RETIREMENT PLAN:
During 1992, by action of the Board of Directors, the Company adopted a
defined contribution profit sharing plan with a 401(k) provision effective
August 1, 1992. The plan calls for discretionary contribution to be made by
the employer. The plan also allows elective deferrals by plan participants
of up to 10% of their annual salary. These elective deferrals are being
matched with Company contributions of up to 6% of each participant's
compensation. Contributions to this plan and plan expenses totaled
approximately $30,000, $31,000, and $31,000 for 1996, 1997, and 1998.
7. ADMINISTRATIVE CHARGES AND MANAGEMENT FEES:
Administrative charges represent amounts charged to joint interest owners
for services performed in administering joint operations. Amounts charged to
related partnerships for the years ended December 31, 1996, 1997, and 1998
were $40,300, $45,100, and $43,200, respectively. Management fees are
amounts charged to limited partnerships for services performed by the
Company as managing general partner.
F-18
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES:
The net deferred tax liability in the accompanying balance sheet includes
the following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Deferred tax assets $ 404,600 $ 50,000 $ 50,000
Valuation allowance - - -
-------------- -------------- --------------
Net deferred tax asset 404,600 50,000 50,000
-------------- -------------- --------------
Deferred tax liability 954,600 1,065,000 1,065,000
-------------- -------------- --------------
Net deferred tax liability $ 550,000 $ 1,015,000 $ 1,015,000
============== ============== ==============
</TABLE>
The deferred tax liability results primarily from deducting intangible
drilling costs for tax purposes. The deferred tax asset results from net
operating loss carry forwards and alternative minimum tax credit carry
forwards. The components of income tax expense related to continuing
operations are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Federal
Current $ 45,000 $ 95,000 $ 75,000
Deferred 210,000 465,000 -
-------------- -------------- --------------
Total $ 255,000 $ 560,000 $ 75,000
============== ============== ==============
</TABLE>
The Company's income tax expense differed from the statutory federal rate of
34% as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Statutory rate applied to earnings
before income taxes $ 366,000 $ 582,000 $ 161,000
Increase (decrease) in income taxes
resulting from:
Note receivable recovery - 14,000 -
Deduction of intangible drilling
costs (100,000) (177,000) -
Use of tight sands tax credit (11,000) (20,000) (40,000)
Other - 161,000 (46,000)
-------------- ------------- --------------
Income tax expense $ 255,000 $ 560,000 $ 75,000
============== ============= ==============
</TABLE>
9. MAJOR CUSTOMERS:
Oil and gas purchasers, individually, accounted for more than 10% of the
total revenues in each of the three years as follows:
Purchaser 1996 1997 1998
------------- ------------- ------------- -------------
A 17% 15% *
B 10% 12% *
C 37% 36% 34%
D * * 11%
* Revenue from this purchaser less than 10%
F-19
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCY:
The Company is obligated under operating leases for rental of its office
facilities during future years ending December 31 as follows:
1999 $ 27,050
Rent expense for the years ended December 31, 1996, 1997, and 1998 was
$15,228, $25,483, and $26,975, respectively.
11. FINANCIAL INSTRUMENTS:
The Company's financial instruments subject to credit risk include accounts
receivable and cash on deposit at various banks.
12. NOTES RECEIVABLE:
In January of 1994, the Company made loans totaling $450,000 to an accounts
receivable factoring company. The accounts receivable factoring company is
not a related party. The loans are generally unsecured.
In July of 1996 the Company restructured these loans. The note bears
interest at 9% per annum, called for principal payments of $130,000 in 1996
and monthly payments in 1997 of $20,000 per month, with a balloon payment of
$30,000 due in December 1997. This loan continues to be unsecured. The
Company collected $40,000 relating to this note in 1997.
Based on the financial status of the factoring company and other factors,
the Company has decided not to record accrued interest on the note and to
reserve the $150,000 outstanding balance as of December 31, 1998. The
balance is reported as follows:
1996 1997 1998
------------ ------------ ------------
Notes receivable $ 290,000 $ 150,000 $ 150,000
Less reserve 190,000 150,000 150,000
------------ ------------ ------------
$ 100,000 $ - $ -
============ ============ ============
Short term $ 100,000 $ - $ -
============ ============ ============
Long term $ - $ - $ -
============ ============ ============
13. GAS CONTRACT SETTLEMENT:
During 1997, the Company recognized income of $15,596 relating to a gas
contract settlement received in a prior year.
14. RELATED PARTY TRANSACTIONS:
During 1997, the Company purchased certain oil and gas properties from the
Vice President/Director of the Company. The purchase price was $10,000.
F-20
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
15. SUPPLEMENTARY OIL AND GAS INFORMATION (Unaudited):
Capitalized Costs - Capitalized costs relating to the Company's oil and gas
producing activities as of December 31, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------------- -------------- ---------------
<S> <C> <C> <C>
Oil and gas properties $ 8,149,586 $ 10,510,388 $ 12,498,298
Well and related equipment 2,500,487 2,725,255 3,012,526
-------------- -------------- ---------------
10,650,073 13,235,643 15,510,824
Accumulated depreciation,
depletion and amortization (4,059,019) (4,877,483) (6,063,133)
-------------- -------------- ---------------
$ 6,591,054 $ 8,358,160 $ 9,447,691
============== ============== ===============
</TABLE>
Costs Incurred in Oil and Gas Property Acquisition, Exploration and
Development Activities - Costs incurred in oil and gas property acquisition,
exploration and development activities, including capital expenditures, are
summarized as follows for the years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
-------------- -------------- ---------------
<S> <C> <C> <C>
Property acquisition cost:
Proved $ 768,785 $ 2,063,266 $ 197,000
Unproved 108,816 71,993 558,478
Exploration and development
costs 1,054,077 578,279 1,558,127
-------------- -------------- ---------------
$ 1,931,678 $ 2,713,538 $ 2,313,605
============== ============== ===============
</TABLE>
Oil and Gas Reserve Quantities - The estimates of proved reserves and
related valuations were determined by Lee Keeling and Associates
(independent petroleum engineers) in accordance with the rules of the
Securities and Exchange Commission. Estimates of proved reserves are
inherently imprecise and are continually subject to revision based on
production history, results of additional exploration and development and
other factors.
F-21
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
15. SUPPLEMENTARY OIL AND GAS INFORMATION (Unaudited): (Continued)
Oil and Gas Reserve Quantities - (continued) Proved reserves are reserves
judged to be economically producible in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as
of the date the estimate is made and assuming continuation of current
regulatory practices using conventional production methods and equipment.
Proved developed reserves are expected to be recovered through existing
wells, equipment and operating methods.
Following is a summary of the changes in estimated proved developed
reserves of the Company, all of which are located in the continental United
States, for the years ended December 31, 1996, 1997 and 1998. For these
years, the Company's proved undeveloped reserves were immaterial in
relation to total reserves and are not presented below.
<TABLE>
<CAPTION>
OIL (Bbls)
----------------------------------------
1996 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
Proved developed reserves:
Beginning of year 464,017 460,451 465,222
Revisions of previous estimates 14,584 (5,803) (62,493)
Purchases of minerals in place 23,227 24,956 3,663
Extensions and discoveries 2,034 27,416 20,645
Sales of mineral in place (3,297) - -
Production (40,114) (41,798) (43,304)
---------- ------------ ------------
End of year 460,451 465,222 383,733
========== ============ ============
GAS (Mcf)
----------------------------------------
1996 1997 1998
---------- ------------ ------------
Proved developed reserves:
Beginning of year 13,481,897 15,910,802 14,350,862
Revisions of previous estimates 1,101,029 (1,881,311) (276,818)
Purchases of minerals in place 2,148,249 1,102,672 329,160
Extensions and discoveries 406,799 397,998 1,953,657
Sales of minerals in place (148,314) - -
Production (1,078,858) (1,179,299) (1,267,488)
---------- ------------ ------------
End of year 15,910,802 14,350,862 15,089,373
========== ============ ============
</TABLE>
F-22
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
15. SUPPLEMENTARY OIL AND GAS INFORMATION (Unaudited): (Continued)
Oil and Gas Reserve Quantities (Continued)
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Developed Oil and Gas Reserves - Statement of
Financial Accounting Standards No. 69 (SFAS 69) prescribes guidelines for
computing a standardized measure of future net cash flows and changes
therein relating to estimated proved reserves. The Company has followed
these guidelines which are briefly discussed in the following paragraphs.
Future cash inflows and future production and development costs are
determined by applying year-end prices and costs to the estimated
quantities of oil and gas to be produced. Estimated future income taxes are
computed by using year-end statutory income tax rates including
consideration for previously legislated future statutory depletion rates.
The resulting future net cash flows are reduced to present value amount by
applying a 10% annual discount factor.
The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such, do not
necessarily reflect the Company's expectations of actual revenues to be
derived from those reserves or their present worth. The limitations
inherent in the reserve quantity estimation process, as discussed
previously, are equally applicable to the standardized measure computations
since these estimates are the basis for the valuation process.
Presented below is the standardized measure of discounted future net cash
flows relating to proved developed reserves as of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1996 1997 1998
------------- ------------- ------------
<S> <C> <C> <C>
Future cash inflows $ 70,821,000 $ 40,426,000 $ 29,857,000
Future production and development costs (17,970,000) (13,761,000) (12,271,000)
Future income tax expense (13,213,000) (6,666,000) (4,397,000)
------------- ------------- ------------
Future net cash flows 39,638,000 19,999,000 13,189,000
10% annual discount for estimated timing
of cash flows (18,888,000) (9,000,000) (5,935,000)
------------- ------------- ------------
Standardized measure of discounted future
net cash flows $ 20,750,000 $ 10,999,000 $ 7,254,000
============= ============= ============
</TABLE>
F-23
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
15. SUPPLEMENTARY OIL AND GAS INFORMATION (Unaudited): (Continued)
Oil and Gas Reserve Quantities (Continued)
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows for the years ended December
31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- ------------
<S> <C> <C> <C>
Standardized measure - beginning of year $ 8,120,000 $ 20,750,000 $ 10,999,000
------------ ------------- ------------
Sale and transfers of oil and gas produced,
net of production costs (2,275,000) (2,844,000) (2,160,000)
Extensions, discoveries and improved
recovery, less related costs 1,676,000 1,426,000 3,840,000
Net change due to quantity revisions 4,755,000 (4,705,000) (1,085,000)
Net change in prices and production cost 26,794,000 (23,875,000) (10,388,000)
Purchases of minerals in place 9,152,000 3,173,000 649,000
Net change in income taxes (8,180,000) 6,547,000 2,269,000
Net change in future development costs 82,000 (65,000) 108,000
Accretion of discount (19,374,000) 10,592,000 3,022,000
------------ ------------- ------------
Net increase (decrease) 12,630,000 (9,751,000) (3,745,000)
------------ ------------- ------------
Standardized measure - end of year $ 20,750,000 $ 10,999,000 $ 7,254,000
============ ============ ============
</TABLE>
F-24
<PAGE>
QUESTA OIL & GAS CO.
Consolidated Balance Sheets
December 31, 1998 and September 30, 1999
<TABLE>
<CAPTION>
September 30,
December 31, 1999
1998 (UNAUDITED)
------------- -------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 241,511 $ 1,598,430
Accounts receivable - Trade 449,235 320,562
- Other 27,513 -
- Oil & Gas Sales 249,792 370,000
Inventory 9,499 96
Prepaid expenses and other assets 301 1,277
------------- -----------
Total Current Assets 977,851 2,290,365
------------- -----------
Property and equipment, at cost:
Oil and gas properties, successful efforts:
Unproved properties 701,742 501,095
Proved properties 14,809,082 14,959,175
Furniture, fixture and automobiles 149,260 159,865
------------- -----------
15,660,084 15,620,135
Less accumulated depletion and depreciation 6,156,221 6,766,921
------------- -----------
Net Property and Equipment 9,503,863 8,853,214
------------- -----------
TOTAL ASSETS $ 10,481,714 $11,143,579
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Long-term debt due within one year $ 300,000 $ 300,000
Accounts Payable - Trade 128,957 283,608
Accounts Payable - Related Parties - 76,282
Accounts Payable - Oil & Gas 326,383 477,820
Short Term Loans Payable 2,808 2,808
Other Current Liabilities 121,731 130,266
------------- -----------
Total Current Liabilities 879,879 1,270,784
------------- -----------
Other Long-term Liabilities 66,644 66,644
------------- -----------
Long-term debt due after one year 2,147,060 1,915,880
------------- -----------
Deferred income tax 1,015,000 1,135,000
------------- -----------
Stockholders' equity:
Common stock, $.001 par value:
Authorized 50,000,000 shares;
Issued 2,704,024 shares 27,034 27,034
Additional paid-in capital 1,026,640 1,026,640
Accumulated earnings 6,293,881 6,293,881
Current earnings - 382,428
Treasury stock at cost, 794,368 shares at
December 31, 1998 and 791,180 shares
at September 30, 1999 (974,424) (974,712)
------------- -----------
Total Stockholders' Equity 6,373,131 6,755,271
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,481,714 $11,143,579
============= ===========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
QUESTA OIL & GAS CO.
Consolidated Statement of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1999 1998 1999
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 893,055 $1,203,139 $2,727,668 $2,943,704
Management fees 14,400 9,300 43,200 27,900
Administrative charges 80,704 84,334 229,225 244,795
---------- ----------- ---------- ----------
988,159 1,296,773 3,000,093 3,216,399
---------- ----------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Lease operating expenses 251,597 249,265 764,359 782,484
Dry Hole & geological costs 58,346 285,577 110,921 360,849
Depletion, depreciation,
and amortization 289,140 410,216 904,937 945,176
General & administrative 216,025 178,714 591,430 556,419
---------- ----------- ---------- ----------
815,108 1,123,772 2,371,647 2,644,928
---------- ----------- ---------- ----------
Income From Operations 173,051 173,001 628,446 571,471
---------- ----------- ---------- ----------
OTHER INCOME (EXPENSES):
Interest income 923 11,416 43,872 36,139
Interest expense (32,389) (46,909) (103,181) (139,703)
Gain (loss) on sale of
oil & gas properties - (3,000) - 44,521
---------- ----------- ---------- ----------
(31,466) (38,493) (59,309) (59,043)
---------- ----------- ---------- ----------
Income before income taxes 141,585 134,508 569,137 512,428
Provision for income taxes:
Current - (10,000) (10,000) (10,000)
Deferred (35,000) (60,000) (135,000) (120,000)
---------- ----------- ---------- ----------
NET INCOME 106,585 64,508 424,137 382,428
========== =========== ========== ==========
EARNINGS PER COMMON SHARE:
Net income per common share
Basic $ .06 $ .03 $ .22 $ .20
========== ========== ========== ==========
Diluted $ .06 $ .03 $ .22 $ .20
========== ========== ========== ==========
Weighted average number of common
shares outstanding:
Basic 1,944,888 1,912,894 1,944,888 1,912,894
========== ========== ========== ==========
Diluted 1,944,888 1,912,894 1,944,888 1,912,894
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-26
<PAGE>
QUESTA OIL & GAS CO.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
September 30,
--------------------------
1998 1999
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Operations:
Net Income $ 424,137 $ 382,428
Plus Adjustments to Reconcile Net Income
to Net Cash Flows From Operating Activities:
Gain (Loss) on Sale of Assets - 44,521
Depreciation, Depletion and Amortization 904,937 945,176
Dry Hole and Exploration 110,921 360,849
Provision for Deferred Income Taxes 135,000 120,000
Changes In Operating Assets and Liabilities:
Accounts Receivable 15,852 35,978
Equipment Inventory 7,135 9,403
Other Current Assets 1,088 (976)
Accounts Payable and Accrued Expenses (23,426) 390,905
Advances from Drilling Partners (13,513) -
---------- ----------
Net Cash Provided By Operating Activities 1,562,131 2,288,284
---------- ----------
Cash Flows From Investing Activities:
Purchase of Property and Equipment:
Oil and Gas Properties (1,535,380) (689,292)
Furniture, Fixtures & Automobiles - (10,605)
---------- ----------
Net Cash Used In Investing Activities (1,535,380) (699,897)
---------- ----------
Cash Flows From Financing Activities:
Payment of Debt (232,380) (231,180)
Purchase of Treasury Stock (58,221) (288)
---------- ----------
Net Cash (Used In) Provided By Financing Activities (290,601) (231,468)
---------- ----------
Net Increase (Decrease) In Cash And Cash Equivalent (263,850) 1,356,919
Cash and Cash Equivalents, Beginning of Year 490,388 241,511
---------- ----------
Cash and Cash Equivalent, End of Period $ 226,538 $1,598,430
========== ==========
</TABLE>
See accompanying notes to financial statements
F-27
<PAGE>
QUESTA OIL & GAS CO.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Preparation and Presentation
-------------------------------------
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position of Questa Oil & Gas Co. as of September 30, 1999 and the results of
their operations for the three and nine month periods ended September 30, 1998
and 1999 and cash flows for the nine months ended September 30, 1998 and 1999.
Results for the three and nine months ended September 30, 1999 are not
necessarily indicative of the results to be realized during the full year. The
accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These statements should be read in conjunction with the
Questa Oil & Gas Co. financial statements and notes thereto as of December 31,
1998.
(2) Note Payable
------------
The Company has a term loan with a local bank. The aggregate borrowing
of the loan is $2,500,000. The term loan is $2,500,000 with quarterly
installments of $75,000 plus accrued interest with the final payment due
September 30, 2001. For the first nine months of 1999 the interest rate on the
term loan was at New York prime, 8.25%. As of September 30, 1999, the
outstanding principal amount of the term loan was $2,200,000. The loan is
secured by certain of the Company's interests in oil and gas properties. The
Company is not required by the loan agreement to maintain a certain balance in
our demand accounts with the bank. The Company also has two automobile loans
with the bank. The loans are for 60 months, with 7.5% and 7.75% interest rates,
with final payment due September, 2002.
F-28
<PAGE>
APPENDIX A
[MERGER AGREEMENT]
AGREEMENT AND PLAN OF MERGER
dated as of
December 8, 1999
among
UNIT CORPORATION
QUESTA OIL & GAS CO.
and
UNIT ACQUISITION COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
TABLE OF CONTENTS........................................................................ A-(i)
ARTICLE 1 DEFINITIONS.................................................................. A-1
ARTICLE 2 THE MERGER................................................................... A-6
SECTION 2.01. The Merger.............................................................. A-6
SECTION 2.02. Conversion of Shares.................................................... A-7
SECTION 2.03. Surrender and Payment................................................... A-8
SECTION 2.04. Adjustments............................................................. A-9
SECTION 2.05. Fractional Shares....................................................... A-9
SECTION 2.06. Withholding Rights...................................................... A-9
SECTION 2.07. Lost Certificates....................................................... A-9
SECTION 2.08. Shares Held by Questa Affiliates........................................ A-9
SECTION 2.09. Dissenters' Rights...................................................... A-9
ARTICLE 3 CERTAIN GOVERNANCE MATTERS................................................... A-10
SECTION 3.01. Certificate of Incorporation of the Surviving Corporation............... A-10
SECTION 3.02. By-laws of the Surviving Corporation.................................... A-10
SECTION 3.03. Directors and Officers of the Surviving Corporation..................... A-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF QUESTA..................................... A-10
SECTION 4.01. Corporate Existence and Power........................................... A-10
SECTION 4.02. Corporate Authorization................................................. A-10
SECTION 4.03. Authorization........................................................... A-11
SECTION 4.04. Non-Contravention....................................................... A-11
SECTION 4.05. Capitalization of the Company........................................... A-11
SECTION 4.06. Subsidiaries............................................................ A-12
SECTION 4.07. SEC Filings............................................................. A-12
SECTION 4.08. Financial Statements.................................................... A-12
SECTION 4.09. Disclosure Documents.................................................... A-12
SECTION 4.10. Partnership Organization and Qualification.............................. A-12
SECTION 4.11. Partnership Authority................................................... A-13
SECTION 4.12. Partnership Capital Contributions....................................... A-13
SECTION 4.13. Partnership Operation................................................... A-13
SECTION 4.14. Partnership Contracts................................................... A-13
SECTION 4.15. Partnership Taxation.................................................... A-13
SECTION 4.16. Partnership Liens....................................................... A-14
SECTION 4.17. Absence of Certain Changes.............................................. A-14
SECTION 4.18. No Undisclosed Material Liabilities..................................... A-15
SECTION 4.19. Litigation.............................................................. A-15
SECTION 4.20. Taxes................................................................... A-16
SECTION 4.21. Employee Benefit Plans.................................................. A-16
SECTION 4.22. Compliance with Laws.................................................... A-17
SECTION 4.23. Finders' or Advisors' Fees.............................................. A-17
SECTION 4.24. Environmental Matters................................................... A-17
SECTION 4.25. Title of Assets......................................................... A-18
SECTION 4.26. Oil and Gas Operations.................................................. A-19
SECTION 4.27. Takeover Statutes....................................................... A-19
SECTION 4.28. Governmental Regulation................................................. A-20
SECTION 4.29. Insurance............................................................... A-20
SECTION 4.30. Intangible Property..................................................... A-20
SECTION 4.31. Books and Records....................................................... A-20
SECTION 4.32. Year 2000 Compliance.................................................... A-20
SECTION 4.33. Powers of Attorney; Authorized Signatories.............................. A-20
SECTION 4.34. Vote Required........................................................... A-21
SECTION 4.35. Gas Imbalances.......................................................... A-21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.36. Royalties............................................................... A-21
SECTION 4.37. Prepayments............................................................. A-21
SECTION 4.38. Affiliate Transactions.................................................. A-21
SECTION 4.39. Disclosure and Investigation............................................ A-21
SECTION 4.40. Pooling; Tax Treatment.................................................. A-21
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ACQUIROR................................... A-21
SECTION 5.01. Corporate Existence and Power........................................... A-21
SECTION 5.02. Corporate Authorization................................................. A-22
SECTION 5.03. Governmental Authorization.............................................. A-22
SECTION 5.04. Non-Contravention....................................................... A-22
SECTION 5.05. Capitalization.......................................................... A-22
SECTION 5.06. Subsidiaries............................................................ A-23
SECTION 5.07. SEC Filings............................................................. A-24
SECTION 5.08. Financial Statements.................................................... A-24
SECTION 5.09. Disclosure Documents.................................................... A-24
SECTION 5.10. Absence of Certain Changes.............................................. A-25
SECTION 5.11. No Undisclosed Material Liabilities..................................... A-25
SECTION 5.12. Litigation.............................................................. A-25
SECTION 5.13. Taxes................................................................... A-25
SECTION 5.14. Compliance with Laws.................................................... A-26
SECTION 5.15. Finders' or Advisors' Fees.............................................. A-26
SECTION 5.16. Environmental Matters................................................... A-26
SECTION 5.17. Pooling; Tax Treatment.................................................. A-26
ARTICLE 6 COVENANTS OF QUESTA.......................................................... A-26
SECTION 6.01. Conduct of Questa and the Partnerships.................................. A-26
SECTION 6.02. Company Stockholder Meeting; Proxy Material............................. A-29
SECTION 6.03. Other Offers............................................................ A-29
ARTICLE 7 COVENANTS OF ACQUIROR........................................................ A-30
SECTION 7.01. Conduct of Acquiror..................................................... A-30
SECTION 7.02. Obligations of Merger Subsidiary........................................ A-31
SECTION 7.03. Form S-4................................................................ A-31
SECTION 7.04. Stock Exchange Listing.................................................. A-31
SECTION 7.05. Employee Benefits....................................................... A-31
ARTICLE 8 COVENANTS OF ACQUIROR AND QUESTA............................................. A-32
SECTION 8.01. Best Efforts............................................................ A-32
SECTION 8.02. Certain Filings......................................................... A-32
SECTION 8.03. Access to Information................................................... A-32
SECTION 8.04. Public Announcements.................................................... A-33
SECTION 8.05. Further Assurances...................................................... A-33
SECTION 8.06. Notices of Certain Events............................................... A-33
SECTION 8.07. Affiliates.............................................................. A-33
SECTION 8.08. Tax and Accounting Treatment............................................ A-33
ARTICLE 9 CONDITIONS TO THE MERGER..................................................... A-34
SECTION 9.01. Conditions to the Obligations of Each Party............................. A-34
SECTION 9.02. Conditions to the Obligations of Acquiror and Merger Subsidiary......... A-34
SECTION 9.03. Conditions to the Obligations of Questa................................. A-37
ARTICLE 10 TERMINATION.................................................................. A-38
SECTION 10.01. Termination............................................................ A-38
SECTION 10.02. Effect of Termination.................................................. A-39
ARTICLE 11 MISCELLANEOUS................................................................ A-39
SECTION 11.01. Notices................................................................ A-39
SECTION 11.02. Non-Survival of Representations and Warranties......................... A-40
SECTION 11.03. Amendments Waivers..................................................... A-40
SECTION 11.04. Expenses............................................................... A-41
SECTION 11.05. Successors and Assigns................................................. A-41
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 11.06. Governing Law.......................................................... A-42
SECTION 11.07. Jurisdiction........................................................... A-42
SECTION 11.08. Waiver of Jury Trial................................................... A-42
SECTION 11.09. Counterparts; Effectiveness............................................ A-42
SECTION 11.10. Entire Agreement....................................................... A-42
SECTION 11.11. Captions............................................................... A-42
SECTION 11.12. Severability........................................................... A-42
SECTION 11.13. Attorney Fees.......................................................... A-42
SECTION 11.14 Incorporation.......................................................... A-43
</TABLE>
Schedules:
---------
Schedule 4.03 Authorization
Schedule 4.11(c) Partnership Authority
Schedule 4.17(f) Severance Payments
Schedule 4.21 Employee Benefit Plans
Schedule 4.25 Title of Assets
Schedule 4.26 Oil and Gas Operations
Schedule 4.29 Insurance
Schedule 4.33 Powers of Attorney; Authorized Signatures
Schedule 6.01(f) Capital Expenditures
Schedule 8.07(b) Pooling Letter
Exhibits:
--------
Exhibit "A" Affiliate's Letter
Exhibit "B" Letter relating to Pooling (Questa)
Exhibit "C-1" Tax Certificate (Acquiror)
Exhibit "C-2" Tax Certificate (Questa)
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of December 8, 1999 among Questa Oil
& Gas Co., a Colorado corporation ("Questa"), Unit Corporation, a Delaware
------
corporation ("Acquiror"), and Unit Acquisition Company, an Oklahoma corporation
--------
and a wholly-owned first-tier subsidiary of Acquiror ("Merger Subsidiary").
-----------------
WHEREAS, the respective Boards of Directors of Acquiror, Merger Subsidiary
and Questa have approved this Agreement, and deem it advisable and in the best
interests of their respective stockholders to consummate the merger of Merger
Subsidiary with and into Questa on the terms and conditions set forth herein;
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger contemplated by this Agreement qualify as a 368 Reorganization;
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a pooling of interests under GAAP; and
WHEREAS, to induce Acquiror to enter into this Agreement, certain holders
of the common stock, par value $.001 per share, of Questa (the "Shares") have
------
entered into Stockholder Agreements, dated as of the date hereof (the
"Stockholder Agreements"), with Acquiror pursuant to which such stockholders
----------------------
have agreed to vote their Shares in favor of the Merger (as hereinafter defined)
and have made certain other agreements with Acquiror.
NOW, THEREFORE, in consideration of the promises and the respective
representations, warranties, covenants, and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms have the meaning
specified or referred to below unless such terms are defined elsewhere in this
Agreement.
"368 Reorganization" shall have the meaning specified in Section 4.40(b).
------------------
"1933 Act" means the Securities Act of 1933, as amended and the Rules and
--------
Regulations promulgated there under.
"Acquiror" means Unit Corporation.
--------
"Acquiror 10-K" has the meaning specified in Section 5.06(a).
-------------
"Acquiror Balance Sheet" has the meaning specified in Section 5.08.
----------------------
"Acquiror Balance Sheet Date" has the meaning specified in Section 5.08.
---------------------------
"Acquiror Common Stock" has the meaning specified in Section 2.02(ii).
---------------------
"Acquiror SEC Documents" has the meaning specified in Section 5.07.
----------------------
"Acquiror Securities" has the meaning specified in Section 5.05.
-------------------
A-1
<PAGE>
"Acquiror Subsidiary Securities" has the meaning specified in Section
------------------------------
5.06(b).
"Acquisition Proposal" means any offer or proposal for, or any indication
--------------------
of interest in, any (i) direct or indirect acquisition or purchase of a business
or assets that constitute 20% or more of the net revenues, net income or the
assets of Questa, (ii) direct or indirect acquisition or purchase of 20% or more
of any class of equity securities of Questa, (iii) tender offer or exchange
offer that if consummated would result in any person beneficially owning 20% or
more of any class of equity securities of Questa, or (iv) merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Questa, other than the transactions contemplated by this
Agreement.
"Affected Employees" has the meaning specified in Section 7.05 (a).
------------------
"Affiliate" means with respect to any Person, each other Person that
---------
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with such Person;
"CERCLA" means Comprehensive Environmental Response, Compensation and
------
Liability Act.
"CERCLIS" means the Comprehensive Environmental Response, Compensation and
-------
Liability Information System List.
"Certificates" has the meaning specified in Section 2.03.
------------
"Closing" has the meaning specified in Section 2.01(d).
-------
"Closing Date" has the meaning specified in Section 2.01(d).
------------
"Code" means the United States Internal Revenue Code of 1986, as amended.
----
"Colorado Law" means the Colorado Business Corporation Act.
------------
"Defensible Title" means good and defensible right, title, and interest
----------------
that is (i) evidenced by an instrument or instruments filed of record in
accordance with the conveyance and recording laws of the applicable jurisdiction
to the extent necessary to prevail against competing claims of bona fide
purchasers for value without notice (ii) that does not operate to reduce the net
revenue interest as to any oil and gas well set forth in the Reserve Data to
less than the net revenue interest set forth in such report for such well or
operate to increase the working interest as to any well to more than the working
interest set forth in such report for such well, and (iii) subject to Permitted
Encumbrances, free and clear of all Liens, claims, infringements, burdens, or
other defects.
"Dissenting Shares" has the meaning specified in Section 2.09.
-----------------
"Effective Time" has the meaning specified in Section 2.01(b).
--------------
"End Date" has the meaning specified in Section 10.01(b)(i).
--------
"Environmental Law" means any federal, state, local and foreign statutes,
-----------------
laws (including, without limitation, common law), judicial decisions,
regulations, ordinances, rules, judgments, orders, codes, injunctions, permits,
governmental agreements or governmental restrictions relating to human health
and safety, the environment or to pollutants, contaminants, wastes, or
chemicals.
A-2
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Exchange Act" means the Securities and Exchange Act of 1934, as amended
------------
and the rules and regulations promulgated there under..
"Exchange Agent" has the meaning specified in Section 2.03.
--------------
"Exchange Ratio" has the meaning specified in Section 2.02(ii).
--------------
"Form S-4" has the meaning specified in Section 5.09.
--------
"GAAP" means those generally accepted accounting principles and practices
----
that are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor).
"Hazardous Material" means (a) any "hazardous substance," as defined by
------------------
CERCLA, (b) any "hazardous waste," as defined by the Resource Conservation and
Recovery Act, as amended, (c) any hazardous, dangerous, or toxic chemical,
material, waste, or substance within the meaning of and regulated by any
Environmental Law, (d) any radioactive material, including any naturally
occurring radioactive material, and any source, special, or byproduct material
as defined in 42 U.S.C. ss.2011 et seq. and any amendments or authorizations
thereof, (e) any asbestos-containing materials in any form or condition, or (f)
any polychlorinated biphenyls in any form or condition.
"HSR Act" means the Hart-Scott- Rodino Antitrust Improvement Act of 1976.
-------
"Hydrocarbons" means oil, condensate, gas, casinghead gas, and other liquid
------------
or gaseous hydrocarbons.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
----
charge, security interest or encumbrance of any kind in respect of such asset
other than any such mortgage, lien, pledge, charge, security interest or
encumbrance (i) for Taxes not yet due or being contested in good faith (and for
which adequate accruals or reserves have been established on the Acquiror
Balance Sheet or the Questa Balance Sheet, as the case may be) or (ii) which is
a carriers', warehousemen's, mechanics', materialmen's, repairmen's or other
like lien arising in the ordinary course of business.
"Material Adverse Effect" means (a) when used with respect to Questa or
-----------------------
a Partnership, a result or consequence that would materially adversely affect
the condition (financial or otherwise), results of operations, or business of
Questa or a Partnership, as the case may be, or the value of its assets, would
materially impair the ability of Questa, or a Partnership, as the case may be,
to own, hold, develop, and operate its assets, or would impair Questa's ability
to perform its obligations hereunder or consummate the transactions contemplated
hereby, and (b) when used with respect to Acquiror, a result or consequence that
would materially adversely affect the condition (financial or otherwise),
results of operations, or business of Acquiror or its Subsidiaries (taken as a
whole) or the aggregate value of their assets, would materially impair the
ability of Acquiror and its Subsidiaries (taken as a whole) to own, hold,
develop, and operate their assets, or would impair Acquiror's or Merger
Subsidiary's ability to perform its respective obligations hereunder or
consummate the transactions contemplated hereby.
"Merger" has the meaning specified in Section 2.01(a).
------
"Merger Consideration" has the meaning specified in Section 2.02(d).
--------------------
A-3
<PAGE>
"Merger Subsidiary" means Unit Acquisition Company or any direct wholly
-----------------
owned Subsidiary of Acquiror.
"NYSE" shall mean the New York Stock Exchange.
----
"Oil and Gas Interests" means direct and indirect interests in and rights
---------------------
with respect to oil, gas, mineral, and related properties and assets of any kind
and nature, direct or indirect, including working, royalty, and overriding
royalty interests, Partnership Interests, production payments, operating rights,
net profits interests, other nonworking interests, and nonoperating interests;
all interests in and rights with respect to oil and natural gas and other
minerals or revenues therefrom and all contracts in connection therewith and
claims and rights thereto (including all oil and gas leases, operating
agreements, unitization and pooling agreements and orders, division orders,
transfer orders, mineral deeds, royalty deeds, oil and gas sales, exchange, and
processing contracts, Partnership Agreements and agreements, and in each case,
interests thereunder), surface interests, fee interests, reversionary interests,
reservations, and concessions; all easements, rights of way, licenses, permits,
leases, and other interests associated with, appurtenant to, or necessary for
the operation of any of the foregoing; and all interests in equipment and
machinery (including well equipment and machinery), oil and gas production,
gathering, transmission, treating, processing, and storage facilities (including
tanks, tank batteries, pipelines, and gathering systems), pumps, water plants,
electric plants, gasoline and gas processing plants, refineries, and other
tangible personal property and fixtures associated with, appurtenant to, or
necessary for the operation of any of the foregoing.
"Oklahoma Law" means the General Corporation Act of the State of Oklahoma.
------------
"Partnership" or "Partnerships", as the case may be, shall mean,
----------- ------------
individually or collectively, the following the Questa 1981 Program Ltd., the
Questa 1985 Program Ltd., the Questa 1988 Program Ltd., the Questa 1992 Program
Ltd., and the Questa 1993 Program Ltd.
"Partnership Agreements" means the Agreements of Limited Partnership
----------------------
pertaining to each of the Partnerships.
"Partnership Contracts" has the meaning specified in Section 4.14.
---------------------
"Partnership Interests" means all of Questa's interest, both general and
---------------------
limited, in and to the Partnerships.
"Partnership Properties" means the Partnerships' interest and rights in
----------------------
and to producing and non-producing oil and gas leases, licenses, permits and
similar arrangements, overriding royalty interests, mineral interests, and other
interests in producing and non-producing oil and gas properties.
"PBGC" means Pension Benefit Guaranty Corporation.
----
"Permitted Encumbrances" means (i) Liens for Taxes, assessments, or other
----------------------
governmental charges or levies if the same shall not at the particular time in
question be due and delinquent or (if foreclosure, distrait, sale, or other
similar proceedings shall not have been commenced or, if commenced, shall have
been stayed) are being contested in good faith by appropriate proceedings and if
Questa shall have set aside on its books such reserves (segregated to the extent
required by sound
A-4
<PAGE>
accounting practices) as may be required by GAAP or otherwise determined by its
board of directors to be adequate with respect thereto, (ii) Liens of carriers,
warehousemen, mechanics, laborers, materialmen, landlords, vendors, workmen, and
operators arising by operation of law in the ordinary course of business or by a
written agreement existing as of the date hereof and necessary or incident to
the exploration, development, operation, and maintenance of oil and natural gas
properties and related facilities and assets for sums not yet due or being
contested in good faith by appropriate proceedings, if Questa shall have set
aside on its books such reserves (segregated to the extent required by sound
accounting practices) as may be required by GAAP or otherwise determined by its
board of directors to be adequate with respect thereto, (iii) Liens incurred in
the ordinary course of business in connection with worker's compensation,
unemployment insurance, and other social security legislation (other than
ERISA), (iv) Liens incurred in the ordinary course of business to secure the
performance of bids, tenders, trade contracts, leases (statutory only),
statutory obligations, surety and appeal bonds, performance and return-of-money
bonds, and other obligations of a like nature, (v) Liens, easements, rights-of-
way, restrictions, servitude, permits, conditions, covenants, exceptions,
reservations, and other similar encumbrances incurred in the ordinary course of
business or existing on property and not materially impairing the value of the
assets of Questa or a Partnership or interfering with the ordinary conduct of
Questa's or the Partnerships' business or rights to their assets, (vi) all
rights to consent by, required notices to, filings with, or other actions by
governmental authorities to the extent customarily obtained subsequent to
closing, (vii) farmout, carried working interest, joint operating, unitization,
royalty, overriding royalty, sales, and similar agreements relating to the
exploration or development of, or production from, oil and natural gas
properties entered into in the ordinary course of business and existing as of
the date of the Reserve Data, (viii) any defects, irregularities, or
deficiencies in title to easements, rights-of-way, or other surface use
agreements that do not adversely affect the value of any asset of Questa or a
Partnership, (ix) preferential rights to purchase and third-party consents that
would not be activated or triggered by the Merger and the other transactions
contemplated by this Agreement, (x) Liens approved in writing by or on behalf of
Acquiror.
"Person" means an individual, a corporation, a limited liability company, a
------
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or any agency or instrumentality
thereof.
"Questa" means Questa Oil & Gas Co.
------
"Questa Balance Sheet Date" means September 30, 1999.
-------------------------
"Questa Material Agreement" means (a) any written or oral agreement,
-------------------------
contract, commitment, or understanding to which Questa is a party, by which
Questa is directly or indirectly bound, or to which any asset of Questa may be
subject, the termination or breach of which, individually or in the aggregate,
would have or could reasonably be expected to have a Material Adverse Effect on
Questa (b) the Questa Partnership Agreements, (as amended and supplemented as of
the date hereof).
"Questa Proxy Statement" has the meaning specified in Section 4.09.
----------------------
"Questa SEC Documents" has the meaning specified in Section 4.07.
--------------------
"Questa Securities" has the meaning specified in Section 4.05.
-----------------
"Questa Stockholder Approval" has the meaning specified in Section 6.02.
---------------------------
"Questa Stockholder Meeting" has the meaning specified in Section 6.02.
--------------------------
"Reserve Data" means the oil and gas reserve engineering report
------------
concerning the Oil and Gas Interests of Questa as of January 1, 1999 prepared by
Lee Keeling and Associates and the electronic database provided to Acquiror by
or on behalf of Questa concerning the Oil and Gas Interests of Questa (as
modified, amended, or supplemented prior to the date hereof).
"SEC" means the Securities and Exchange Commission.
---
"Shares" has the meaning specified in the preamble.
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"Significant Subsidiary" has the meaning specified in Section 5.06(a).
----------------------
"Stockholder Agreements" has the meaning specified in the preamble.
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"Subsidiary" when used with respect to any Person means any other Person,
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whether incorporated or unincorporated, of which (i) more than 50% of the
securities or other ownership interests or (ii) securities or other interests
having by their terms ordinary voting power to elect more than 50% of the board
of directors or others performing similar functions with respect to such
corporation or other organization, is directly owned or controlled by such
Person or by any one or more of its Subsidiaries.
"Substantial Detriment" has the meaning specified in Section 9.02(b).
---------------------
"Superior Proposal" means any bona fide Acquisition Proposal for or in
-----------------
respect of at least a majority of the outstanding Shares on terms that the board
of directors of Questa determines in its good faith judgment (after consultation
with a financial advisor of nationally recognized reputation, taking into
account all the terms and conditions of the Acquisition Proposal, including any
break-up fees, expense reimbursement provisions and conditions to consummation)
are more favorable to all of Questa's stockholders than the Merger.
"Taxes" shall mean any and all taxes, charges, fees, levies or other
-----
assessments, including, without limitation, all net income, gross income, gross
receipts, excise, stamp, real or personal property, ad valorem, withholding,
social security (or similar), unemployment, occupation, use, service, service
use, license, net worth, payroll, franchise, severance, transfer, recording,
employment, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, capital stock, profits, disability,
sales, registration, value added, alternative or add-on minimum, estimated or
other taxes, assessments or charges imposed by any federal, state, local or
foreign governmental entity and any interest, penalties, or additions to tax
attributable thereto.
"Tax Returns" shall mean any return, report, form or similar statement
-----------
required to be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
"Third Party Consents" means the consent or approval of any Person other
--------------------
than Questa, Acquiror, or any governmental authority.
"Trigger Event" has the meaning specified in Section 11.04(b).
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ARTICLE 2
THE MERGER
SECTION 2.01. The Merger. (a) At the Effective Time, Merger Subsidiary
shall be merged (the "Merger") with and into Questa in accordance with the
------
requirements of Oklahoma Law and Colorado Law, whereupon the separate existence
of Merger Subsidiary shall cease, and Questa shall be the surviving corporation
in the Merger (the "Surviving Corporation"). At the election of Acquiror, any
---------------------
direct wholly owned Subsidiary of Acquiror with respect to which the applicable
representations and warranties set forth in Article 5 are true and correct may
be substituted for Merger Subsidiary as a constituent corporation in the Merger
by an appropriate amendment to this Agreement in which case such Subsidiary
shall be Merger Subsidiary.
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(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, Questa and Merger Subsidiary
will file a certificate of merger with the Secretary of State of the State of
Oklahoma, file articles of merger with the Secretary of State of Colorado and
make all other filings or recordings required by Oklahoma Law and Colorado Law
in connection with the Merger. The Merger shall become effective at such time as
the certificate of merger is duly filed with the Secretary of State of the State
of Colorado or at such later time as is specified in the certificate of merger
(the "Effective Time").
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(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of Questa and Merger Subsidiary,
all as provided under Colorado Law.
(d) The closing of the Merger (the "Closing") shall take place (i) at the
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offices of Acquiror, 1000 Kensington Tower I, 7130 South Lewis, Tulsa, Oklahoma
74136, as soon as practicable, but in any event within three business days after
the day on which the last to be fulfilled or waived of the conditions set forth
in Article 9 (other than those conditions that by their nature are to be
fulfilled at the Closing, but subject to the fulfillment or waiver of such
conditions) shall be fulfilled or waived in accordance with this Agreement or
(ii) at such other place and time or on such other date as Questa and Acquiror
may agree in writing (the "Closing Date").
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SECTION 2.02. Conversion of Shares. (a) At the Effective Time by virtue
of the Merger and without any action on the part of the holder thereof:
(i) each Share held by Questa as treasury stock immediately prior to
the Effective Time shall be canceled, and no payment shall be made with
respect thereto; and
(ii) each Share outstanding immediately prior to the Effective Time,
other than Shares to be canceled pursuant to Section 2.02(a)(i) and for
Dissenting Shares, shall be converted, without any action on the part of
the holders thereof, into the right to receive .95 (the "Exchange Ratio")
--------------
shares of fully paid and nonassessable common stock, par value $0.20 per
share, of Acquiror ("Acquiror Common Stock"); and
---------------------
(iii) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become
one share of common stock of the Surviving Corporation with the same
rights, powers and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation;
(b) All Acquiror Common Stock issued as provided in this Section 2.02
shall be of the same class and shall have the same terms as the currently
outstanding Acquiror Common Stock. Acquiror shall, following the Closing, except
as provided in Section 2.03(c), pay all stamp duties and stamp duty reserve tax,
if any, imposed in connection with the issuance or creation of the Acquiror
Common Stock in connection with the Merger.
(c) From and after the Effective Time, all Shares converted in accordance
with Section 2.02(a)(ii) (other than Dissenting Shares) shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such Shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration, as applicable, and any dividends payable pursuant to Section
2.03(f). From and after the Effective Time, all certificates representing the
common stock of Merger Subsidiary shall be deemed for all purposes to represent
the number of shares of common stock of the Surviving Corporation into which
they were converted in accordance with Section 2.02(iii).
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(d) The Acquiror Common Stock to be received as consideration pursuant to
the Merger by each holder for each Share (together with cash in lieu of
fractional shares of Acquiror Common Stock as specified below) is referred to
herein as the "Merger Consideration".
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SECTION 2.03. Surrender and Payment. (a) Prior to the Effective Time,
Acquiror shall appoint an agent reasonably acceptable to Questa (the "Exchange
--------
Agent") for the purpose of exchanging certificates representing Shares (the
- -----
"Certificates") for the Merger Consideration; provided, however, that it is
------------
agreed that the current transfer agent of Acquiror will be acceptable to Questa
if it is selected as the Exchange Agent. Acquiror will make available to the
Exchange Agent, as needed, the Merger Consideration to be paid in respect of the
Shares. Promptly after the Effective Time, Acquiror will send, or will cause the
Exchange Agent to send, to each holder of record at the Effective Time of Shares
a letter of transmittal for use in such exchange (which shall specify that the
delivery shall be effected, and risk of loss and title shall pass, only upon
proper delivery of the Certificates to the Exchange Agent) in such form as
Questa and Acquiror may reasonably agree, for use in effecting delivery of
Shares to the Exchange Agent.
(b) Each holder of Shares that have been converted into a right to receive
the Merger Consideration, upon surrender to the Exchange Agent of a Certificate,
together with a properly completed letter of transmittal, will be entitled to
receive the Merger Consideration in respect of the Shares represented by such
Certificate. Until so surrendered, each such Certificate shall, after the
Effective Time, represent for all purposes only the right to receive such Merger
Consideration.
(c) If any portion of the Merger Consideration is to be paid to a Person
other than the Person in whose name the Certificate is registered, it shall be a
condition to such payment that the Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the Person
requesting such payment shall pay to the Exchange Agent any transfer or other
taxes required as a result of such payment to a Person other than the registered
holder of such Certificate or establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no further registration of
transfers of Shares. If, after the Effective Time, Certificates are presented to
the Surviving Corporation, they shall be canceled and exchanged for the
consideration provided for, and in accordance with the procedures set forth, in
this Article 2.
(e) Any amount of the Merger Consideration made available to the Exchange
Agent pursuant to Section 2.03(a) that remains unclaimed by the holders of
Shares one year after the Effective Time shall be returned to Acquiror, upon
demand, and any such holder who has not exchanged his Shares for the Merger
Consideration, in accordance with this Section prior to that time shall
thereafter look only to Acquiror for payment of the Merger Consideration in
respect of his Shares. Notwithstanding the foregoing, Acquiror shall not be
liable to any holder of Shares for any amount paid to a public official pursuant
to applicable abandoned property laws. Any amounts remaining unclaimed by
holders of Shares three years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any governmental entity) shall, to the extent permitted by
applicable law, become the property of Acquiror free and clear of any claims or
interest of any Person previously entitled thereto.
(f) No dividends or other distributions with respect to Acquiror Common
Stock issued in the Merger shall be paid to the holder of any unsurrendered
Certificates until such Certificates are surrendered as provided in this
Section. Subject to the effect of applicable laws, following such surrender,
there shall be paid, without interest, to the record holder of the Acquiror
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Common Stock issued in exchange therefore (i) at the time of such surrender, all
dividends and other distributions payable in respect of such Acquiror Common
Stock with a record date after the Effective Time and a payment date on or prior
to the date of such surrender and not previously paid and (ii) at the
appropriate payment date, the dividends or other distributions payable with
respect to such Acquiror Common Stock with a record date after the Effective
Time but with a payment date subsequent to such surrender. For purposes of
dividends or other distributions in respect of Acquiror Common Stock, all
Acquiror Common Stock to be issued pursuant to the Merger shall be entitled to
dividends pursuant to the immediately preceding sentence as if issued and
outstanding as of the Effective Time.
SECTION 2.04. Adjustments. If at any time during the period between the
date of this Agreement and the Effective Time, any change in the outstanding
shares of capital stock of Acquiror or Questa (other than as contemplated in
Section 4.05 or Section 5.05 or permitted under this Agreement) shall occur,
including, without limitation, by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon with a record date during such period, the
Merger Consideration shall be appropriately adjusted.
SECTION 2.05. Fractional Shares. No fractional shares of Acquiror Common
Stock shall be issued in the Merger to any holder of a Certificate having a
fractional interest arising upon the conversion of such Certificate. Each holder
of a Certificate having a fractional interest shall, at the time of surrender of
the Certificate, be paid by the Exchange Agent, a cash payment equal in value of
such fractional interest based on the closing sale price, as reported on the New
York Stock Exchange Composite Tape on the Closing Date, appropriately adjusted
for any stock splits, reverse stock splits, stock dividends, recapitalizations
or other similar transactions. No interest shall be paid on any such amounts.
All fractional shares to which a single record holder would be entitled shall be
aggregated.
SECTION 2.06. Withholding Rights. Each of the Surviving Corporation and
Acquiror shall be entitled to deduct and withhold from the consideration
otherwise payable to any person pursuant to this Article such amounts as it is
required to deduct and withhold with respect to the making of such payment under
any provision of federal, state, local or foreign tax law. To the extent that
amounts are so withheld by the Surviving Corporation or Acquiror, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect of which
such deduction and withholding was made by the Surviving Corporation or
Acquiror, as the case may be.
SECTION 2.07. Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration to be paid in respect of the Shares,
represented by such Certificates as contemplated by this Article.
SECTION 2.08. Shares Held by Questa Affiliates. Anything to the contrary
herein notwithstanding, any shares of Acquiror Common Stock (or certificates
therefore) issued to affiliates of Questa pursuant to Section 2.03 shall be
subject to the restrictions described in Exhibit A and such shares (or
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certificates therefore) shall bear a legend describing such restrictions.
SECTION 2.09. Dissenters' Rights. Any Shares held by a holder who, prior
to the taking of the vote of Questa's stockholders on this Agreement, files with
Questa a written notice of his intent to demand payment of the fair value of his
Shares in accordance with the procedures specified by Colorado Law, shall be
herein called "Dissenting Shares". Any Dissenting Shares held by a holder who
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does not vote such shares for approval of this Agreement, and fulfills all
requirements of Colorado Law, shall not after the Effective Time be entitled to
vote for any purpose or receive any dividends or other distributions and shall
not be
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converted into the consideration provided for by Section 2.02. If any such
holder shall have failed to perfect or shall have effectively withdrawn or lost
such right, such holder's Shares shall thereupon be deemed to have been
converted into the right to receive, as of the Effective Time, the consideration
provided in Section 2.02 hereof, without any interest thereon. Any payment for
Dissenting Shares shall be paid by the Surviving Corporation. Questa shall give
Acquiror prompt notice of any demands received by Questa for appraisal of any
Shares, and Acquiror shall have the right to participate in all negotiations and
proceedings with respect to such demands. Questa will not settle or compromise
any claims for dissenters' rights in respect of the Merger prior to the
Effective Time without the prior written consent of Acquiror.
ARTICLE 3
CERTAIN GOVERNANCE MATTERS
SECTION 3.01. Certificate of Incorporation of the Surviving Corporation.
The certificate of incorporation of Questa in effect at the Effective Time shall
be the certificate of incorporation of the Surviving Corporation until amended
in accordance with applicable law.
SECTION 3.02. By-laws of the Surviving Corporation. The by-laws of Merger
Subsidiary in effect at the Effective Time shall be the by-laws of the Surviving
Corporation until amended in accordance with applicable law.
SECTION 3.03. Directors and Officers of the Surviving Corporation. From
and after the Effective Time, until successors are duly elected or appointed and
qualified in accordance with applicable law, (a) the directors of Merger
Subsidiary at the Effective Time shall be the directors of the Surviving
Corporation, and (b) the officers of the Merger Subsidiary at the Effective Time
shall be the officers of the Surviving Corporation.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF QUESTA
Questa represents and warrants to Acquiror that:
SECTION 4.01. Corporate Existence and Power. Questa is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Colorado, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except for those the absence of which would not, individually or in
the aggregate, have a Material Adverse Effect on Questa. Questa is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary. Questa has
heretofore delivered to Acquiror true and complete copies of Questa's
certificate of incorporation and by-laws as currently in effect.
SECTION 4.02. Corporate Authorization. (a) The execution, delivery and
performance by Questa of this Agreement and the consummation by Questa of the
transactions contemplated hereby are within Questa's corporate powers and,
except for any required approval by Questa's stockholders in connection with the
consummation of the Merger, have been duly authorized by all necessary corporate
action. The affirmative vote of holders of the outstanding shares is the only
vote of the holders of any of Questa's capital stock necessary in connection
with consummation of the Merger. Assuming due authorization, execution and
delivery of this Agreement by Acquiror and Merger Subsidiary, as applicable,
this Agreement constitutes a valid and binding agreement of Questa enforceable
against Questa in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
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(b) Questa's Board of Directors, at a meeting duly called and held, has
(i) determined that this Agreement and the transactions contemplated hereby
(including the Merger) are fair to and in the best interests of Questa's
stockholders, (ii) approved and adopted this Agreement and the transactions
contemplated hereby (including the Merger), and (iii) resolved (subject to
Section 6.02) to recommend approval and adoption of this Agreement by its
stockholders.
SECTION 4.03. Authorization. The execution, delivery and performance by
Questa of this Agreement and the consummation of the Merger by Questa require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority other than (a) the filing of a certificate of merger
and/or articles of merger in accordance with Oklahoma Law and Colorado Law, (b)
compliance with any applicable requirements of the HSR Act, (c) compliance with
any applicable requirements of the Exchange Act; (d) compliance with any
applicable requirements of the 1933 Act; and (e) compliance with applicable
state securities laws and the rules and regulations promulgated thereunder. No
Third-Party Consent is required by or with respect to Questa or any of the
Partnerships in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (x) any
such Third Party Consent which the failure to obtain would not, individually or
in the aggregate, have a Material Adverse Effect on Questa or any of the
Partnerships, (y) the valid approval of the Merger by the stockholders of
Questa, and (z) any consent, approval or waiver required by the terms of the
Questa bank loan or credit agreements listed on Schedule 4.03.
SECTION 4.04. Non-Contravention. The execution, delivery and performance
by Questa of this Agreement and the consummation by Questa of the transactions
contemplated hereby do not and will not (a) assuming compliance with the matters
referred to in Section 6.02, contravene or conflict with the certificate of
incorporation or by-laws of Questa, (b) assuming compliance with the matters
referred to in Section 6.03, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to Questa, (c) constitute a default under
or give rise to a right of termination, cancellation or acceleration of any
right or obligation of Questa or to a loss of any benefit to which Questa is
entitled under any provision of any agreement, contract or other instrument
binding upon Questa or any license, franchise, permit or other similar
authorization held by Questa, or (d) result in the creation or imposition of any
Lien on any asset of Questa, except for such contraventions, conflicts or
violations referred to in clause (b) or defaults, rights of termination,
cancellation or acceleration, or losses or Liens referred to in clause (c) or
(d) that would not, individually or in the aggregate, have a Material Adverse
Effect on Questa. Questa is not a party to any agreement that expressly limits
the ability of Questa, or would limit Acquiror or any Subsidiary of Acquiror
after the Effective Time, to compete in or conduct any line of business or
compete with any Person or in any geographic area or during any period of time.
SECTION 4.05. Capitalization of the Company. The authorized capital
stock of Questa consists of 50,000,000 Shares. As of the date of this Agreement,
there were 1,912,894 Shares issued and outstanding, 791,180 Shares are held in
the treasury of Questa and no stock options to purchase Shares. All outstanding
shares of capital stock of Questa have been duly authorized and validly issued
and are fully paid and nonassessable. Except as specifically stated above in
this Section 4.05, there are outstanding (a) no shares of capital stock or other
voting securities of Questa, (b) no securities of Questa convertible into or
exchangeable for shares of capital stock or voting securities of Questa, and (c)
no options, warrants or other rights to acquire from Questa, and no preemptive
or similar rights, subscription or other rights, convertible securities,
agreements, arrangements or commitments of any character, relating to the
capital stock of Questa, obligating Questa to issue, transfer or sell, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Questa or obligating Questa to grant,
extend or enter into any such option, warrant, subscription or other right,
convertible security, agreement, arrangement or commitment (the items in clauses
4.05(a), 4.05(b) and 4.05(c) being referred to collectively as the
"Questa Securities"). There are no outstanding obligations of Questa to
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repurchase,
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redeem or otherwise acquire any Questa Securities.
SECTION 4.06. Subsidiaries. There are no Subsidiaries of Questa.
SECTION 4.07. SEC Filings. (a) Questa has delivered to Acquiror (i) its
annual reports on Form 10-K for its fiscal years ended December 31, 1996, 1997
and 1998, (ii) its quarterly reports on Form 10-Q for its fiscal quarters ended
after January 1, 1999, (iii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of Questa
held since December 31, 1997, and (iv) all of its other reports, statements,
schedules and registration statements filed with the SEC since December 31, 1998
(the documents referred to in this Section 4.07(a) being referred to
collectively as the "Questa SEC Documents").
--------------------
(b) As of its filing date, each Questa SEC Document complied as to form
in all material respects with the applicable requirements of the Exchange Act
and the 1933 Act.
(c) As of its filing date, each Questa SEC Document filed pursuant to
the Exchange Act did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(d) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 4.08. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Questa
(including any related notes and schedules) included in its annual reports on
Form 10-K and the quarterly reports on Form 10-Q referred to in Section 4.07
fairly present in all material respects, in conformity with GAAP on a consistent
basis (except as may be indicated in the notes thereto), the financial position
of Questa as of the dates thereof and the results of operations and changes in
financial position for the periods then ended (subject to normal year-end
adjustments and the absence of notes in the case of any unaudited interim
financial statements).
SECTION 4.09. Disclosure Documents. (a) Neither the proxy statement of
Questa or, if applicable, the information statement (the
"Questa Proxy Statement") to be filed with the SEC in connection with the
----------------------
Merger, nor any amendment or supplement thereto, will, at the date the Questa
Proxy Statement or any such amendment or supplement is first mailed to
stockholders of Questa or at the time such stockholders vote on the adoption and
approval of this Agreement and the transactions contemplated hereby, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Questa Proxy Statement will, when
filed, comply as to form in all material respects with the requirements of the
Exchange Act. No representation or warranty is made by Questa in this Section
4.09 with respect to statements made or incorporated by reference therein based
on information supplied by Acquiror or Merger Subsidiary for inclusion or
incorporation by reference in the Questa Proxy Statement.
(b) None of the information supplied or to be supplied by Questa for
inclusion or incorporation by reference in the Form S-4 or any amendment or
supplement thereto will, at the time the Form S-4 or any such amendment or
supplement becomes effective under the 1933 Act or at the Effective Time contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements not
misleading.
SECTION 4.10. Partnership Organization and Qualification. (a) The
Partnerships are limited
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partnerships duly organized and validly existing under the laws of the State of
Colorado, and, to the extent necessary to comply with all applicable laws, rules
and regulations, the Partnerships are duly authorized, empowered and qualified
to carry on their business in each of the jurisdictions in which the Partnership
Properties are located. Questa is the sole general partner of the Partnerships,
and, except as may otherwise be provided in the Partnership Agreements, no
person, corporation, partnership, or other entity has any right or option to
become a general partner of the Partnerships or to acquire any or all of the
Partnerships. The certificates of limited partnership, as amended, of the
Partnerships, as appropriately filed in the State of Colorado accurately reflect
the identity of all general and limited partners of the Partnerships, to the
extent required by the laws of such state. Each of the Partnerships has fully
complied with all applicable securities laws and SEC regulations and
requirements. The consummation of the Merger will not constitute a breach of any
of the Partnership Agreements nor will it cause any of the Partnerships to
dissolve. Upon the consummation of the Merger, the Surviving Corporation will
become the sole general partner of each of the Partnerships and will succeed to
the entire economic and Partnership Interests and authority of Questa therein as
general partner thereof without further action or approval on the part of the
Partnership or the limited partners thereof except for the filing of an
amendment to the certificate of limited partnership of each Partnership and any
other such ministerial acts.
SECTION 4.11. Partnership Authority. The Partnerships have all requisite
power and authority to carry on their business as presently conducted. The
consummation of the transactions contemplated by this Agreement will not
violate, or cause or constitute a breach or default under, or be in conflict
with, any provisions of the Partnership Agreements, the certificates of limited
partnership or other governing documents of the Partnerships, or any agreement
or instrument to which the Partnerships are parties or by which the Partnerships
are bound, or any judgment, decree, order, statute, rule or regulation
applicable to the Partnerships. No action is necessary on the part of the
Partnerships to authorize this Agreement or the transactions contemplated by
this Agreement.
SECTION 4.12. Partnership Capital Contributions. All capital
contributions required to be made by Questa or any predecessor general partner,
if any, to the Partnerships have been timely and properly paid to such
Partnerships. Following the consummation of the transactions contemplated hereby
the Surviving Corporation shall not, except for usual and customary liability of
general partners under applicable state partnership law, be obligated to
contribute additional capital to the Partnerships.
SECTION 4.13. Partnership Operation. Questa, and all predecessor general
partners, if any, have, in good faith and in all material respects, complied
with, and operated the Partnerships in accordance with, the terms and provisions
set forth in the Partnership Agreements, and in all material respects with all
applicable laws, rules, regulations, ordinances and orders of all local, tribal,
state, federal and foreign governmental bodies, authorities and agencies.
SECTION 4.14. Partnership Contracts. Other than Permitted Encumbrances,
there are no material written and oral leases, contracts, purchase orders,
undertakings, obligations, commitments or other agreements to which any of the
Partnerships is a party (other than oil and gas leases). The Permitted
Encumbrances relating to the Partnership Properties are herein called the
"Partnership Contracts". Except for the Partnership Contracts, none of the
Partnerships is a party to, or bound or affected by, any material contract or
agreement of any kind, written or oral. Neither Questa nor any of the
Partnerships has any knowledge or has received any notice of a dispute under any
Partnership Contract; such Partnership Contracts are enforceable in all material
respects in accordance with their terms; and, to the best of Questa's knowledge,
none of the Partnership Contracts is subject to pending or threatened
cancellation other than in accordance with its respective terms.
SECTION 4.15. Partnership Taxation. At all times since the formation of
the Partnerships, the Partnerships were taxable as limited partnerships for
federal income tax purposes and were not taxable as an
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association taxable as a corporation.
SECTION 4.16. Partnership Liens. The Partnerships have no indebtedness,
borrowings, loan agreements, promissory notes, pledges, mortgages, guaranties or
other liabilities for borrowed monies (direct or indirect), secured or unsecured
other than accounts payable incurred in the ordinary course of business.
SECTION 4.17. Absence of Certain Changes. Since the Questa Balance Sheet
Date, Questa and the Partnerships have each conducted its business in the
ordinary course consistent with past practice and there has not been
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or in
the aggregate, a Material Adverse Effect on Questa or a Partnership;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Questa or any
repurchase, redemption or other acquisition by Questa of any outstanding shares
of capital stock or securities of, or other ownership interests in, Questa;
(c) any amendment of any material term of any outstanding security of
Questa;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) Questa or a
Partnership relating to its assets or business (including the acquisition or
disposition of any assets) or any relinquishment by Questa or a Partnership of
any contract or other right, in either case, material to Questa or a
Partnership, other than those contemplated by this Agreement, or as agreed to in
writing by Acquiror;
(e) any change in any method of accounting or accounting practice
(other than any change for tax purposes) by Questa, except for any such change
which is not significant or which is required by reason of a concurrent change
in GAAP;
(f) any (i) except as disclosed on Schedule 4.17(f), grant of any
severance or termination pay to any director, officer or employee of Questa,
(ii) entering into of any employment, deferred compensation or other similar
agreement with any director, officer or employee of Questa, (iii) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements or (iv) increase in compensation, bonus or other benefits
payable to directors, officers or employees of Questa, other than as permitted
by this Agreement, or as agreed to in writing by Acquiror;
(g) except for Permitted Encumbrances, any Lien suffered or permitted
to arise or be granted or created against or upon any of its assets;
(h) any amendment to Questa's certificate or articles of incorporation,
bylaws or other organizational documents;
(i) any amendment, supplement, modification or termination of, or any
acceleration under, any Questa Material Agreement;
(j) any sale, lease, transfer, assignment or otherwise disposal of (i)
any Oil and Gas Interests of Questa that, individually or in the aggregate, had
a value of $10,000 or more, or (ii) any other assets that, individually or in
the aggregate, had a value at the time of such lease, transfer, assignment or
disposition of $10,000 or more (and, in each case where a sale, lease, transfer,
assignment or other disposition was made, it
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was made for fair consideration in the ordinary course of business); provided,
however, that this Section 4.17(j) shall not apply to Hydrocarbons sold in the
ordinary course of business;
(k) any investment in or contribution, payment, advance guaranty or
loan to any Person;
(l) any payment, loan or advance (other than the payment, advance or
reimbursement of expenses in the ordinary course of business) of any amounts to,
or sold, transferred or leased any of its assets to, or entered into any other
transactions with, any Affiliates;
(m) except as may be allowed pursuant to Section 6.01(c)(v) or Section
6.01(d)(ii), any issuance of any note, bond or other debt security or created,
incurred, assumed, or guaranteed any indebtedness for borrowed money or
capitalized lease obligations involving more than $10,000 in the aggregate;
(n) any delay or postponement of the payment of accounts payable and
other liabilities outside the ordinary course of business;
(o) any cancellation, compromise, waiver or release of any right or
claim (or series of related rights and claims) either involving more than
$10,000 or outside the ordinary course of business;
(p) any loan to, or entered into any other transaction with, any of its
directors, officers, or employees;
(q) any making of or pledge to make any charitable or other capital
contribution outside the ordinary course of business;
(r) except as disclosed on Schedule 6.01(f), any commitment to make or
making of any capital expenditures in excess of $20,000 in the aggregate;
(s) any change in any material Tax election or the manner Taxes are
reported;
(t) any swap, hedging or similar arrangements which remain open on the
date hereof;
(u) any other material occurrence, event, incident, action, failure to
act, or transaction outside the ordinary course of business involving Questa or
the Partnerships; or
(v) any agreement, whether in writing or otherwise, to do any of the
foregoing.
SECTION 4.18. No Undisclosed Material Liabilities. There are no
liabilities of Questa of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, other than:
(a) liabilities disclosed or provided for in the Questa Balance Sheet
or in the notes thereto;
(b) liabilities disclosed in the Questa SEC Documents filed prior to
the date hereof;
(c) liabilities under this Agreement; and
(d) liabilities consistent with Questa's past practice and which in the
aggregate would not reasonably be expected to have a Material Adverse Effect on
Questa.
SECTION 4.19. Litigation. Except as disclosed in the Questa SEC
Documents filed prior to the date hereof, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of
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Questa threatened against or affecting, Questa or any Partnership or any of its
properties before any court or arbitrator or any governmental body, agency or
official which would reasonably be expected to have a Material Adverse Effect on
Questa.
SECTION 4.20. Taxes. Except as set forth in the Questa Balance Sheet
(including the notes thereto), (i) all Questa Tax Returns required to be filed
with any taxing authority by, or with respect to, Questa have been filed in
accordance with all applicable laws; (ii) Questa has timely paid all Taxes shown
as due and payable on the Questa Tax Returns that have been so filed, and, as of
the time of filing, the Questa Tax Returns correctly reflected the facts
regarding the income, business, assets, operations, activities and the status of
Questa (other than Taxes which are being contested in good faith and for which
adequate reserves are reflected on the Questa Balance Sheet); (iii) Questa has
made provision for all Taxes payable by Questa for which no Questa Tax Return
has yet been filed; (iv) the charges, accruals and reserves for Taxes with
respect to Questa reflected on the Questa Balance Sheet are adequate under GAAP
to cover the Tax liabilities accruing through the date thereof; (v) there is no
action, suit, proceeding, audit or claim now proposed or pending against or with
respect to Questa in respect of any Tax where there is a reasonable possibility
of an adverse determination; and (vi) to the best of Questa's knowledge and
belief, Questa is not liable for any Tax imposed on any other entity.
SECTION 4.21. Employee Benefit Plans. (a) Schedule 4.21 sets forth a
complete and accurate list of each of the following which is or has been
sponsored, maintained or contributed to by Questa for the benefit of any person
who, as of the Closing, is a current or former employee, director or
subcontractor of Questa: (i) each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA (each, a "Questa Plan"); and (ii) each
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personnel policy, stock option plan, bonus plan or arrangement, incentive award
plan or arrangement, vacation policy, severance pay plan, policy, program or
agreement, deferred compensation agreement or arrangement, executive
compensation or supplemental income arrangement, retiree benefit plan or
arrangement, fringe benefit program or practice (whether or not taxable),
employee loan, consulting agreement, employment agreement and each other
employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in Section 4.21(a)(i) (each, a
"Questa Benefit Program or Agreement") (such Questa Plans and Questa Benefit
-----------------------------------
Programs or Agreements are sometimes collectively referred to in this Agreement
as the "Questa Employee Benefit Plans").
-----------------------------
(b) True, correct and complete copies of each of the Questa Plans and
related trusts, if applicable, including all amendments thereto, have been
furnished or made available to Acquiror. There has also been furnished or made
available to Acquiror, with respect to each Questa Plan required to file such
report and description, the report on Form 5500 for the past three years, to the
extent applicable, and the most recent summary plan description. True, correct
and complete copies or descriptions of all Questa Benefit Programs or Agreements
have also been furnished or made available to Acquiror.
(c) Except as otherwise set forth on Schedule 4.21: (i) Questa does not
contribute to or has an obligation to contribute to, nor has at any time
contributed to or had an obligation to contribute to, a multiemployer plan
within the meaning of Section 3(37) of ERISA or any other plan subject to Title
IV of ERISA; (ii) Questa has performed all obligations, whether arising by
operation of law or by contract, including ERISA and the Code, required to be
performed by it in connection with the Questa Employee Benefit Plans, and, to
the knowledge of Questa, there have been no defaults or violations by any other
party to the Questa Employee Benefit Plans; (iii) all reports, returns, notices,
disclosures and other documents relating to the Questa Plans required to be
filed with or furnished to governmental entities, plan participants or plan
beneficiaries have been timely filed or furnished in accordance with applicable
law, and each Questa Employee Benefit Plan has been administered in compliance
with its governing written documents; (iv) each of the Questa Plans intended to
be qualified under Section 401 of the Code satisfies the requirements of such
Section and has received a favorable determination letter from the Internal
Revenue Service (the "IRS") regarding such qualified status and has not been
---
amended, operated or administered in a way which would
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adversely affect such qualified status; (v) there are no actions, suits or
claims pending (other than routine claims for benefits) or, to the knowledge of
Questa, contemplated or threatened against, or with respect to, any of the
Questa Employee Benefit Plans or their assets; (vi) each trust maintained in
connection with each Questa Plan, which is qualified under Section 401 of the
Code, is tax exempt under Section 501 of the Code; (vii) all contributions
required to be made to the Questa Employee Benefit Plans have been made timely;
(viii) no accumulated funding deficiency, whether or not waived, within the
meaning of Section 302 of ERISA or Section 412 of the Code has been incurred,
and there has been no termination or partial termination of any Questa Plan
within the meaning of Section 411(d)(3) of the Code; (ix) no act, omission or
transaction has occurred which could result in imposition on Questa (A) breach
of fiduciary duty liability damages under Section 409 of ERISA, (B) a civil
penalty assessed pursuant to subsections (c), (i) or (1) of Section 502 of ERISA
or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code; (x) to
the knowledge of Questa, there is no matter pending with respect to any of the
Questa Plans before the IRS, the Department of Labor or the PBGC; (xi) each of
the Questa Employee Benefit Plans complies, in form and operation, with the
applicable provisions of the Code and ERISA; (xii) each Questa Employee Benefit
Plan may be unilaterally amended or terminated in its entirety without any
liability or other obligation; (xiii) Questa has no liabilities or other
obligations, whether actual or contingent, under any Questa Employee Benefit
Plan for post-employment benefits of any nature (other than COBRA continuation
coverage); and (xiv) neither Questa or any present or former director, officer,
employee or other agent of Questa has made any written or oral representations
or promises to any present or former director, officer, employee or other agent
concerning his or her terms, conditions or benefits of employment, including the
tenure of any such employment or the conditions under which such employment may
be terminated by Questa, Acquiror which will be binding upon or enforceable
against Acquiror or Questa after the Effective Time.
(d) Except as otherwise set forth on the Schedule 4.21, no employee is
currently on a leave of absence due to sickness or disability and no claim is
pending or expected to be made by an employee, former employee or independent
contractor for workers' compensation benefits.
(e) With respect to the Questa Employee Benefit Plans, there exists no
condition or set of circumstances that could be expected to result in liability
reasonably likely to have a Material Adverse Effect on Questa under ERISA, the
Code or any other applicable law. With respect to the Questa Employee Benefit
Plans, individually and in the aggregate, there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise properly
footnoted in accordance with GAAP, on the financial statements of Questa, which
obligations are reasonably likely to have a Material Adverse Effect on Questa.
(f) Except as set forth in Schedule 4.21, neither the execution or
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will result in any payment becoming due to any employee or group of
employees of Questa.
SECTION 4.22. Compliance with Laws. To the best knowledge of Questa,
neither Questa or the Partnerships are in violation of, or has since January 1,
1999 violated, any applicable provisions of any laws, statutes, ordinances or
regulations.
SECTION 4.23. Finders' or Advisors' Fees. There is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf of Questa who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
SECTION 4.24. Environmental Matters. Without limiting the breadth or
extent of the representations in Section 4.22, (a) (i) no notice, notification,
demand, request for information, citation, summons, complaint or order has been
received by, and no investigation, action, claim, suit, proceeding or review is
pending or, to the knowledge of Questa, threatened by any Person against, Questa
or the Partnerships, and no penalty has been assessed against Questa or the
Partnerships, in each case, with respect
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to any matters relating to or arising out of any Environmental Law; (ii) to the
best knowledge of Questa, Questa and the Partnerships are and have been in
compliance with all Environmental Laws; (iii) to the best knowledge of Questa,
there are no liabilities of or relating to Questa or the Partnerships or
relating to or arising out of any Environmental Law of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances which
could reasonably be expected to result in such a liability; (iv) there has been
no environmental investigation, study, audit, test, review or other analysis
conducted of which Questa has knowledge in relation to the current or prior
business of Questa or the Partnerships or any property or facility now or
previously owned, leased or operated by Questa or the Partnerships; (v) no
property now or previously owned, leased or operated by Questa or any of the
Partnerships is listed on the National Priorities List pursuant to CERCLA or on
the CERCLIS or on any other federal or state list as sites requiring
investigation or cleanup; (vi) neither Questa nor any of the Partnerships is
directly transporting, has directly transported, is directly arranging for the
transportation of, or has directly transported, any Hazardous Material to any
location which is listed on the National Priorities List pursuant to CERCLA, on
the CERCLIS, or on any similar federal or state list or which is the subject of
federal, state or local enforcement actions or other investigations that may
lead to material claims against Questa or any of the Partnerships for remedial
work, damage to natural resources or personal injury, including claims under
CERCLA; (vii) there are no sites, locations or operations at which Questa a or
any of the Partnerships is currently undertaking, or has completed, any remedial
or response action relating to any such disposal or release, whether or not
required by Environmental Laws; (viii) all underground storage tanks and solid
waste, storage, treatment or disposal facilities owned or operated by Questa or
any of the Partnerships are used and operated in material compliance with
Environmental Laws; (ix) Questa and the Partnerships have obtained all material
permits, licenses, approvals and other authorizations that are required with
respect to the operation of their property and assets under the Environmental
Laws and are in material compliance with all terms and conditions of such
required permits, licenses, approvals and authorizations; (x) to the best
knowledge of Questa, there are no polychlorinated biphenyls or asbestos located
in, at, on or under any facility or real property owned, leased or operated by
Questa or any of the Partnerships; (xi) to the best knowledge of Questa, there
are no past or present events, conditions, circumstances, activities, practices,
incidents or actions that could reasonably be expected to interfere with or
prevent material compliance by Questa or any of the Partnerships with any
Environmental Law, or that could reasonably be expected to give rise to any
material liability under the Environmental Laws; (xii) no Lien has been recorded
against any property, facility or assets currently owned by Questa or any of the
Partnerships under any Environmental Law; and (xiii) the execution, delivery and
performance of this Agreement and the consummation of the transaction
contemplated hereby will not affect the validity or require the transfer of any
permits, licenses or approvals held by Questa or any of the Partnerships under
any Environmental Law, and will not require any notification, disclosure,
registration, reporting, filing, investigation or remediation under any
Environmental Law.
SECTION 4.25. Title of Assets. (a) Each of Questa and the Partnerships
has Defensible Title to all its Oil and Gas Interests, including those reflected
in the Reserve Data, free and clear of all Liens except Permitted Encumbrances.
Title to the Oil and Gas Interests and the Partnership Properties are not
subject to being reduced by virtue of any reversionary or back-in interests or
reassignments or payments required of Questa or the Partnerships; the Oil and
Gas Interests and the Partnerships Properties are not subject to any joint
venture agreements, farmout agreements, operating agreements, oil and or gas
sales or processing contracts, preferential rights of purchase, consents to
assignment, drilling and or development obligations or other burden, restriction
or limitation with respect to the ownership interest of Questa or the
Partnerships therein, the operation thereof, or the disposition and processing
of production attributable thereto which are not ordinary and customary in the
oil and gas industry, or which contain any terms, provisions, conditions or
agreements which are not ordinary and customary in the oil and gas industry.
Each of Questa and the Partnerships owns such title to the Oil and Gas Interest
and the Partnership Properties, respectively, as would entitle it to receive the
proceeds from production of all oil, gas and other minerals produced, saved
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and marketed there from.
(b) Except as set forth in Schedule 4.25 with respect to the oil, gas
and other mineral leases, unit agreements, pooling agreements, communication
agreements, and other documents creating oil, gas and mineral interest included
in the Oil and Gas Interests and the Partnership Properties; (a) each of Questa
and the Partnerships has fulfilled all requirements for filings, certificates,
disclosures of parties in interest, and other similar matters contained in (or
otherwise applicable thereto by law, rule or regulation) the leases or other
documents applicable to it and is fully qualified to own and hold all such
leases or other interests; (b) there are no obligations (excluding implied
covenants, if any) to engage in continuous development operations in order to
maintain any such lease or other interest in force and effect for the areas and
depths covered thereby; (c) there are no provisions applicable to such leases or
other documents which increase the royalty share of the lessor thereunder,
except where such increase would not have a Material Adverse Effect; and (d)
subject to any express or implied covenants, upon the establishment of
production in commercial quantities, the leases and other interests are to be in
full force and effect over the economic life of the property involved and do not
have terms fixed by a certain number of years. With respect to tangible personal
property held by Questa or the Partnerships under lease, all such agreements are
valid, binding and in full force and effect and Questa or the Partnerships are
not in default under any such lease.
SECTION 4.26. Oil and Gas Operations. Except as otherwise set forth in
Schedule 4.26:
(a) None of the wells included in the Oil and Gas Interests of Questa
or the Partnership Properties has been overproduced such that it is subject or
liable to being shut-in or to any other overproduction penalty, except where any
such overproduction could not reasonably be expected to have a Material Adverse
Effect on Questa, any Partnership or on such well;
(b) There have been no changes proposed in the production allowables
for any wells included in the Oil and Gas Interests of Questa or the Partnership
Properties that could reasonably be expected to have a Material Adverse Effect
on Questa or any Partnership;
(c) All wells included in the Oil and Gas Interests of Questa or the
Partnership Properties have been drilled and (if completed) completed, operated,
and produced in accordance with good oil and gas field practices and in
compliance in all material respects with applicable oil and gas leases and
applicable laws, rules, and regulations, except where any failure or violation
could not reasonably be expected to have a Material Adverse Effect on Questa,
any Partnership or on such well;
(d) Neither Questa or any Partnership has agreed to, or is now
obligated to, abandon any well operated by it and included in the Oil and Gas
Interests of Questa or the Partnership Properties as the case may be;
(e) Proceeds from the sale of Hydrocarbons produced from Questa's Oil
and Gas Interests or the Partnership Properties are being received by Questa in
a timely manner and are not being held in suspense for any reason (except for
amounts, individually or in the aggregate, not in excess of $10,000.00 and held
in suspense in the ordinary course of business); and
(f) No Person has any call on, option to purchase, or similar rights
with respect any of Questa's Oil and Gas Interests or any Partnership Properties
or to the production attributable thereto, and upon consummation of the
transactions contemplated by this Agreement, Merger Subsidiary will have the
right to market production from Questa's Oil and Gas Interests and the
Partnership Properties on terms no less favorable than the terms upon which
Questa or the Partnerships are currently marketing such production.
SECTION 4.27. Takeover Statutes. The Board of Directors of Questa has
taken the necessary
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action to make inapplicable any antitakeover or similar statute or regulation
under Colorado Law applicable to this Agreement and the transactions
contemplated hereby.
SECTION 4.28. Governmental Regulation. Neither Questa nor any
Partnerships is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act, the Investment
Company Act of 1940 or any state public utilities laws.
SECTION 4.29. Insurance. Questa maintains, and through the Closing Date
will maintain, insurance with reputable insurers (or pursuant to prudent
self-insurance programs) in such amounts and covering such risks as are in
accordance with normal industry practice for companies engaged in businesses
similar to those of Questa and the Partnerships and owning properties in the
same general area in which Questa and the Partnerships conduct their businesses.
None of such insurance coverage was obtained through the use of false or
misleading information or the failure to provide the insurer with all
information requested in order to evaluate the liabilities and risks insured.
There is no material default with respect to any provision contained in any such
policy or binder, nor has Questa or any of the Partnerships failed to give any
notice or present any claim under any such policy or binder in due and timely
fashion. There are no billed but unpaid premiums past due under any such policy
or binder. Except as set forth in Schedule 4.29: (i) there are no outstanding
claims under any such policies or binders and, to the knowledge of Questa, there
has not occurred any event that might reasonably form the basis of any claim
against or relating to Questa or any of the Partnerships that is not covered by
any of such policies or binders; (ii) no notice of cancellation or non-renewal
of any such policies or binders has been received; and (iii) there are no
performance bonds outstanding with respect to Questa or any of the Partnerships.
SECTION 4.30. Intangible Property. There are no material trademarks,
trade names, patents, service marks, brand names, computer programs, databases,
industrial designs, copyrights or other intangible property that are necessary
for the operation, or continued operation, of the business of any of Questa or
any of the Partnerships or for the ownership and operation, or continued
ownership and operation, of any of their assets, for which Questa or any of the
Partnerships do not hold valid and continuing authority in connection with the
use thereof.
SECTION 4.31. Books and Records. All books, records and files of Questa
and the Partnerships (including those pertaining to their Oil and Gas Interests,
wells and other assets, those pertaining to the production, gathering,
transportation and sale of Hydrocarbons, and corporate, accounting, financial
and employee records): (i) have been prepared, assembled and maintained in
accordance with usual and customary policies and procedures; and (ii) fairly and
accurately reflect the ownership, use, enjoyment and operation by Questa or the
Partnerships of their respective assets. Each of Questa and the Partnerships
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that: (i) transactions are accurately and promptly
recorded; (ii) transactions are executed in accordance with management's
specific or general authorization; and (iii) access to its books, records and
assets is permitted only in accordance with management's general or specific
authorization.
SECTION 4.32. Year 2000 Compliance. Neither Questa or any of the
Partnerships will suffer a Material Adverse Effect attributable to a lack of
Year 2000 Compliance in any system, process or equipment owned or utilized by
any of Questa or any of the Partnerships, or any other aspect of their business
and operations, or any system, process or equipment of any of their material
customers, suppliers or vendors.
SECTION 4.33 Powers of Attorney; Authorized Signatories. Schedule 4.33
lists: (i) the names and addresses of all persons holding powers of attorney on
behalf of Questa or any of the Partnerships; and (ii) the names of all banks and
other financial institutions in which Questa or any of the Partnerships
currently has one or more bank accounts or safe deposit boxes, along with the
account numbers and the names of all persons authorized to draw on such accounts
or to have access to such safe deposit boxes.
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SECTION 4.34. Vote Required. The affirmative vote of the holders of a
majority of the Shares is the only vote of the holders of any class or series of
Questa capital stock or other voting securities necessary to approve this
Agreement, the Merger and the transactions contemplated hereby.
SECTION 4.35. Gas Imbalances. Neither Questa or any of the Partnerships
has received any deficiency payments under gas contracts for which any party has
a right to take deficiency gas from Questa or any Partnership, nor has Questa or
any of the Partnerships received any payments for production which are subject
to refund or recoupment out of future production or to subsequent gas balancing.
SECTION 4.36. Royalties. To the knowledge of Questa as to wells not
operated by it, and without qualification as to knowledge as to all wells
operated by Questa, all royalties, overriding royalties, compensatory royalties
and other payments due from or in respect of production with respect to Questa's
Oil and Gas Interests, have been or will be, prior to the Effective Time,
properly and correctly paid or provided for in all material respects, except for
those for which Questa or any Partnership has a valid right to suspend.
SECTION 4.37. Prepayments. No prepayment for oil and gas sales has been
received by Questa or any of the Partnerships for oil and gas which have not
been delivered as of the date hereof.
SECTION 4.38. Affiliate Transactions. Except as described elsewhere in
this Agreement, neither Questa or any of the Partnerships has any written or
oral agreement, arrangement or understanding with any director, officer,
shareholder or any affiliate of any shareholder. For purposes of this section
4.38 only, "affiliate" shall be deemed to be any corporation, partnership, joint
venture, trust or other entity owned or controlled by a shareholder or any
member of such shareholder's immediate family.
SECTION 4.39. Disclosure and Investigation. No representation or
warranty of Questa set forth in this Agreement contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained herein not misleading.
SECTION 4.40. Pooling; Tax Treatment. (a) Questa intends that the
Merger be accounted for under the "pooling of interests" method under the
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requirements of Opinion No. 16 (Business Combinations) of the Accounting
Principles Board of the American Institute of Certified Public Accountants, the
Financial Accounting Standards Board, and the rules and regulations of the SEC.
(b) Neither Questa nor any of its affiliates has taken or agreed to
take any action or is aware of any fact or circumstance that would prevent the
Merger from qualifying (i) for "pooling of interests" accounting treatment as
described in (a) above or (ii) as a reorganization within the meaning of Section
368 of the Code (a "368 Reorganization").
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to Questa that:
SECTION 5.01. Corporate Existence and Power. Each of Acquiror and
Merger Subsidiary is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has all
corporate powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except for those
the absence of which would not, individually or in the aggregate, have a
Material Adverse Effect on Acquiror or Merger Subsidiary, as the case may be.
Each of Acquiror and Merger Subsidiary is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased
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by it or the nature of its activities makes such qualification necessary, except
for those jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on Acquiror or
Merger Subsidiary, as the case may be. Acquiror has heretofore delivered to
Questa true and complete copies of Acquiror's and Merger Subsidiary's
certificate of incorporation and by-laws as currently in effect.
SECTION 5.02. Corporate Authorization. (a) The execution, delivery and
performance by Acquiror and Merger Subsidiary of this Agreement and the
consummation by Acquiror and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Acquiror and Merger Subsidiary and
have been duly authorized by all necessary corporate action. Assuming due
authorization, execution and delivery of this Agreement by Questa, this
Agreement constitutes a valid and binding agreement of each of Acquiror and
Merger Subsidiary in each case enforceable against such party in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles. The shares of
Acquiror Common Stock to be issued pursuant to the Merger, when issued in
accordance with the terms hereof, will be duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights.
(b) Acquiror's and Merger Subsidiary's Board of Directors, at a meeting
duly called and held, have approved this Agreement and the transactions
contemplated hereby (including the Merger).
SECTION 5.03. Governmental Authorization. The execution, delivery and
performance by Acquiror and Merger Subsidiary of this Agreement and the
consummation of the Merger by Acquiror and Merger Subsidiary require no action
by or in respect of, or filing with, any governmental body, agency, official or
authority other than (a) the filing of a certificate of merger and/or articles
of merger in accordance with Oklahoma Law and Colorado Law, (b) compliance with
any applicable requirements of the HSR Act, (c) compliance with any applicable
requirements of the Exchange Act; (d) compliance with any applicable
requirements of the 1933 Act; and (e) compliance with applicable state
securities laws and the rules and regulations promulgated thereunder. No
Third-Party Consent is required by or with respect to Acquiror and Merger
Subsidiary in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (x) any
such Third Party Consent which the failure to obtain would not, individually or
in the aggregate, have a Material Adverse Effect on Acquiror and Merger
Subsidiary.
SECTION 5.04. Non-Contravention. The execution, delivery and performance
by Acquiror and Merger Subsidiary of this Agreement and the consummation by
Acquiror and Merger Subsidiary of the transactions contemplated hereby do not
and will not (a) assuming compliance with the matters referred to in Section
5.02, contravene or conflict with the certificate of incorporation or by-laws of
Acquiror or Merger Subsidiary, (b) assuming compliance with the matters referred
to in Section 5.03, contravene or conflict with any provision of any law,
regulation, judgment, injunction, order or decree binding upon or applicable to
Acquiror or any of its Subsidiaries, (c) constitute a default under or give rise
to any right of termination, cancellation or acceleration of any right or
obligation of Acquiror or any of its Subsidiaries or to a loss of any benefit to
which Acquiror or any of its Subsidiaries is entitled under any provision of any
agreement, contract or other instrument binding upon Acquiror or any of its
Subsidiaries or any license, franchise, permit or other similar authorization
held by Acquiror or any of its Subsidiaries or (d) result in the creation or
imposition of any Lien on any asset of Acquiror or any of its Subsidiaries,
except for such contraventions, conflicts or violations referred to in clause
(b) or defaults, rights of termination, cancellation or acceleration, or losses
or Liens referred to in clause (c) or (d) that would not, individually or in the
aggregate, have a Material Adverse Effect on Acquiror or Merger Subsidiary, as
the case may be.
SECTION 5.05. Capitalization. The authorized capital stock of Acquiror
consists of 40,000,000
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shares of Acquiror Common Stock and 5,000,000 shares of preferred stock, par
value $1.00 per share. As of the close of business on November 18, 1999, there
were outstanding approximately 33,815,676 shares of Acquiror Common Stock, and
no shares of preferred stock, and employee or directors' stock options to
purchase an aggregate of 735,100 shares of Acquiror Common Stock (of which
options to purchase an aggregate of 404,300 shares of Acquiror Common Stock were
exercisable). All outstanding shares of capital stock of Acquiror have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth in this Section and except as provided in the Rights Agreement adopted
by the Acquiror's Board of Directors in May 1995 and except for changes since
the close of business on November 18, 1999 resulting from the exercise of
employee or directors' stock options outstanding on such date or options or
other stock-based awards granted as permitted by Section 7.01 and except for the
shares to be issued in connection with the Merger, there are outstanding (a) no
shares of capital stock or other voting securities of Acquiror, (b) no
securities of Acquiror convertible into or exchangeable for shares of capital
stock or voting securities of Acquiror, and (c) no options, warrants or other
rights to acquire from Acquiror, and no preemptive or similar rights,
subscription or other rights, convertible securities, agreements, arrangements,
or commitments of any character, relating to the capital stock of Acquiror,
obligating Acquiror to issue, transfer or sell any capital stock, voting
security or securities convertible into or exchangeable for capital stock or
voting securities of Acquiror or obligating Acquiror to grant, extend or enter
into any such option, warrant, subscription or other right, convertible
security, agreement, arrangement or commitment (the items in clauses 5.05(a),
5.05(b) and 5.05(c) being referred to collectively as the "Acquiror
Securities"). There are no outstanding obligations of Acquiror or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any Acquiror Securities.
SECTION 5.06. Subsidiaries. (a) Each Subsidiary of Acquiror is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those the absence of which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Acquiror. Each Subsidiary of Acquiror is duly qualified to do
business and is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualifications necessary, except for those jurisdictions where failure to be so
qualified would not, individually or in the aggregate, have a Material Adverse
Effect on Acquiror. All "significant subsidiaries", as such term is defined in
Section 1-02 of Regulation S-X under the Exchange Act (each, a "Significant
-----------
Subsidiary") of Acquiror and their respective jurisdictions of incorporation are
- ----------
identified in Acquiror's annual report on Form 10-K for the fiscal year ended
December 31, 1998 (the "Acquiror 10-K").
-------------
(b) All of the outstanding capital stock of, or other ownership
interests in, each Significant Subsidiary of Acquiror is owned by Acquiror,
directly or indirectly, free and clear of any material Lien and free of any
other material limitation or restriction (including any restriction on the right
to vote, sell or otherwise dispose of such capital stock or other ownership
interests). There are no outstanding (i) securities of Acquiror or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Significant Subsidiary of
Acquiror, and (ii) options, warrants or other rights to acquire from Acquiror or
any of its Significant Subsidiaries, and no preemptive or similar rights,
subscriptions or other rights, convertible securities, agreements, arrangements
or commitments of any character, relating to the capital stock of any
Significant Subsidiary of Acquiror, obligating Acquiror or any of its
Significant Subsidiaries to issue, transfer or sell, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable for any capital stock, voting securities or ownership interests
in, any Significant Subsidiary of Acquiror or obligating Acquiror or any
Significant Subsidiary of Acquiror to grant, extend or enter into any such
option, warrant, subscription or other right, convertible security, agreement,
arrangement or commitment except, in any such case under clause (i) or (ii), to
the extent relating to an insignificant equity interest in any Significant
Subsidiary (items in clauses 5.06(b)(i) and 5.06(b)(ii) being referred to
collectively as the "Acquiror Subsidiary Securities"). There are
------------------------------
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no outstanding obligations of Acquiror or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any outstanding Acquiror Subsidiary Securities.
SECTION 5.07. SEC Filings. (a) Acquiror has delivered to Questa (i) its
annual reports on Form 10-K for its fiscal years ended December 31, 1996, 1997
and 1998, (ii) its quarterly reports on Form 10-Q for its fiscal quarters of
March 31, 1999, June 30, 1999 and September 30, 1999, (iii) its proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of Acquiror held since December 31, 1998, and (iv)
all of its other reports, statements, schedules and registration statements
filed with the SEC since December 31, 1998 (the documents referred to in this
Section 5.07(a) being referred to collectively as the "Acquiror SEC Documents").
(b) As of its filing date, each Acquiror SEC Document complied as to
form in all material respects with the applicable requirements of the Exchange
Act and the 1933 Act.
(c) As of its filing date, each Acquiror SEC Document filed pursuant to
the Exchange Act did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(d) Each such registration statement as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 5.08. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Acquiror
(including any related notes and schedules) included in the annual reports on
Form 10-K and the quarterly reports on Form 10-Q referred to in Section 5.07
fairly present in all material respects, in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of Acquiror and its
consolidated Subsidiaries as of the dates thereof and their consolidated results
of operations and changes in financial position for the periods then ended
(subject to normal year-end adjustments and the absence of notes in the case of
any unaudited interim financial statements). For purposes of this Agreement,
"Acquiror Balance Sheet" means the consolidated balance sheet of Acquiror as of
----------------------
September 30, 1999 set forth in the Acquiror 10-Q and "Acquiror Balance Sheet
----------------------
Date" means September 30, 1999.
- ----
SECTION 5.09. Disclosure Documents. (a) The Registration Statement on
Form S-4 of Acquiror (the "Form S-4") to be filed under the 1933 Act relating to
--------
the issuance of Acquiror Common Stock in the Merger, that may be required to be
filed with the SEC in connection with the issuance of shares of Acquiror Common
Stock pursuant to the Merger and any amendments or supplements thereto, will,
when filed, subject to the last sentence of Section 5.09(b), comply as to form
in all material respects with the applicable requirements of the 1933 Act.
(b) Neither the Form S-4 nor any amendment or supplement thereto will at
the time it becomes effective under the 1933 Act or at the Effective Time
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. No representation or warranty is made by Acquiror in this Section
5.09 with respect to statements made or incorporated by reference therein based
on information supplied by Questa for inclusion or incorporation by reference in
the Form S-4.
(c) None of the information supplied or to be supplied by Acquiror for
inclusion or incorporation by reference in the Questa Proxy Statement or any
amendment or supplement thereto will, at the date the Questa Proxy Statement or
any amendment or supplement thereto is first mailed to stockholders of Questa or
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at the time such stockholders vote on the adoption and approval of this
Agreement and the transactions contemplated hereby, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
SECTION 5.10. Absence of Certain Changes. Except as disclosed in the
Acquiror SEC Documents, since the Acquiror Balance Sheet Date, Acquiror and its
Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or in
the aggregate, a Material Adverse Effect on Acquiror;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Acquiror or any
repurchase, redemption or other acquisition by Acquiror or any of its
Subsidiaries of any outstanding shares of capital stock or other equity
securities of, or other ownership interests in, Acquiror (other than any such
repurchases prior to the date hereof pursuant to Acquiror's publicly announced
stock buyback program or, after the date hereof, as permitted under Section
7.01(e)); or
(c) any change prior to the date hereof in any method of accounting or
accounting practice (other than any change for tax purposes) by Acquiror or any
of its Subsidiaries, except for any such change which is not significant or
which is required by reason of a concurrent change in GAAP.
SECTION 5.11. No Undisclosed Material Liabilities. There are no
liabilities of the Acquiror or any Subsidiary of the Acquiror of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities disclosed or provided for in the Acquiror Balance Sheet
or in the notes thereto;
(b) liabilities which in the aggregate would not reasonably be expected
to have a Material Adverse Effect on Acquiror;
(c) liabilities disclosed in the Acquiror SEC Documents filed prior to
the date hereof; and
(d) liabilities under this Agreement.
SECTION 5.12. Litigation. Except as disclosed in the Acquiror SEC
Documents filed prior to the date hereof, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of Acquiror
threatened against or affecting, Acquiror or any of its Subsidiaries or any of
their respective properties before any court or arbitrator or any governmental
body, agency or official which would reasonably be expected to have a Material
Adverse Effect on Acquiror.
SECTION 5.13. Taxes. Except as set forth in the Acquiror Balance Sheet
(including the notes thereto) and except as would not, individually or in the
aggregate, have a Material Adverse Effect on Acquiror, (i) all Acquiror Tax
Returns required to be filed with any taxing authority by, or with respect to,
Acquiror and its Subsidiaries have been filed in accordance with all applicable
laws; (ii) Acquiror and its Subsidiaries have timely paid all Taxes shown as due
and payable on Acquiror Tax Returns that have been so filed, and, as of the time
of filing, Acquiror Tax Returns correctly reflected the facts regarding the
income, business, assets, operations, activities and the status of Acquiror and
its Subsidiaries (other than Taxes which are being contested in good faith and
for which adequate reserves are reflected on the Acquiror
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Balance Sheet); (iii) Acquiror and its Subsidiaries have made provision for all
Taxes payable by Acquiror and its Subsidiaries for which no Acquiror Tax Return
has yet been filed; (iv) the charges, accruals and reserves for Taxes with
respect to Acquiror and its Subsidiaries reflected on the Acquiror Balance Sheet
are adequate under GAAP to cover the Tax liabilities accruing through the date
thereof; (v) there is no action, suit, proceeding, audit or claim now proposed
or pending against or with respect to Acquiror or any of its Subsidiaries in
respect of any Tax where there is a reasonable possibility of an adverse
determination; and (vi) to the best of Acquiror's knowledge and belief, neither
Acquiror nor any of its Subsidiaries is liable for any Tax imposed on any entity
other than such Person.
SECTION 5.14. Compliance with Laws. Neither Acquiror nor any of its
Subsidiaries is in violation of, or has since January 1, 1999 violated, any
applicable provisions of any laws, statutes, ordinances or regulations except
for any violations that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on Acquiror.
SECTION 5.15. Finders' or Advisors' Fees. There is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of Acquiror or any of its Subsidiaries who might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
SECTION 5.16. Environmental Matters. Except as set forth in the Acquiror
SEC Documents filed prior to the date hereof and with such exceptions as,
individually or in the aggregate, have not had, and would not reasonably be
expected to have, a Material Adverse Effect on Acquiror, (i) no notice,
notification, demand, request for information, citation, summons, complaint or
order has been received by, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of Acquiror or any of its
Subsidiaries, threatened by any Person against, Acquiror or any of its
Subsidiaries, and no penalty has been assessed against Acquiror or any of its
Subsidiaries, in each case, with respect to any matters relating to or arising
out of any Environmental Law; (ii) Acquiror and its Subsidiaries are and have
been in compliance with all Environmental Laws; (iii) there are no liabilities
of or relating to Acquiror or any of its Subsidiaries relating to or arising out
of any Environmental Law of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability; and (iv) there has been no environmental
investigation, study, audit, test, review or other analysis conducted of which
Acquiror has knowledge in relation to the current or prior business of Acquiror
or any of its Subsidiaries or any property or facility now or previously owned,
leased or operated by Acquiror or any of its Subsidiaries.
SECTION 5.17. Pooling; Tax Treatment. (a) Acquiror intends that the
Merger be accounted for as a "pooling of interests" as described in Section
4.40(a).
(b) Neither Acquiror nor any of its affiliates has taken or agreed to
take any action or is aware of any fact or circumstance that would prevent the
Merger from qualifying (i) for "pooling of interests" accounting treatment as
described in Section 4.40(a) or (ii) as a 368 Reorganization.
ARTICLE 6
COVENANTS OF QUESTA
Questa agrees that:
SECTION 6.01. Conduct of Questa and the Partnerships. From September 30,
1999 until the Effective Time, each of Questa and the Partnerships has and shall
conduct its business in the ordinary course consistent with past practice and
shall use its best efforts to preserve intact its business organization and
relationships with third parties. Without limiting the generality of the
foregoing, except with the prior
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written consent of Acquiror or as contemplated by this Agreement from September
30, 1999 until the Effective Time:
(a) Neither Questa nor any Partnership will engage in any business in
which it is not engaged as of the date hereof;
(b) Neither Questa nor any Partnership will (i) amend its certificate or
articles of incorporation, by-laws, partnership agreements or certificate of
limited partnership, (ii) split, combine, or reclassify any of its outstanding
capital stock, (iii) declare, set aside, or pay any dividends or other
distributions (excluding normal cash distributions attributable to the net
income of the Partnerships as required by the partnership agreements) (whether
payable in cash, property, or securities) with respect to its capital stock,
(iv) issue, sell, or agree to issue or sell any securities, including its
capital stock or Partnership interests, any rights, options, or warrants to
acquire its capital stock or Partnership Interests, or securities convertible
into or exchangeable or exercisable for its capital stock or Partnership
Interests, (v) purchase, cancel, retire, redeem, or otherwise acquire any of its
outstanding capital stock or other securities, (vi) merge or consolidate with,
or transfer all or substantially all of its assets to, another corporation,
partnership or other business entity, (vii) liquidate, wind-up, or dissolve (or
suffer any liquidation or dissolution), or (viii) enter into any contract,
agreement, commitment, or arrangement with respect to any of the foregoing;
(c) Neither Questa nor any Partnership will (i) acquire any corporation,
partnership, or other business entity or any interest therein (other than
interests in joint ventures, joint operation or ownership arrangements, or tax
partnerships acquired in the ordinary course of business), (ii) sell, lease or
sublease, transfer, or otherwise dispose of or mortgage, pledge, or otherwise
encumber any Oil and Gas Interests of Questa or Partnership Properties that,
individually or in the aggregate, were assigned a value in the Reserve Data of
$25,000.00 or more or any other assets that, individually or in the aggregate,
have a value at the time of such sale, lease, sublease, transfer, or disposition
of $25,000.00 or more (except that this clause shall not apply to the sale of
Hydrocarbons in the ordinary course of business), (iii) farm-out any Oil and Gas
Interest of Questa or Partnership Properties or interest therein, (iv) sell,
transfer, or otherwise dispose of or mortgage, pledge, or otherwise encumber any
securities of any other Person (including any capital stock or other securities
in Questa or any Partnership Interest), (v) make any material loans, advances,
or capital contributions to, or investments in, any Person (other than loans or
advances in the ordinary course of business and consistent with past practices
or capital contributions to any Partnership required by the terms of its
partnership agreement), (vi) enter into any agreement not terminable by Questa
upon notice of 30 days or less and without penalty or other obligation, (vii)
enter into any material transaction not in the ordinary course of business and
not contemplated by this Agreement, (viii) agree with any Person to limit or
otherwise restrict in any manner the ability of Questa to compete or otherwise
conduct its business, or (ix) enter into any contract, agreement, commitment, or
arrangement with respect to any of the foregoing;
(d) Neither Questa nor any Partnership will (i) incur any indebtedness
for borrowed money or any other obligation or liability (other than current
liabilities incurred in the ordinary course of business and consistent with past
practices), (ii) assume, endorse (other than endorsements of negotiable
instruments in the ordinary course of business), guarantee, or otherwise become
liable or responsible (whether directly, contingently, or otherwise) for the
liabilities or obligations of any Person or (iii) enter into any contract,
agreement, commitment, or arrangement with respect to any of the foregoing;
(e) Questa will operate, maintain, and otherwise deal with the Oil and
Gas Interests of Questa and the Partnerships Properties in accordance with good
and prudent oil and gas field practices (including the making of all appropriate
repairs, renewals, and replacements thereof) and in accordance with all
applicable oil and gas leases and other contracts or agreements and all
applicable laws, rules, and regulations and will not voluntarily relinquish its
position as operator with respect to any of the Oil and Gas Interests;
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(f) Except as disclosed on Schedule 6.01(f), neither Questa nor any
Partnerships will pay, agree to pay, or incur drilling or other capital
expenditures in excess of $25,000.00 with respect to any well and Questa and the
Partnerships together will not pay, agree to pay, or incur drilling or other
capital expenditures with respect to oil and gas wells in excess of $25,000.00
in the aggregate;
(g) Questa shall not resign, or transfer or otherwise voluntarily
relinquish any right it has as of the date of this Agreement, as operator of any
Oil and Gas Interest of Questa or any Partnership Properties;
(h) Neither Questa nor any Partnerships will (i) enter into, or
otherwise become liable or obligated under or pursuant to, (A) any employee
benefit, pension, or other plan (whether or nor subject to ERISA), (B) any other
stock option, stock purchase, incentive, or deferred compensation plans or
arrangements or other fringe benefit plan, or (C) any consulting, employment,
severance, termination, or similar agreement with any Person, or amend or extend
any such plan, arrangement, or agreement, (ii) hire any employees, (iii) except
for payments made pursuant to any Questa Employee Plans, grant, or otherwise
become liable for or obligated to pay, any severance or termination payments,
bonuses, or increases in compensation or benefits to, or forgive any
indebtedness of, any employee or consultant, or (iv) enter into any contract,
agreement, commitment, or arrangement to do any of the foregoing;
(i) Questa and the Partnerships will keep and maintain accurate books,
records, and accounts in accordance with GAAP;
(j) Neither Questa nor any Partnership will create, incur, assume, or
permit to exist any Lien on any of its assets, except for Permitted
Encumbrances;
(k) Each of Questa and the Partnerships will (i) pay all Taxes,
assessments, and other governmental charges imposed upon any of its assets or
with respect to its franchises, business, income, or assets before any penalty
or interest accrues thereon, (ii) pay all claims (including claims for labor,
services, materials, and supplies) that have become due and payable and which by
law have or may become a Lien upon any of its assets prior to the time when any
penalty or fine shall be incurred with respect thereto or any such Lien shall be
imposed thereon, and (iii) comply in all material respects with the requirements
of all applicable laws, rules, regulations, and orders of any governmental
authority, obtain or take all governmental actions necessary in the operation of
its business, and comply with and enforce the provisions of all agreements to
which it is a party, including paying when due all rentals, royalties, expenses,
and other liabilities relating to its business or assets (provided, however,
that Questa may contest the imposition of any such Taxes, assessments, and other
governmental charges, any such claim, or the requirements of any applicable law,
rule, regulation, or order or if done so in good faith by appropriate
proceedings, if adequate reserves are established in accordance with GAAP or as
may be determined as sufficient by Questa's board of directors, and if such
contest does not involve a risk of a Material Adverse Effect on Questa);
(l) Questa and the Partnerships will maintain in full force and effect
the present policies or binders of insurance applicable to them;
(m) Neither Questa nor any Partnership will directly or indirectly enter
into or permit to exist any transaction (including the purchase, sale, lease, or
exchange of any assets, unless otherwise permitted hereby, or the rendering of
any service) with any Affiliate of Questa on terms that are less favorable to
Questa, as the case may be, than those that could be obtained at the time from
unaffiliated third parties;
(n) Questa will not enter into, or otherwise be a party to, any,
stockholder agreement, voting trust, or other agreement or understanding
relating to the voting of any shares of the capital stock or other securities of
Questa;
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(o) Each of Questa and the Partnerships will use its reasonable best
efforts to preserve intact its assets and business organization and to preserve
the goodwill of those having business relationships with it;
(p) Questa will at all times preserve and keep in full force and effect
its corporate existence and rights and franchises material to its performance
under this Agreement;
(q) Prior to the Effective Time, Questa shall (i) cause the Partnerships
to maintain their status as a limited partnerships for federal tax and state law
purposes; and (ii) maintain all material qualifications, licenses, permits,
certificates, orders, approvals and authority of the Partnerships;
(r) Questa shall not permit the Partnerships (i) to make any
distribution of any kind to the partners of the Partnerships other than cash
distributions attributable to the net income of the Partnerships as required by
the Partnership Agreements; or (ii) to purchase or otherwise to acquire any
interests of any of the partners in the Partnerships other than as required by
the partnership agreements or the certificates of limited partnership;
(s) Questa will not take any action that would make any representation
or warranty of Questa or the Partnerships hereunder inaccurate in any material
respect at, or as of any time prior to, the Effective Time; and
(t) Questa and the Partnerships will not agree or commit to do any of
the foregoing.
SECTION 6.02. Company Stockholder Meeting; Proxy Material. Questa shall
cause a meeting of its stockholders (the "Questa Stockholder Meeting") to be
duly called and held as soon as reasonably practicable, on a date reasonably
acceptable to Acquiror, for the purpose of voting on the approval and adoption
of this Agreement and the Merger (the "Questa Stockholder Approval"). Except as
provided in the next sentence, the board of directors of Questa shall recommend
approval and adoption of this Agreement by Questa's stockholders. The board of
directors of Questa shall be permitted to (i) not recommend to Questa's
stockholders that they give the Questa Stockholder Approval or (ii) withdraw or
modify in a manner adverse to Acquiror its recommendation to Questa's
stockholders that they give the Questa Stockholder Approval, only (x) if the
board of directors of Questa determines in its good faith judgment that it is
necessary to so withdraw or modify its recommendation to comply with its
fiduciary duty to stockholders under applicable law, after receiving the written
advice of outside legal counsel, and (y) if Questa and the senior officers and
directors of Questa have substantially complied with their obligations set forth
in Section 6.03. In connection with the Questa Stockholder Meeting, Questa (x)
will promptly prepare and file with the SEC, will use its reasonable best
efforts to have cleared by the SEC and will thereafter mail to its stockholders
as promptly as practicable the Questa Proxy Statement and all other proxy
materials for the Questa Stockholder Meeting, (y) will use its best efforts,
subject to the immediately preceding sentence, to obtain the Questa Stockholder
Approval and (z) will otherwise comply with all legal requirements applicable to
the Questa Stockholder Meeting.
SECTION 6.03. Other Offers. Questa will not, and Questa will use its
best efforts to cause the officers, directors, employees, investment bankers,
consultants and other agents of Questa not to, directly or indirectly, take any
action to solicit, initiate, encourage or facilitate the making of any
Acquisition Proposal or any inquiry with respect thereto or engage in
discussions or negotiations with any Person with respect thereto, or disclose
any non-public information relating to Questa or afford access to the
properties, books or records of Questa to, any Person that has made, or to
Questa's knowledge, is considering making, any Acquisition Proposal; provided
that nothing contained in this Section 6.03 shall prevent Questa from furnishing
non-public information to, or entering into discussions or negotiations with, or
affording access to the properties, books or records of Questa to, any Person in
connection with an unsolicited bona fide Acquisition Proposal received from such
Person so long as prior to furnishing non-public information to, or entering
into discussions or negotiations with, such Person, (i) the board of directors
of Questa determines in
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its good faith judgment that it is necessary to do so to comply with its
fiduciary duty to stockholders under applicable law, after receiving the written
advice of outside legal counsel, and (ii) Questa receives from such Person an
executed confidentiality agreement with terms no less favorable to Questa than
those contained in Section 8.03(b) Nothing contained in this Agreement shall
prevent the board of directors of Questa from complying with Rule 14e-2 under
the Exchange Act with regard to an Acquisition Proposal; provided that the board
of directors of Questa shall not recommend that the stockholders of Questa
tender their shares in connection with a tender offer except to the extent the
board of directors of Questa determines in its good faith judgment that such a
recommendation is required to comply with the fiduciary duties of the board of
directors of Questa to stockholders under applicable law, after receiving the
written advice of outside legal counsel. Unless the board of directors of Questa
determines in its good faith judgment that it is necessary not to do so to
comply with its fiduciary duty to stockholders under applicable law, after
receiving the written advice of outside legal counsel, Questa will (a) promptly
(and in no event later than 48 hours after receipt of any Acquisition Proposal)
notify (which notice shall be provided orally and in writing and shall identify
the Person making such Acquisition Proposal and set forth the material terms
thereof) Acquiror after receipt of any Acquisition Proposal, of any indication
of which Questa has knowledge that any Person is considering making an
Acquisition Proposal or any request for non-public information relating to
Questa or for access to the properties, books or records of Questa by any Person
that has made, or to Questa's knowledge may be considering making, an
Acquisition Proposal, and (b) will keep Acquiror informed of the status and
material terms of any such Acquisition Proposal or request. Questa will, and
Questa will use its best efforts to cause the officers, directors, employees,
investment bankers, consultants and other agents of Questa to, immediately cease
and cause to be terminated all discussions and negotiations, if any, that have
taken place prior to the date hereof with any parties with respect to any
Acquisition Proposal.
ARTICLE 7
COVENANTS OF ACQUIROR
Acquiror agrees that:
SECTION 7.01. Conduct of Acquiror. From the date hereof until the
Effective Time, Acquiror and its Subsidiaries shall conduct their business in
the ordinary course consistent with past practice and shall use their reasonable
best efforts to preserve intact their business organizations and relationships
with third parties. Without limiting the generality of the foregoing, and except
with the prior written consent of Questa or as contemplated by this Agreement,
from the date hereof until the Effective Time:
(a) Acquiror will not adopt or propose any change in its certificate of
incorporation or by-laws;
(b) Acquiror will not adopt a plan or agreement of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other material reorganization of Acquiror;
(c) Acquiror will not issue, sell, transfer, pledge, dispose of or
encumber any shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class or series of Acquiror, other than (i)
issuances pursuant to the exercise of convertible securities outstanding on the
date hereof or issuances pursuant to stock-based awards or options outstanding
on the date hereof or that are granted in accordance with clause (ii) and (iii)
below, (ii) additional options or stock-based awards to acquire Acquiror Common
Stock granted under the terms of any employee or director stock option or
compensation plan or arrangement of Acquiror as in effect as of the date hereof
in the ordinary course consistent with past practice and (iii) issuances
pursuant to the Rights Agreement adopted by Acquiror's Board of Directors in
May, 1995;
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(d) Acquiror will not (i) split, combine, subdivide or reclassify its
outstanding shares of capital stock or (ii) declare, set aside or pay any
dividend or other distribution payable in cash, stock or property with respect
to its capital stock;
(e) Acquiror will not, and will not permit any Subsidiary of Acquiror
to, redeem, purchase or otherwise acquire directly or indirectly any of
Acquiror's capital stock, except for repurchases, redemptions or acquisitions
required by or in connection with the respective terms, as of the date hereof,
of any employee or director stock option plan or compensation plan or
arrangement of Acquiror in the ordinary course of operations of such plan
consistent with past practice;
(f) Acquiror will not, and will not permit any of its Subsidiaries to,
take any action that would make any representation or warranty of Acquiror
hereunder inaccurate in any material respect at, or as of any time prior to, the
Effective Time; and
(g) Acquiror will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
SECTION 7.02. Obligations of Merger Subsidiary. Acquiror will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
SECTION 7.03. Form S-4. Subject to the terms and conditions of this
Agreement and unless the Board of Directors of Questa shall take any action
permitted by the third sentence of Section 6.02, Acquiror shall prepare and file
with the SEC under the 1933 Act the Form S-4, and shall use its reasonable best
efforts to cause the Form S-4 to be declared effective by the SEC as promptly as
practicable. Acquiror shall promptly take any action required to be taken under
foreign or state securities or Blue Sky laws in connection with the issuance of
Acquiror Common Stock in connection with the Merger.
SECTION 7.04. Stock Exchange Listing. Acquiror shall use its reasonable
best efforts to cause the shares of Acquiror Common Stock to be issued in
connection with the Merger to be listed on the NYSE, subject to official notice
of issuance.
SECTION 7.05. Employee Benefits. (a) Following the Effective Time,
Acquiror shall continue to provide to individuals who are then employed by the
Surviving Corporation ("Affected Employees"), for so long as such Affected
Employees remain employed by the Surviving Corporation or any Subsidiary of
Acquiror, employee benefits (other than salary or incentive compensation)
pursuant to employee benefit plans, programs, policies or arrangements
maintained by Acquiror or any Subsidiary of Acquiror providing coverage and
benefits which, in the aggregate, are generally comparable to those provided to
employees of Acquiror in positions comparable to positions held by Affected
Employees with Acquiror or its Subsidiaries from time to time after the
Effective Time.
(b) Acquiror will, or will cause the Surviving Corporation to, (i) waive
all limitations as to preexisting conditions, exclusions and waiting periods
with respect to participation and coverage requirements applicable to the
Affected Employees under any welfare benefit plans that such employees may be
eligible to participate in after the Effective Time, other than limitations or
waiting periods that are already in effect with respect to such employees and
that have not been satisfied as of the Effective Time under any welfare plan
maintained for the Affected Employees immediately prior to the Effective Time,
and (ii) provide each Affected Employee with credit for any co-payments and
deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Effective Time.
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(c) Notwithstanding anything to the contrary herein, the Affected
Employees shall not be credited with any time served as an employee of Questa
for purposes of participation or eligibility in the Separation Benefit Plan of
Unit Corporation and Participating Subsidiaries.
ARTICLE 8
COVENANTS OF ACQUIROR AND QUESTA
The parties hereto agree that:
SECTION 8.01. Best Efforts. Questa and Acquiror shall each cooperate
with the other and use their respective best efforts to promptly (i) take or
cause to be taken all actions, and do or cause to be done all things, necessary,
proper or advisable under this Agreement and applicable laws to consummate and
make effective the Merger and the other transactions contemplated by this
Agreement as soon as practicable, including, without limitation, preparing and
filing as promptly as practicable all documentation to effect all necessary
filings, notices, petitions, statements, registrations, submissions of
information, applications and other documents and (ii) obtain all approvals,
consents, registrations, permits, authorizations and other confirmations
required to be obtained from any third party necessary, proper or advisable to
consummate the Merger and the other transactions contemplated by this Agreement.
Subject to applicable laws relating to the exchange of information, Questa and
Acquiror shall have the right to review in advance, and to the extent
practicable each will consult the other on, all the information relating to
Questa (and the Partnerships) or Acquiror and its Subsidiaries, as the case may
be, that appears in any filing made with, or written materials submitted to, any
third party and/or any governmental authority in connection with the Merger and
the other transactions contemplated by this Agreement.
SECTION 8.02. Certain Filings. Questa and Acquiror shall cooperate with
one another (a) in connection with the preparation of the Questa Proxy Statement
and the Form S-4, (b) in determining whether any action by or in respect of, or
filing with, any governmental body, agency or official, or authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement and (c) in
seeking any such actions, consents, approvals or waivers or making any such
filings, furnishing information required in connection therewith or with the
Questa Proxy Statement or the Form S-4 and seeking timely to obtain any such
actions, consents, approvals or waivers.
SECTION 8.03. Access to Information. (a) From the date hereof until the
Effective Time, to the extent permitted by applicable law, Questa and Acquiror
will give the other party, its counsel, financial advisors, auditors and other
authorized representatives reasonable access to the offices, properties, books
and records of such party and its Subsidiaries, furnish to the other party, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information as such Persons may
reasonably request and will instruct its own employees, counsel and financial
advisors to cooperate with the other party in its investigation of the business
of Questa or Acquiror, as the case may be; provided that no investigation of the
other party's business shall affect any representation or warranty given by
either party hereunder.
(b) Between the date of this Agreement and the Effective Time, the
parties will maintain in confidence, and will cause each of its officers,
directors, counsel, financial advisors, and other authorized representatives to
maintain in confidence, and not use to the detriment of a party to this
Agreement any information obtained from a party to this Agreement or its
Subsidiaries in connection with this Agreement or the transactions contemplated
hereby (regardless of whether such information was obtained prior to, on or
after the date of this Agreement), unless (i) such information is already known
to such receiving party or to others not bound by a duty of confidentiality or
such information becomes publicly available through no fault of such receiving
party, (ii) use of such information is necessary or appropriate in making any
filing or
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obtaining any consent or approval required for the consummation of the
transactions contemplated hereby or (iii) the furnishing or use of such
information is required by legal proceedings or applicable law or requirement of
the NYSE. Upon any termination of this Agreement, each party will return or
destroy all confidential information provided to it by the other party
SECTION 8.04. Public Announcements. Acquiror and Questa will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and
shall not issue any such press release or make any such public statement without
the prior consent of the other party, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, any such press release or public
statement as may be required by applicable law or any listing agreement with any
national securities exchange may be issued prior to such consultation, if the
party making such release or statement has used its reasonable efforts to
consult with the other party.
SECTION 8.05. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of Questa or Merger Subsidiary,
any deeds, bills of sale, assignments or assurances and to take and do, in the
name and on behalf of Questa or Merger Subsidiary, any other actions and things
to vest, perfect or confirm of record or otherwise in the Surviving Corporation
any and all right, title and interest in, to and under any of the rights,
properties or assets of Questa.
SECTION 8.06. Notices of Certain Events. (a) Each of Questa and Acquiror
shall promptly notify the other party of:
(i) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with
the transactions contemplated by this Agreement; and
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement.
(b) Questa and Acquiror shall promptly notify the other party of any
actions, suits, claims, investigations or proceedings commenced or, to the best
of its knowledge threatened against, relating to or involving or otherwise
affecting such party or any of its Subsidiaries which relate to the consummation
of the transactions contemplated by this Agreement.
SECTION 8.07. Affiliates. (a) Prior to the Effective Time, Questa shall
cause to be delivered to Acquiror a letter identifying, to the best of Questa's
knowledge, all Persons who are, at the time of the Questa Stockholder Meeting,
"affiliates" of Questa for purposes of Rule 145 under the 1933 Act. Questa shall
furnish such information and documents as Acquiror may reasonably request for
the purpose of reviewing such list. Questa shall use its reasonable best efforts
to cause each Person who is so identified as an affiliate to deliver to Acquiror
on or prior to the Effective Time a letter agreement substantially in the form
of Exhibit A to this Agreement.
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(b) Questa shall use its reasonable best efforts to deliver to Acquiror,
within 15 days of the date hereof, a letter agreement substantially in the form
of Exhibit B hereto executed by each Person listed on Schedule 8.07(b).
SECTION 8.08. Tax and Accounting Treatment. (a) Each of Acquiror and
Questa shall not take any action and shall not fail to take any action which
action or failure to act would prevent, or would be reasonably likely to
prevent, the Merger from qualifying (a) for "pooling of interests" accounting
treatment as described in Section 4.40(a) or (b) as a 368 Reorganization.
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(b) Acquiror shall use its reasonable best efforts to provide to
PricewaterhouseCoopers LLP a certificate substantially in the form attached
hereto as Exhibit C-1. Questa shall use its reasonable best efforts to provide
to PricewaterhouseCoopers LLP a certificate substantially in the form attached
hereto as Exhibit C-2.
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party. The
obligations of Questa, Acquiror and Merger Subsidiary to consummate the Merger
are subject to the satisfaction (or, to the extent legally permissible, waiver)
of the following conditions:
(a) this Agreement shall have been adopted by the stockholders of Questa
in accordance with Colorado Law;
(b) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit or enjoin the consummation of the
Merger;
(c) the Form S-4 shall have been declared effective under the 1933 Act
and no stop order suspending the effectiveness of the Form S-4 shall be in
effect and no proceedings for such purpose shall be pending before or threatened
by the SEC, and all necessary approvals under state securities laws relating to
the issuance or trading of the shares of Acquiror Common Stock to be issued in
the Merger shall have been received; and
(d) the shares of Acquiror Common Stock to be issued in the Merger shall
have been approved for listing on the NYSE, subject to official notice of
issuance.
SECTION 9.02. Conditions to the Obligations of Acquiror and Merger
Subsidiary. The obligations of Acquiror and Merger Subsidiary to consummate the
Merger are subject to the satisfaction (or, to the extent legally permissible,
waiver) of the following further conditions:
(a) (i) Questa and the Partnerships shall have performed in all material
respects all of its obligations hereunder required to be performed by it at or
prior to the Effective Time, (ii) except to the extent expressly permitted under
this Agreement, the representations and warranties of Questa and the
Partnerships contained in this Agreement and in any certificate or other writing
delivered by Questa and the Partnerships pursuant hereto (x) that are qualified
by materiality or Material Adverse Effect shall be true at and as of the
Effective Time as if made at and as of such time, and (y) that are not qualified
by materiality or Material Adverse Effect shall be true in all material respects
at and as of the Effective Time as if made at and as of such time and (iii)
Acquiror shall have received a certificate signed by the president of Questa to
the foregoing effect;
(b) there shall not be instituted or pending any action or proceeding by
any governmental authority before any court or governmental authority or agency,
(i) seeking to restrain, prohibit or otherwise interfere with the ownership or
operation by Acquiror or any Subsidiary of Acquiror of all or any portion of the
business of Questa or the Partnerships or to compel Acquiror or any Subsidiary
of Acquiror to dispose of or hold separate all or any portion of the business or
assets of Questa or the Partnerships, (ii) seeking to impose or confirm
limitations on the ability of Acquiror or any Subsidiary of Acquiror effectively
to exercise full rights of ownership of the Shares (or shares of stock of the
Surviving Corporation) including, without limitation, the right to vote any
Shares (or shares of stock of the Surviving Corporation) on any matters properly
presented to stockholders or (iii) seeking to require divestiture by Acquiror or
any Subsidiary of Acquiror of any Shares (or shares of stock of the Surviving
Corporation) if any such matter referred to in
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clause (i), (ii) or (iii) hereof could reasonably be expected to result in a
substantial detriment to the Acquiror and its Subsidiaries (any such substantial
detriment being referred to in this Agreement as a "Substantial Detriment");
---------------------
(c) there shall not be any statute, rule, regulation, injunction, order
or decree, enacted, enforced, promulgated, entered, issued or deemed applicable
to the Merger and the other transactions contemplated hereby (or in the case of
any statute, rule or regulation, awaiting signature or reasonably expected to
become law), by any court, government or governmental authority or agency or
legislative body that is reasonably likely, directly or indirectly, to result in
a Substantial Detriment;
(d) (i) all required approvals or consents of any governmental authority
in connection with the Merger and the consummation of the other transactions
contemplated hereby shall have been obtained (and all relevant statutory,
regulatory or other governmental waiting periods, shall have expired) and (ii)
all such approvals and consents which have been obtained shall be on terms that
are not reasonably likely, directly or indirectly, to result in a Substantial
Detriment;
(e) since the date of this Agreement, there shall not have been any
event, occurrence, development or state of circumstances which, individually or
in the aggregate, has had or would reasonably be expected to have a Material
Adverse Effect on Questa;
(f) The representations and warranties of the Questa stockholders in the
Stockholder Agreements shall be true and correct in all material respects on and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, except for changes contemplated by such agreements, and except
for those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), and
except for representations and warranties of such Questa's stockholders,
inaccuracies in or breaches of which, do not in the good faith opinion of
Acquiror have a Material Adverse Effect on the consummation of the Merger or
upon the business, condition or affairs of Questa or its assets and each Questa
stockholder subject to such Stockholder Agreements shall have delivered to
Acquiror certificates to that effect, executed by such Questa stockholder.
(g) Acquiror shall have received from each Person named in the letter
referred to in Section 8.07 an executed copy of the agreement described in
Section 8.07;
(h) Questa shall have delivered to Acquiror the following documents:
(a) the opinion of counsel to Questa, dated as of the Closing
Date, addressed to Acquiror, in form and substance reasonably
satisfactory to Acquiror and its counsel, to the effect that:
(i) Questa is a corporation duly organized, validly existing
and in good standing under the laws of the State of Colorado, has
the corporate power and authority to own its properties and to carry
on its business as now being conducted and is duly qualified to do
business as a foreign corporation and is in good standing, in each
jurisdiction where the character of the properties owned or leased
by it or the nature of its activities makes such qualification
necessary (except where any failure to be so qualified as a foreign
corporation, limited partnership or limited liability company or to
be in good standing would not, individually or in the aggregate,
have a Material Adverse Effect);
(ii) the authorized capital stock of Questa consists of
50,000,000 shares of common stock, par value 0.001 per share; of
which 1,912,894 shares of Common Stock are outstanding and 791,180
shares are held in the treasury of Questa; all outstanding shares
are duly authorized
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and issued, fully paid and nonassessable and have not been issued in
violation of any preemptive right of stockholders;
(iii) Questa has the legal power, right and authority to enter
into and perform this Agreement and execute the documents to be
delivered by Questa pursuant hereto;
(iv) this Agreement has been duly authorized, executed and
delivered by Questa and subject to the due execution by Acquiror and
Merger Subsidiary, constitutes a valid and binding agreement of
Questa and is enforceable against Questa in accordance with its
terms, subject to appropriate exceptions for bankruptcy and
creditors' rights matters and equitable principles;
(v) the execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and
compliance by Questa with the provisions hereof will not, conflict
with, result in any violation of or default (with or without notice
or lapse of time or both) under, give rise to a right of
termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of
any Lien on any of the properties or assets of Questa or any of the
Partnerships under, any provision of (a) the certificate of
incorporation, bylaws, certificate or agreement of limited
partnership and/or any other organizational document of any of
Questa or any of the Partnerships, (b) to such counsel's knowledge,
any loan or credit agreement, note, bond, mortgage, indenture,
lease, permit, concession, franchise, license or other agreement or
instrument applicable to Questa or any of the Partnerships, or (c)
assuming all required consents, approvals, authorizations, permits,
filings and notifications required by this Agreement are duly and
timely obtained or made, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Questa or any of the
Partnerships or any of their respective properties or assets, other
than, in the case of clause (b) or (c) above, any such conflict,
violation, default, right, loss or Lien that, individually or in the
aggregate, would not have a Material Adverse Effect on Questa or any
of the Partnerships;
(vi) the Merger has been duly approved by Questa's
stockholders in accordance with the Colorado Law; and
(vii) The Partnerships are limited partnerships duly organized
and validly existing under the laws of the State of Colorado, and,
to the extent necessary to comply with all applicable laws, rules
and regulations, the Partnerships are duly authorized, empowered and
qualified to carry on their business in each of the jurisdictions in
which the Partnership Properties are located and each is duly
qualified to do business as a foreign limited and is in good
standing, in each jurisdiction where the character of the properties
owned or leased by it or the nature of its activities makes such
qualification necessary (except where any failure to be so qualified
as a foreign corporation, limited partnership or limited liability
company or to be in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on such Partnership). Each
of the Partnerships has fully complied with all applicable
securities laws and SEC regulations and requirements. Upon the
consummation of the Merger, the Surviving Corporation will become
the sole general partner of each of the Partnerships and will
succeed to the entire economic and Partnership interest and
authority of Questa therein as general partner thereof without
further action or approval on the part of the Partnership or the
limited partners thereof except for the filing of an amendment to
the certificate of limited partnership of each Partnership and any
other such ministerial acts.
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(b) such other documents or certificates as shall be reasonably
required by Acquiror or its counsel not later than 10 business days
prior to the Closing Date;
(i) Dissenting Shares and fractional Shares shall not exceed 5% of
the outstanding Shares; and
(j) Acquiror shall have received a letter from
PricewaterhouseCoopers LLP dated as of the Closing Date and addressed to
Acquiror, stating that based on the information furnished to
PricewaterhouseCoopers LLP pursuant to section 8.08(b), PricewaterhouseCoopers
LLP concurs with Acquiror's management's conclusion that, as of the Closing
Date, no conditions exist that would preclude Acquiror's accounting for the
Merger as a pooling of interests and such letter shall not have been withdrawn
or modified in any material respect.
SECTION 9.03. Conditions to the Obligations of Questa. The obligation of
Questa to consummate the Merger is subject to the satisfaction (or, to the
extent legally permissible, waiver) of the following further conditions:
(a) (i) Acquiror shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) except to the extent expressly permitted under this
Agreement, the representations and warranties of Acquiror contained in this
Agreement and in any certificate or other writing delivered by Acquiror pursuant
hereto (x) that are qualified by materiality or Material Adverse Effect shall be
true at and as of the Effective Time as if made at and as of such time, and (y)
that are not qualified by materiality or Material Adverse Effect shall be true
in all material respects at and as of the Effective Time as if made at and as of
such time and (iii) Questa shall have received a certificate signed by the
president of Acquiror to the foregoing effect;
(b) since the date of this Agreement, there shall not have been any
event, occurrence, development or state of circumstances which, individually or
in the aggregate, has had or would reasonably be expected to have a Material
Adverse Effect on Acquiror.
(c) Acquiror shall have delivered to Questa the opinion of its counsel,
dated as of the Closing Date, addressed to Questa, in form and substance
satisfactory to Questa and its counsel, to the effect that:
(i) Acquiror and Merger Subsidiary are each a corporation duly
organized, validly existing and in good standing under the laws of the
state of their incorporation, have the corporate power and authority to
own its properties and to carry on its business as now being conducted,;
(ii) the authorized capital stock of Acquiror consists of
40,000,000 shares of common stock, par value $0.20 per share, of which
there were a total of approximately 33, 815, 676 shares issued and
outstanding at November 18, 1999, and 5,000,000 of Preferred Stock, par
value $1.00 per share, none of which is outstanding;
(iii) Acquiror and Merger Subsidiary have the legal power, right
and authority to enter into and perform this Agreement and execute the
documents to be delivered by Acquiror and Merger Subsidiary pursuant
hereto;
(iv) this Agreement has been duly authorized, executed and
delivered by Acquiror and Merger Subsidiary and, subject to the due
execution of Questa, constitutes a valid and binding agreement of
Acquiror and Merger Subsidiary and is enforceable against Acquiror and
Merger Subsidiary in accordance with its terms, subject to appropriate
exceptions for bankruptcy and creditors' rights matters and equitable
principles; and
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(v) to the knowledge of counsel, the execution of this Agreement
and the consummation of the transactions contemplated by this Agreement
will not violate, nor be in conflict with any material agreement or
instrument to which Acquiror and Merger Subsidiary are a party or by
which Acquiror and Merger Subsidiary or any of their assets are bound or
any law, regulation, rule, judgment, order, ruling or decree applicable
to Acquiror or Merger Subsidiary.
ARTICLE 10
TERMINATION
SECTION 10.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the stockholders of Questa):
(a) by mutual written consent of Questa and Acquiror;
(b) by either Questa or Acquiror,
(i) if the Merger has not been consummated by January 31, 2000
(the "End Date"); provided that if (x) the Effective Time has not
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occurred by the End Date by reason of non- satisfaction of any of the
conditions set forth in Sections 9.01(b), 9.01(d), 9.02(b), 9.02(c),
9.02(d) or 9.02(j) and (y) all other conditions in Article 9 have
theretofore been satisfied or (to the extent legally permissible) waived
or are then capable of being satisfied, the End Date will be February
29, 2000; provided further that the right to terminate this Agreement
under this Section 10.01(b)(i) shall not be available to any party whose
failure to fulfill in any material respect any obligation under this
Agreement has caused or resulted in the failure of the Effective Time to
occur on or before the End Date; or
(ii) if the Questa Stockholder Approval shall not have been
obtained by reason of the failure to obtain the required vote at a duly
held meeting of stockholders or any adjournment thereof;
(c) by either Questa or Acquiror, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise prohibited
or if any judgment, injunction, order or decree enjoining Acquiror or Questa
from consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable;
(d) by Acquiror, if the Board of Directors of Questa shall have failed
to recommend or withdrawn or modified or changed in a manner adverse to Acquiror
its approval or recommendation of this Agreement or the Merger, or shall have
failed to call the Questa Stockholder Meeting in accordance with Section 6.02,
or shall have recommended a Superior Proposal (or the Board of Directors of
Questa resolves to do any of the foregoing);
(e) by Questa, if (i) the board of directors of Questa authorizes
Questa, subject to complying with the terms of this Agreement, to enter into a
binding written agreement concerning a transaction that constitutes a Superior
Proposal and Questa notifies Acquiror in writing that it intends to enter into
such an agreement, attaching the most current version of such agreement (or a
description of all material terms and conditions thereof) to such notice, (ii)
Acquiror does not make, within three business days of receipt of Questa's
written notification of its intention to enter into a binding agreement for a
Superior Proposal, an offer that the board of directors of Questa determines, in
good faith after consultation with its financial advisors, is at least as
favorable to the stockholders of Questa as the Superior Proposal, it being
understood that Questa shall not enter into any such binding agreement during
such three day period and (iii) Questa
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<PAGE>
prior to such termination pursuant to this clause (e) pays to Acquiror in
immediately available funds the fees required to be paid pursuant to Section
11.04. Questa agrees to notify Acquiror promptly if its intention to enter into
a written agreement referred to in its notification shall change at any time
after giving such notification;
(f) in the event the arithmetical average of the per share closing sale
prices of Acquiror's Common Stock on the New York Stock Exchange Composite Tape
for the fifteen (15) trading days immediately preceding the third (3rd) trading
day preceding the Effective Date of the Merger is greater than $9.00 or less
than $5.00 then Acquiror (in the case such price per share is greater than
$9.00) or Questa (in the case such price is less than $5.00), shall have the
unilateral right to terminate this Agreement. A termination pursuant to the
provisions of this Section 10.01(f) shall not be subject to the provisions of
Section 11.04(b);
(g) By Acquiror if (i) there has been a breach in any material respect
of the representations and warranties made by Questa in Article 4 (provided,
however, that Acquiror shall not be entitled to terminate this Agreement
pursuant to this clause (i) unless Acquiror has given Questa at least 15 days'
prior notice of such breach, Questa has failed to cure such breach within such
15 day period, and the condition described in Section 9.02(a), other than the
provision thereof relating to the certificate signed by the president of Questa,
would not be satisfied if the Closing were to occur on the day on which Acquiror
gives Questa notice of such termination); or (ii) Questa has failed to comply in
any material respect with any of its covenants or agreements contained in this
Agreement and such failure has not been, or cannot be, cured within a reasonable
time after notice and demand for cure thereof; or
(h) by Questa if (i) there has been a breach in any material respect of
the representations and warranties made by Acquiror and Merger Subsidiary in
Article 5 (provided, however, that Questa shall not be entitled to terminate
this Agreement pursuant to this clause (i) unless Questa has given Acquiror at
least 15 days' prior notice of such breach, Acquiror has failed to cure such
breach within such 15 day period, and the condition described in Section
9.03(a), other than the provision thereof relating to the certificate signed by
the president of Acquiror, would not be satisfied if the Closing were to occur
on the day on which Questa gives Acquiror notice of such termination); or (ii)
Acquiror or Merger Subsidiary has failed to comply in any material respect with
any of its respective covenants or agreements contained in this Agreement, and,
in either such case, such breach or failure has not been, or cannot be, cured
within a reasonable time after notice and a demand for cure thereof.
The party desiring to terminate this Agreement pursuant to clause (b),
(c), (d), (e), (f), (g) or (h) of this Section 10.01 shall give written notice
of such termination to the other party in accordance with Section 11.01,
specifying the provision hereof pursuant to which such termination is effected.
SECTION 10.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 10.01, this Agreement shall become void and of no effect
with no liability on the part of any party hereto, except that (a) the
agreements contained in this Section 10.02, in Section 8.03 and in Section 11.04
shall survive the termination hereof and (b) no such termination shall relieve
any party of any liability or damages resulting from a breach by that party of
its representations, warranties, covenants, agreements or other obligations
under this Agreement prior to such termination.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile or similar
writing) and shall be given,
if to Acquiror or Merger Subsidiary, to:
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<PAGE>
President
Unit Corporation
1000 Kensington Tower I
7130 South Lewis
Tulsa, Oklahoma 74136
Facsimile No.: (918) 493-7711
with a copy to:
Mark E. Schell
Unit Corporation
1000 Kensington Tower I
7130 South Lewis
Tulsa, Oklahoma 74136
Facsimile No.: (918) 493-7711
if to Questa, to:
Questa Oil & Gas Co.
7030 South Yale Ave., Suite 700
Tulsa, Oklahoma 74136-5718
Attention: Warren L. Meeks
Facsimile No.: (918) 494-6055
with a copy to:
Bill Hart
Hart and Trinen
1624 Washington Street
Denver, Colorado 80203
Facsimile No.: (303) 839-5414
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice, request
or other communication shall be effective (a) if given by facsimile, when such
facsimile is transmitted to the facsimile number specified in this Section and
the appropriate facsimile confirmation is received or (b) if given by any other
means, when delivered at the address specified in this Section.
SECTION 11.02. Non-Survival of Representations and Warranties. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement.
SECTION 11.03. Amendments Waivers. (a) Any provision of this Agreement
(including the Exhibits and Schedules hereto) may be amended or waived by the
parties hereto at any time before or after approval of the Merger by the
stockholders of Questa; provided, however, that, after any such approval, no
amendment shall be made that by law requires further approval by such
stockholders without such further approval. Any amendment or waiver must be in
writing and signed, in the case of an amendment, by Questa, Acquiror and Merger
Subsidiary, or in the case of a waiver, by the party against whom the waiver is
to be effective. Except as provided in this Agreement, no action taken pursuant
to this Agreement, including any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking
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<PAGE>
such action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party of a breach of
any provision hereof shall not operate or be construed as a waiver of any prior
or subsequent breach of the same or any other provisions hereof.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.04. Expenses. (a) Except as otherwise specified in this
Section 11.04 or agreed in writing by the parties, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such cost or expense;
provided that all liability for transfer taxes (other than transfer taxes to be
paid by Acquiror in connection with the issuance and creation of Acquiror Common
Stock in the Merger, as provided in Section 2.02(b)) incurred by Questa or
Questa's stockholders in connection with the transactions contemplated hereby
shall be paid by the Surviving Corporation out of its own funds and will not be
paid, directly or indirectly, by Acquiror.
(b) If:
(i) Questa shall terminate this Agreement pursuant to Section
10.01(e);
(ii) Acquiror shall terminate this Agreement pursuant to Section
10.01(d), unless at the time of such failure to recommend, withdrawal or
adverse modification or change, failure to call the Questa Stockholder
Meeting or recommendation of a Superior Proposal, any of the conditions
set forth in Section 9.03(a) or 9.03(b) would not have been satisfied as
of such date and would not be reasonably capable of being satisfied; or
(iii) either Questa or Acquiror shall terminate this Agreement
pursuant to Section 10.01(b)(ii) in circumstances where the Questa
Stockholder Approval has not been obtained and prior to the Questa
Stockholder Meeting an Acquisition Proposal is made by any Person and
Questa enters into a definitive agreement within twelve months after
termination of this Agreement either (A) in respect of any Acquisition
Proposal with such Person or its Affiliate or (B) in respect of any
Acquisition Proposal with any other Person (other than Acquiror or any
Affiliate of Acquiror),
then in any case as described in clause (i), (ii) or (iii) (each such case of
termination being referred to as a "Trigger Event") Questa shall pay to Acquiror
-------------
(by wire transfer of immediately available funds not later than the date of
termination of this Agreement or, in the case of clause (iii), the date of such
definitive agreement) in the case of clause (i) an amount equal to $500,000 and
in the case of clause (ii) or (iii) an amount equal to $400,000. Acceptance by
Acquiror of the payment referred to in the foregoing sentence shall constitute
conclusive evidence that this Agreement has been validly terminated and upon
acceptance of payment of such amount Questa shall be fully released and
discharged from any liability or obligation resulting from or under this
Agreement.
SECTION 11.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto except that Merger Subsidiary
may transfer or assign, in whole or from time to time in part, to one or more of
its affiliates, its rights under this Agreement, but any such transfer or
assignment will not relieve Merger Subsidiary of its obligations hereunder.
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<PAGE>
SECTION 11.06. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Oklahoma, without regard
to principles of conflicts of law except that the Merger shall also be governed
by Colorado Law.
SECTION 11.07. Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may be brought only
in any federal or state court located in the State of Oklahoma, and each of the
parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 11.01 shall be deemed
effective service of process on such party.
SECTION 11.08. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 11.09. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
SECTION 11.10. Entire Agreement. This Agreement (including the Exhibits
and Schedules hereto) constitutes the entire agreement between the parties with
respect to the subject matter of this Agreement and supersede all prior
agreements and understandings, both oral and written, between the parties with
respect to the subject matter hereof and thereof. No provision of this Agreement
or any other agreement contemplated hereby is intended to confer on any Person
other than the parties hereto any rights or remedies.
SECTION 11.11. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
SECTION 11.12. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
SECTION 11.13. Attorney Fees. If any of the parties brings an action or
suit against any other party by reason of any breach of any covenant, agreement,
representation, warranty or other provision of this Agreement, or any breach of
any duty or obligation created under this Agreement by such other party, the
prevailing party in whose favor final judgment is entered shall be entitled to
recover from the losing party all reasonable costs and expenses incurred by the
prevailing party in connection with such suit or action, including legal fees
and court costs (whether or not taxable as such).
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<PAGE>
SECTION 11.14 Incorporation. The Exhibits and Schedules referred to
herein are attached to and incorporated by reference herein for all purposes.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
QUESTA OIL & GAS CO. UNIT CORPORATION
/s/ Warren L. Meeks /s/ King P. Kirchner
- ----------------------------------- -----------------------------------
Warren L. Meeks King P. Kirchner
Chief Executive Officer Chairman of the Board
UNIT ACQUISITION COMPANY
/s/ Philip M. Keeley
- -----------------------------------
Philip M. Keeley
Vice President
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<PAGE>
APPENDIX B
PROVISIONS PERTAINING TO DISSENTER'S RIGHTS
Title 7, Article 113 of the Colorado Revised Statutes
7-113-101. Definitions. For purposes of this article:
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(1) "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section 7-107-
204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102. Right to dissent. (1) A shareholder, whether or not entitled to
----------------
vote, is entitled to dissent and obtain payment of the fair value of the
shareholder's shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
if:
(I) Approval by the shareholders of that corporation is required for
the merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation; or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of all,
or substantially all, of the property of the corporation for which a shareholder
vote is required under section 7-112-102(1); and
(d) Consummation of a sale, lease, exchange, or other disposition of all,
or substantially all, of the property of an entity controlled by the corporation
if the shareholders of the corporation were entitled to vote upon the consent of
the corporation to the disposition pursuant to section 7-112-102(2).
(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the national association of securities dealers
automated quotation system, or were held of record by the more than two thousand
shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders' meeting at which
the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to the corporate action; or
(c) The effective date of the corporate action if the corporate action is
authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall
not apply if the shareholder will receive for the shareholder's shares, pursuant
to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) Shares of any other corporation which at the effective date of the
plan of merger or share exchange either will be listed on a national securities
exchange registered under the federal "Securities Exchange Act of 1934", as
amended, or on the national market system of the National Association of
Securities Dealers automated quotation system or will be held of record by more
than two thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu of
fractional shares.
(2) (Deleted by amendment, L.96, p.1321, (S)30, effective June 1, 1996).
(2.5) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of the shareholder's shares in the
event of a reverse split that reduces the number of shares owned by the
shareholder to a fraction of a share or to scrip if the fractional share or
script so created is to be acquired for cash or the scrip is to be voided under
section 7-106-104.
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<PAGE>
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and to obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
7-113-103. Dissent by nominees and beneficial owners. (1) A record shareholder
-----------------------------------------
may assert dissenters' rights as to fewer than all the shares registered in the
record shareholder's name only if the record shareholder dissents with respect
to all shares beneficially owned by any one person and causes the corporation to
receive written notice which states such dissent and the name, address, and
federal taxpayer identification number, if any, of each person on whose behalf
the record shareholder asserts dissenters' rights. The rights of a record
shareholder under this subsection (1) are determined as if the shares as to
which the record shareholder dissents and the other shares of the record
shareholder were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the
shares held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' right as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
PART 2
PROCEDURE FOR EXERCISE
OF DISSENTERS' RIGHTS
7-113-201. Notice of dissenters' rights. (1) If a proposed corporate action
----------------------------
creating dissenters' rights under section 7-113-102 is submitted to a vote at a
shareholders' meeting, the notice of the meeting shall be given to all
shareholders, whether or not entitled to vote. The notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
article and shall be accompanied by a copy of this article and the materials, if
any, that, under articles 101 to 117 of this title, are required to be given to
shareholders entitled to vote on the propose action at the meeting. Failure to
give notice as provided by this subsection (1) shall not affect any action taken
at the shareholders' meeting for which the notice was to have been given, but
any shareholder who was entitled to dissent but who was not given such notice
shall not be precluded from demanding payment for the shareholder's shares under
this article by reason of the shareholder's failure to comply with the
provisions of section 7-113-202(1).
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the propose action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection
(2) shall not affect any action taken pursuant to section 7-107-104 for which
the notice was to have been given, but any shareholder who was entitled to
dissent but who was not given such notice shall not be precluded from demanding
payment for the shareholder's shares under this article by reason of the
shareholder's failure to comply with the provisions of section 7-113-302(2).
7-113-202. Notice of intent to demand payment. (1) If a proposed corporate
----------------------------------
action creating dissenters' rights under section 7-113-102 is submitted to a
vote at a shareholders' meeting and if notice of dissenters' rights has been
given to such shareholder in connection with the action pursuant to section 7-
113-201(1), a shareholder who wishes to assert dissenters' rights shall;
(a) Cause the corporation to receive, before the vote is taken, written
notice of the shareholder's intention to demand payment for the shareholder's
shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenter's rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104 and if notice of dissenter's rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201(2), a
shareholder who wishes to assert dissenters' rights shall not execute a writing
consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
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7-113-203. Dissenters' notice. (1) If a proposed corporate action creating
-------------------
dissenter's rights under section 7-113-102 is authorized, the corporation shall
give a written dissenters' notice to all shareholders who are entitled to demand
payment for their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section
shall be given no later than ten days after the effective date of the corporate
action creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the effective
date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment demands
and the address of a place where certificates for certificated shares must be
deposited;
(c) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment and demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment demand
and certificates for certificated shares, which date shall not be less than
thirty days after the date the notice required by subsection (1) of this section
is given;
(f) State the requirement contemplated in section 7-113-103(3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204. Procedure to demand payment. (1) A shareholder who is given a
----------------------------
dissenters' notice pursuant to section 7-113-203 and who wishes to assert
dissenters' rights shall, in accordance with the terms of the dissenters'
notice:
(a) Cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in section 7-113-203(2)(d), duly completed, or
may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand
for payment and deposit of certificates is irrevocable.
(4) A shareholder who does not demand payment and deposit the
shareholder's share certificates as required by the date or dates set in the
dissenters' notice is not entitled to payment for the shares under this article.
7-113-205. Uncertificated shares. (1) Upon receipt of a demand for payment
----------------------
under section 7-113-204 from a shareholder holding uncertificated shares, and in
lieu of the deposit of certificates representing the shares, the corporation may
restrict the transfer thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206. Payment. (1) Except as provided in section 7-113-208, upon the
--------
effective date of the corporate action creating dissenters' rights under section
7-113-102, or upon receipt of a payment demand pursuant to section 7-113-204,
whichever is later, the corporation shall pay each dissenter who complied with
section 7-113-204, at the address stated in the payment demand, or if no such
address is stated in the payment demand, at the address shown on the
corporation's current record of shareholders for the record shareholder holding
the dissenter's shares, the amount the corporation estimates to be the faire
value of the dissenter's shares, plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available the corporation's balance sheet as of
the end of a fiscal year ending not more than sixteen months before the date of
payment, an income statement for that year, and, if the corporation customarily
provides such statements to shareholders, a statement of changes in
shareholders' equity for that year and a statement of cash flow for that year,
which balance sheet and statements shall have been audited if the corporation
customarily provides audited financial statements to shareholders, as well as
the latest available financial statements, if any, for the interim or full-year
period, which financial statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under section
7-113-209 and
(e) A copy of this article.
7-113-207. Failure to take action. (1) If the effective date of the corporate
-----------------------
action creating dissenters' rights under section 7-113-102 does not occur within
sixty days after the date set by the corporation by which the corporation must
receive the payment demand as provided in section 7-113-203, the corporation
shall return the deposited certificates and release the transfer restrictions
imposed on uncertificated shares.
B-3
<PAGE>
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections 7-113-
204 and 7-113-209 shall again be applicable.
7-113-208. Special provisions relating to shares acquired after announcement of
--------------------------------------------------------------------
proposed corporate action. (1) The corporation may, in or with the dissenters'
- --------------------------
notice given pursuant to section 7-113-203, state the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action creating dissenters' rights under section 7-113-102 and state
that the dissenter shall certify in writing, in or with the dissenter's payment
demand under section 7-114-204, whether or not the dissenter (or the person on
whose behalf dissenters' rights are asserted) acquired beneficial ownership of
the shares before that date. With respect to any dissenter who does not so
certify in writing, in or with the payment demand, that the dissenter or the
person on whose behalf the dissenter asserts dissenters' rights acquired
beneficial ownership of the shares before such date, the corporation may, in
lieu of making the payment provided in section 7-113-206, offer to make such
payment if the dissenter agrees to accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206(2).
7-113-209. Procedure if dissenter is dissatisfied with payment or offer. (1)
------------------------------------------------------------
A dissenter may give notice to the corporation in writing of the dissenter's
estimate of the fair value of the dissenter's shares and of the amount of
interest due and may demand payment of such estimate, less any payment made
under section 7-113-206, or reject the corporation's offer under section 7-113-
208 and demand payment of the fair value of the shares and interest due, if:
(a) The dissenter believes that the amount paid under section 7-113-206 or
offered under section 7-113-208 is less than the fair value of the shares or
that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206 within
sixty days after the date set by the corporation by which the corporation must
receive the payment demand; or
(c) The corporation does not return the deposited certificates or release
the transfer restrictions imposed on uncertificated shares as required by
section 7-113-207(1).
(2) A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301. Court action. (1) If a demand for payment under section 7-113-209
------------
remains unresolved, the corporation may, within sixty days after receiving the
payment demand commence a proceeding and petition the court to determine the
fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay to each
dissenter whose demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where the
corporation's principal office is located or, if the corporation has no
principal office in this state, in the district court of the county in which its
registered office is located. If the corporation is a foreign corporation
without a registered office, it shall commence the proceeding in the county
where the registered office of the domestic corporation merged into, or whose
shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding commenced
under subsection (2) of this section as in an action against their shares, and
all parties shall be served with a copy of the petition. Service on each
dissenter shall be by registered or certified mail, to the address stated in
such dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section in plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to such order. The parties to
the proceeding are entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if any,
by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or for the fair value,
plus interest, of the dissenter's shares for which the corporation elected to
withhold payment under section 7-113-208.
7-113-302. Court costs and counsel fees. (1) The court in an appraisal
----------------------------
proceeding commenced under section 7-113-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The
B-4
<PAGE>
court shall assess the costs against the corporation; except that the court may
assess costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court
finds the corporation did not substantially comply with the
requirements of part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
B-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 4 of our by-laws provides for indemnification of any person who is, or
is threatened to be made, a witness in or a party to any proceeding by reason of
his or her position as a director, officer, or employee, to the extent
authorized by applicable law including, but not limited to, the Delaware General
Corporation Law. Pursuant to Section 145 of the Delaware General Corporation Law
a corporation generally has the power to indemnify its present and former
directors, officers, employees and agents against expenses and liabilities
incurred by them in connection with any suit to which they are, or are
threatened to be made, a party by reason of their serving in such positions so
long as they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the corporation, and with respect
to any criminal action, they had no reasonable cause to believe their conduct
was unlawful. With respect to suits by or in the right of a corporation,
however, indemnification is generally limited to attorney's fees and other
expenses and is not available if such person is adjudged to be liable to the
corporation unless the court determines that indemnification is appropriate. In
addition, a corporation has the power to purchase and maintain insurance for
such persons. Article 4 of the By-laws also expressly provides that the power to
indemnify authorized thereby is not exclusive of any rights granted to present
and former directors, officers, employees and agents, under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise.
Article Nine of our charter eliminates in certain circumstances the monetary
liability of our directors for a breach of their fiduciary duty as directors.
These provisions do not eliminate the liability of a director
. for a breach of the director's duty of loyalty to us or to our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law;
. under Section 174 of the Delaware General Corporation Law (relating to
the declaration of dividends and purchase or redemption of shares in
violation of the Delaware General Corporation Law); or
. for transactions from which the director derived an improper personal
benefit.
We have purchased directors and officers liability insurance that would
indemnify our directors and officers against damages arising out of certain
kinds of claims that might be made against them based on their negligent acts or
omissions while acting in their capacity as such.
The above discussion of our charter, by-laws and of Section 145 of the Delaware
General Corporation Law is not exhaustive and is qualified in its entirety by
our charter, our by-laws and statute.
II-1
<PAGE>
ITEM 21. EXHIBITS.
Exhibit
Number Description of Exhibits
- ------ -----------------------
2.1 -- Agreement and Plan of Merger, dated as of December 8, 1999, among
Unit Corporation, Questa Oil & Gas Co. and Unit Acquisition Company
(included as Appendix A to the Proxy Statement/Prospectus which
forms a part of this Registration Statement.
2.2* -- Form of Stockholder Agreement, between Unit Corporation and the
directors and executive officers of Questa Oil & Gas Co.
2.3 -- Amendment No. 1, dated as of January 2, 2000, to Agreement and Plan
of Merger amoung Unit Corporation, Questa Oil & Gas Co. and Unit
Acquisition Company (filed herewith).
3.1 -- Restated Certificate of Incorporation of Unit Corporation
(incorporated herein by reference to Exhibit 3.1 to Form S-3
Registration Statement of Unit (file No. 333-83551)).
3.2 -- By-Laws of Unit Corporation (incorporated herein by reference to
Exhibit 3.2 to Form S-3 Registration Statement of Unit (file No.
333-83551)).
4.1 -- Form of Common Stock Certificate of Unit Corporation (incorporated
herein by reference to Exhibit 4.1 to Form S-3 Registration
Statement of Unit (file No. 333-83551)).
4.2 -- Rights Agreement between Unit Corporation and Chemical Bank, Rights
Agent (incorporated herein by reference to Exhibit 1 to Unit's Form
8-A filed with the SEC on May 23, 1995).
5.1* -- Opinion of Conner & Winters, A Professional Corporation, regarding
legality of securities being registered.
8.1 -- Opinion of Conner & Winters, A Professional Corporation, regarding
tax matters (filed herewith).
15* -- Letter on unaudited interim financial information.
23.1 -- Consent of PricewaterhouseCoopers LLP, independent accountants
(filed herewith).
23.2 -- Consent of Magee Rausch & Shelton LLP, independent accountants
(filed herewith).
23.3 -- Consent of Conner & Winters (included in Exhibits 5.1 and 8.1).
23.4* -- Consent of Ryder Scott Company.
23.5* -- Consent of Lee Keeling and Associates
24.1* -- Power of Attorney
99.1 -- Form of Questa Oil & Gas Co. proxy (filed herewith).
_________________
*Previously filed as an exhibit to this Registration Statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of
the Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
II-2
<PAGE>
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless, in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Proxy Statement/Prospectus pursuant
to Item 4, 10(b), 11 or 13 of this Form within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(e) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Tulsa,
State of Oklahoma, on February 9, 2000.
Unit Corporation
By: /s/ King P. Kirchner
--------------------
King P. Kirchner,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the registration statement has been signed by the following persons in the
capacities indicated on February 9, 2000.
Name Title
/s/ King P. Kirchner Chief Executive Officer
- --------------------------------- Chairman of the Board
King P. Kirchner
/s/ John G. Nikkel President and
- --------------------------------- Director
John G. Nikkel
/s/ Earle Lamborn Vice President and
- --------------------------------- Director
Earle Lamborn
Vice President, Treasurer
/s/ Larry D. Pinkston and Chief Financial Officer
- --------------------------------- (Principal Financial Officer)
Larry D. Pinkston
Controller
/s/ Stanley W. Belitz (Principal Accounting Officer)
- ---------------------------------
Stanley W. Belitz
William B. Morgan* Director
- ----------------------------------
William B. Morgan
Don Cook* Director
- ----------------------------------
Don Cook
II-4
<PAGE>
J. Michael Adcock* Director
- ----------------------------------
J. Michael Adcock
John S. Zink* Director
- ----------------------------------
John S. Zink
John H. Williams* Director
- ----------------------------------
John H. Williams
/s/ Mark E. Schell
- ----------------------------------
Mark E. Schell
Attorney-In-Fact
II-5
<PAGE>
Exhibit
Number Description of Exhibits
- ------ -----------------------
2.1 -- Agreement and Plan of Merger, dated as of December 8, 1999, among
Unit Corporation, Questa Oil & Gas Co. and Unit Acquisition Company
(included as Appendix A to the Proxy Statement/Prospectus which
forms a part of this Registration Statement.
2.2* -- Form of Stockholder Agreement, between Unit Corporation and the
directors and executive officers of Questa Oil & Gas Co.
2.3 -- Amendment No. 1, dated as of January 2, 2000, to Agreement and Plan
of Merger amoung Unit Corporation, Questa Oil & Gas Co. and Unit
Acquisition Company (filed herewith).
3.1 -- Restated Certificate of Incorporation of Unit Corporation
(incorporated herein by reference to Exhibit 3.1 to Form S-3
Registration Statement of Unit (file No. 333-83551)).
3.2 -- By-Laws of Unit Corporation (incorporated herein by reference to
Exhibit 3.2 to Form S-3 Registration Statement of Unit (file No.
333-83551)).
4.1 -- Form of Common Stock Certificate of Unit Corporation (incorporated
herein by reference to Exhibit 4.1 to Form S-3 Registration
Statement of Unit (file No. 333-83551)).
4.2 -- Rights Agreement between Unit Corporation and Chemical Bank, Rights
Agent (incorporated herein by reference to Exhibit 1 to Unit's Form
8-A filed with the SEC on May 23, 1995).
5.1* -- Opinion of Conner & Winters, A Professional Corporation, regarding
legality of securities being registered.
8.1 -- Opinion of Conner & Winters, A Professional Corporation, regarding
tax matters (filed herewith).
15* -- Letter on unaudited interim financial information.
23.1 -- Consent of PricewaterhouseCoopers LLP, independent accountants
(filed herewith).
23.2 -- Consent of Magee Rausch & Shelton LLP, independent accountants
(filed herewith).
23.3 -- Consent of Conner & Winters (included in Exhibits 5.1 and 8.1).
23.4* -- Consent of Ryder Scott Company.
23.5* -- Consent of Lee Keeling and Associates
24.1* -- Power of Attorney
99.1 -- Form of Questa Oil & Gas Co. proxy (filed herewith).
- -------------
*Previously filed as an exhibit to this Registration Statement
<PAGE>
Exhibit 2.3
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER, dated as of January
21, 2000 (this "Amendment"), is entered into among Unit Corporation, a Delaware
corporation ("Acquiror"), Unit Acquisition Company, an Oklahoma corporation
("Merger Subsidiary")and a wholly owned subsidiary of Acquiror, and Questa Oil &
Gas Co., a Colorado corporation ("Questa").
WHEREAS, as of December 8, 1999, Acquiror, Merger Subsidiary and Questa
entered into a certain Agreement and Plan of Merger (the "Merger Agreement");
and
WHEREAS, the parties hereto desire to amend the Merger Agreement in certain
respects; and
WHEREAS, Section 11.03 of the Merger Agreement provides that the Merger
Agreement may be amended by the parties thereto by action taken at any time
before or after approval of the Merger, if set forth in an instrument in writing
signed by the parties thereto;
NOW THEREFORE, in consideration of the premises, the terms and provisions
set forth herein, the mutual benefits to be gained by the performance thereof
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. All capitalized terms used but not separately defined in this
Amendment shall have the meanings assigned to such terms in the Merger
Agreement.
2. The Merger Agreement is hereby amended as follows:
Section 10.01(b)(i) shall be amended to read in its entirety a
follows:
(b) by either Questa or Acquiror,
(i) if the Merger has not been consummated by March
30, 2000 (the "End Date"); provided that if (x) the Effective
--------
Time has not occurred by the End Date by reason of non-
satisfaction of any of the conditions set forth in Sections
9.01(b), 9.01(d), 9.02(b), 9.02(c), 9.02(d) or 9.02(j) and (y)
all other conditions in Article 9 have theretofore been satisfied
or (to the extent legally permissible) waived or are then capable
of being satisfied, the End Date will be April 30, 2000; provided
further that the right to terminate this Agreement under this
Section 10.01(b)(i) shall not be available to any party whose
failure to fulfill in any material respect any obligation under
this Agreement has caused or resulted in the failure of the
Effective Time to occur on or before the End Date; or
3. The Merger Agreement is hereby ratified by each of the parties hereto,
and the terms and provisions of the Merger Agreement as amended pursuant to
Section 2 hereof shall remain in full force and effect.
4. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, Acquiror, Merger Subsidiary and Questa have caused this
Amendment to be executed as of the date first written above by their respective
officers thereunto duly authorized.
<PAGE>
UNIT CORPORATION
/s/ John G. Nikkel
------------------------------
John G. Nikkel
President
UNIT ACQUISITION COMPANY
/s/ John G. Nikkel
------------------------------
John G. Nikkel
President
QUESTA OIL & GAS CO.
/s/ Alan W. Meeks
------------------------------
Alan W. Meeks
President
<PAGE>
Exhibit 8.1
[Conner & Winters letterhead]
February 9, 2000
Unit Corporation
1000 Kensington Tower I
7130 S. Lewis
Tulsa, Oklahoma 74136
Gentlemen:
We have acted as counsel to Unit Corporation, a Delaware corporation
("Acquiror"), and Unit Acquisition Company, a wholly-owned subsidiary of
Acquiror ("Merger Subsidiary"), in connection with the proposed Merger, as
defined and described in the Agreement and Plan of Merger, dated as of December
8, 1999 (the "Merger Agreement"), by and among Acquiror, Merger Subsidiary and
Questa Oil & Gas Co., a Colorado corporation ("Questa"). At your request, we are
rendering this opinion to you as to the U.S. federal income tax consequences of
the Merger. Unless otherwise indicated, each capitalized term used herein has
the meaning ascribed to it in the Merger Agreement and all section references
are to the Internal Revenue Code of 1986, as amended.
INFORMATION RELIED UPON
-----------------------
In rendering the opinion expressed herein, we have examined such
documents as we have deemed appropriate, including the Merger Agreement and the
Proxy Statement/Prospectus (the "Prospectus") included in the Registration
Statement on Form S-4 filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") in connection with the Acquiror Common Stock to be issued pursuant to the
Merger. In our examination of documents, we have assumed that all documents
submitted to us as photocopies or telecopies faithfully reproduce the originals
thereof, that such originals are authentic, that all such documents have been or
will be duly executed to the extent required, that all signatures are genuine,
and that all statements set forth in such documents are accurate. We have
assumed that the Merger will be consummated in the manner described in the
Merger Agreement and the Prospectus. In rendering this opinion, we have relied
upon written certificates of officers of Questa, Acquiror and Merger Subsidiary
who have personal knowledge of facts and circumstances relating to the Merger as
well as to the operations, assets and liabilities of Questa, Acquiror and Merger
Subsidiary to verify certain relevant facts that have been represented to us and
that we will assume in rendering such final opinion. With your permission, we
have assumed that the following factual statements (as well as other statements
made in such certificates, but not recited herein) are true on the date hereof
and will be true at the Effective Time:
1. The Merger will be consummated solely in compliance with the
material terms and conditions of the Merger Agreement and none of the material
terms and conditions thereof have been or will be waived or modified.
2. The consideration to be received in the Merger by holders of Shares
was determined by arm's length negotiations between the managements of Acquiror
and Questa and will be approximately equal to the fair market value of the
Shares surrendered in exchange.
3. In the Merger, no holder of Shares will receive for such stock,
directly or indirectly, any consideration other than Acquiror Common Stock and,
in lieu of fractional shares of Acquiror Common Stock and for any Dissenting
Shares, cash.
4. Other than cash paid in lieu of fractional shares of Acquiror Common
Stock and for any Dissenting Shares, none of
(i) Acquiror (or any successor corporation),
(ii) a corporation that, immediately before or immediately after
such purchase, exchange, redemption, or other acquisition, is a member of an
Affiliated Group (as defined herein) of which Acquiror (or any successor
corporation) is a member, or
(iii) a corporation in which Acquiror (or any successor corporation)
owns, or which owns with respect to Acquiror (or any successor corporation),
directly or indirectly, immediately before or immediately after such purchase,
<PAGE>
February 9, 2000
Page 2
exchange, redemption, or other acquisition, at least 50% of the total combined
voting power of all classes of stock entitled to vote or at least 50% of the
total value of shares of all classes of stock, taking into account for purposes
of this clause (iii)
. any stock owned by 5% or greater stockholders of Acquiror (or any
successor) or such corporation,
. a proportionate share of the stock owned by entities in which
Acquiror (or any successor) or such corporation owns an interest,
and
. any stock which may be acquired pursuant to the exercise of
options
(an "Acquiror Related Person") has any current plan or intention to redeem,
purchase, exchange or otherwise reacquire any of the Acquiror Common Stock to be
issued in the Merger.
In addition, Acquiror will cause all Acquiror Related Persons and any
person acting as an agent of Acquiror not to redeem, purchase, exchange or
otherwise acquire (including by derivative transactions such as an equity swap
which would have the economic effect of an acquisition), directly or indirectly
(including through partnerships or through third parties in connection with a
plan to so acquire), a number of shares of Acquiror Common Stock to be received
by holders of Shares in connection with the Merger that would reduce the
holder's ownership of Acquiror Common Stock to a number of shares having a
value, as of the Effective Time, of less than 80% of the total value of all of
the Shares immediately prior to the Effective Time.
For purposes of this representation, Shares exchanged for cash in lieu
of fractional shares of Acquiror Common Stock and Dissenting Shares are treated
as outstanding Shares at the Effective Time. Moreover, Shares that are redeemed
or sold or otherwise transferred to Questa, Acquiror, or any person related to
Questa or Acquiror prior to the Merger and in contemplation or as part of the
Merger will be taken into account for purposes of this representation.
For purposes of this assumption, "Affiliated Group" shall mean one or
more chains of corporations connected through stock ownership with a common
parent corporation, but only if
(x) the common parent owns directly stock that possesses at least
80% of the total voting power, and has a value at least equal to 80% of
the total value, of the stock in at least one of the other corporations,
and
(y) stock possessing at least 80% of the total voting power, and
having a value at least equal to 80% of the total value, of the stock in
each corporation (except the common parent) is owned directly by one or
more of the other corporations.
For purposes of the preceding sentence, "stock" does not include any
stock which
(a) is not entitled to vote,
(b) is limited and preferred as to dividends and does not
participate in corporate growth to any significant extent,
(c) has redemption and liquidation rights which do not exceed the
issue price of such stock (except for a reasonable redemption or
liquidation premium), and
(d) is not convertible into another class of stock.
5. In the Merger, no liabilities of the shareholders of Questa will be
assumed by Acquiror, and Acquiror will not assume any liabilities relating to
any Shares acquired by Acquiror in the Merger. Furthermore, there is no plan or
intention for Acquiror to assume any liabilities of Questa.
6. After the Merger, Questa will hold at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of the gross
assets held by Merger Subsidiary immediately prior to the Merger, and at least
90% of the fair market value of the net assets and at least 70% of the fair
market value of the gross assets held by Questa immediately prior to the Merger.
For purposes of this representation, assets of Merger Subsidiary or Questa held
immediately prior to the Merger include amounts paid or incurred by Merger
Subsidiary or Questa in connection with the Merger, including amounts used to
pay reorganization expenses or dissenting shareholders or to make payments to
shareholders who receive cash or other property (including cash in lieu of
fractional shares) and all payments, redemptions and distributions (except for
regular, normal dividends) made in contemplation or as part of the Merger.
<PAGE>
February 9, 2000
Page 3
7. Prior to and at the Effective Time of the Merger, Acquiror will be
in Control of Merger Subsidiary. Merger Subsidiary is wholly and directly owned
by Acquiror and has been newly formed solely in order to consummate the Merger,
and at no time has or will Merger Subsidiary conduct any business activities or
other operations of any kind other than the issuance of its stock to Acquiror
prior to the Effective Time. For purposes of these assumptions, "Control" with
respect to a corporation shall mean ownership of at least 80% of the total
combined voting power of all classes of stock entitled to vote and at least 80%
of the total number of shares of each other class of stock of the corporation.
8. Following the Merger, Acquiror will cause Questa to continue its
historic business or use a significant portion of its historic business assets
in a business. For this purpose, Acquiror will be treated as holding all of the
businesses and assets of its Qualified Group and Acquiror will be treated as
owning its proportionate share of the Questa business assets used in a business
of any partnership in which members of Acquiror's Qualified Group either own a
significant interest or have active and substantial management functions as a
partner with respect to that partnership business. A Qualified Group is one or
more chains of corporations connected through stock ownership with Acquiror but
only if Acquiror is in Control of at least one other corporation and each of the
corporations (other than Acquiror) is controlled directly by one of the other
corporations.
9. Following the Merger, Acquiror has no plan or intention to cause
Questa to issue additional shares of stock, or any plan or intention to take any
action, that could result in Acquiror losing Control of Questa.
10. Acquiror has no plan or intention to liquidate Questa, to merge
Questa with or into another corporation, to sell, exchange, transfer or
otherwise dispose of any stock of Questa or to cause Questa to sell, exchange,
transfer or otherwise dispose of any of its assets or of any assets acquired
from Merger Subsidiary in the Merger, except for (i) dispositions made in the
ordinary course of business, (ii) transfers or successive transfers if in each
case the transferor is in Control of the transferee, or (iii) arm's length
dispositions to unrelated persons other than dispositions which would result in
Acquiror ceasing to use a significant portion of Questa's historic business
assets in a business.
11. Questa, Acquiror and Merger Subsidiary and the shareholders of
Questa each will bear its or their own expenses, if any, incurred in connection
with or as part of the Merger or related transactions. However, to the extent
any expenses related to the Merger are to be funded directly or indirectly by a
party other than the incurring party, such expenses are solely and directly
related to the Merger, and do not include expenses incurred for investment or
estate planning advice, or expenses incurred by an individual shareholder or
group of shareholders for legal, accounting or investment advice or counsel
relating to the Merger. Neither Acquiror nor Merger Subsidiary has paid or will
pay, directly or indirectly, any expenses (including transfer taxes) incurred or
to be incurred by any holder of Shares in connection with or as part of the
Merger or any related transactions; provided that any stamp duties and stamp
duty reserve taxes in connection with the issuance and creation of Acquiror
Common Stock of Acquiror in the Merger will be paid by Acquiror. Neither
Acquiror nor Merger Subsidiary has agreed to assume, nor will it directly or
indirectly assume, any other expense or other liability, whether fixed or
contingent, of any holder of Shares. To the extent that any transfer tax or
other expense is a liability of a shareholder of Questa, such liability will be
paid by Questa or such shareholder, but in no event by Acquiror.
12. There is no intercorporate indebtedness existing between Acquiror
and Questa or between Merger Subsidiary and Questa that was issued, acquired or
will be settled at a discount.
13. None of Questa, Acquiror or Merger Subsidiary is a regulated
investment company, a real estate investment trust, or a corporation fifty
percent (50%) or more of the value of whose assets are stock and securities and
eighty percent (80%) or more of the value of whose total assets are assets held
for investment (each, an "Investment Company"). For purposes of this
representation, in making the 50% and 80% determinations under the preceding
sentence: (i) stock and securities in any subsidiary corporation shall be
disregarded and the parent corporation shall be deemed to own its ratable share
of the subsidiary's assets, and (ii) a corporation shall be considered a
subsidiary if the parent owns 50% or more of the combined voting power of all
classes of stock entitled to vote or 50% or more of the total value of shares of
all classes of stock outstanding. In determining total assets there shall be
excluded cash and cash items (including receivables), government securities, and
assets acquired (through incurring indebtedness or otherwise) for purposes of
ceasing to be an Investment Company.
14. All shares of Acquiror Common Stock exchanged for Shares pursuant to
the Merger will be newly issued or treasury shares, and will be issued by
Acquiror directly to record holders of Shares pursuant to the Merger.
15. The payment of cash in lieu of fractional shares of Acquiror Common
Stock to holders of Shares is solely for the purpose of avoiding the expense and
inconvenience to Acquiror of issuing fractional shares and does not represent
separately bargained for consideration. To the best knowledge of the management
of Acquiror, the total cash consideration that will be paid in the Merger to
holders of Shares instead of issuing fractional shares of Acquiror Common Stock
will not exceed one percent of the total consideration that will be issued to
the holders of Shares in the Merger.
<PAGE>
February 9, 2000
Page 4
16. At the Effective Time, neither Acquiror nor any Acquiror Related
Person will own any class of stock of Questa or any securities of Questa or any
instrument giving the holder the right to acquire any such stock or securities.
17. None of Questa, Acquiror or Merger Subsidiary is under the
jurisdiction of a court in a case under title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a Federal or State Court.
18. At the Effective Time, the fair market value of the assets of Questa
will exceed the sum of its liabilities plus the amount of liabilities, if any,
to which assets of Questa are subject.
19. Pursuant to the Merger, Shares will be exchanged for a number of
shares of Acquiror Common Stock having a value as of the Effective Time
exceeding eighty percent of the aggregate value of all of the Shares outstanding
prior to the Merger, including for such purpose all Shares redeemed within the
two years immediately preceding the Merger.
20. After the Merger, Acquiror has no plan or intention to sell or
otherwise dispose of any of its assets or of any of the assets of Questa, except
for dispositions made in the ordinary course of business or transfers of assets
to a corporation controlled by Acquiror.
21. Except for cash in lieu of fractional shares or Dissenting Shares,
Acquiror will acquire the Shares solely in exchange for voting shares of
Acquiror Common Stock. For purposes of this representation, Shares redeemed for
cash or other property furnished by Acquiror will be considered as acquired by
Acquiror. Further, no liabilities of Questa or the Questa shareholders will be
assumed by Acquiror, and Acquiror will not assume any liabilities relating to
any Shares acquired by Acquiror in the Merger.
22. None of the employee compensation received or to be received by any
shareholder-employees of Questa is or will be separate consideration for, or
allocable to, any of their Shares to be surrendered in the Merger. None of the
shares of Acquiror Common Stock to be received by any shareholder-employee of
Questa in the Merger is or will be separate consideration for, or allocable to,
any employment, consulting or similar arrangement. Any compensation paid or to
be paid to any shareholder of Questa who will be an employee of or perform
advisory services for Acquiror, Questa, or any affiliate thereof after the
Merger, will be determined by bargaining at arm's length.
23. None of Acquiror, Merger Subsidiary or, after the Merger, Questa
will take any position on any Federal, state, or local income or franchise tax
return, or take any other tax reporting position, that is inconsistent with the
treatment of the Merger as a tax-free reorganization or any of the foregoing
representations, unless otherwise required by a decision by the United States
Tax Court or a judgment, decree, or other order by any court of competent
jurisdiction, which has become final, or by applicable state or local income or
franchise tax law.
We have also assumed that all of the Shares outstanding immediately before the
Effective Time are held by the Questa shareholders as capital assets.
OPINION
-------
Based upon the foregoing, it is our opinion that, for U.S. federal
income tax purposes:
1. The Merger will be treated as a "reorganization" within the meaning
of section 368(a).
2. Each of Questa, Acquiror and Merger Subsidiary will be a party to
such reorganization within the meaning of section 368(b).
3. No gain or loss will be recognized by Acquiror, Questa or Merger
Subsidiary as a result of the Merger.
4. No gain or loss will be recognized by a shareholder of Questa as a
result of the Merger with respect to Shares exchanged for shares of Acquiror
Common Stock in the Merger.
5. A Questa shareholder's aggregate tax basis in the Acquiror Common
Stock exchanged for the Questa shareholder's Shares in the Merger will equal the
Questa shareholder's aggregate tax basis in the Shares exchanged.
6. The holding period of the shares of Acquiror Common Stock exchanged
for a Questa shareholder's Shares in the Merger will include the holding period
of the Shares exchanged.
<PAGE>
February 9, 2000
Page 5
The preceding are all of the material U.S. federal income tax
consequences of the Merger. However, our opinion does not address U.S. federal
income tax consequences which may vary with, or which are contingent upon, a
shareholder's individual circumstances. In addition, our opinion does not
address any non-income tax or any foreign, state or local tax consequences of
the Merger.
This opinion represents and is based upon our best judgment regarding
the application of U.S. federal income tax laws, existing judicial decisions,
administrative regulations and published rulings and procedures as of the date
of this letter. We call your attention to the fact that the opinion set forth in
this letter is an expression of professional judgment and not a guarantee of a
result. Our opinion is not binding upon the Internal Revenue Service or the
courts, and the Internal Revenue Service is not precluded from successfully
asserting a contrary position. Only an advance ruling from the Internal Revenue
Service will give a taxpayer assurance as to the tax consequences of a
transaction such as the Merger. Furthermore, no assurance can be given that
future legislative, judicial or administrative changes, on either a prospective
or retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. A change in the authorities or the accuracy or completeness of
any of the information, documents, corporate records, covenants, statements,
representations or assumptions on which our opinion is based could affect our
conclusions.
This letter is furnished to you solely for use in connection with the
Merger, as described in the Merger Agreement and the Prospectus, and is not to
be used, circulated, quoted, or otherwise referred to for any other purpose
without our express written permission. In accordance with the requirements of
Item 601(b) (23) of Regulation S-K under the Securities Act, we hereby consent
to the discussion of this opinion in the Prospectus, to the filing of this
opinion as an exhibit to the Prospectus and to the reference to our firm under
the headings "THE MERGER-Material U.S. Federal Income Tax Consequences," and
"SUMMARY-Other Information-Federal Income Tax Consequences of the Merger" in the
Prospectus. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations of the Commission thereunder.
Sincerely,
/s/ Conner & Winters
CONNER & WINTERS,
A Professional Corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Unit Corporation of our report dated February 23, 1999,
relating to the consolidated financial statements and financial statement
schedule which appear in Unit Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998 and of our report dated August 27, 1999, relating
to the financial statements of the Parker Division, a Division of Parker
Drilling Company North America, Inc. as of and for the year ended August 31,
1998, which appears in the Current Report on Form 8-K/A of Unit Corporation
dated December 10, 1999. We also consent to the reference to us under the
heading "Independent Accountants" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
February 9, 2000
I
<PAGE>
Exhibit 23.2
Consent of Magee Rausch & Shelton LLP
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report dated March 22, 1999, relating to the
consolidated financial statements and financial statement schedule of Questa Oil
& Gas Co., which appears in Questa Oil & Gas Co.'s Annual Report on Form 10-K
for the year ended December 31, 1998. We also consent to the reference to us
under the heading "Independent Accountants" in such Registration Statement.
/s/ Magee Rausch & Shelton LLP
Magee Rausch & Shelton LLP
Tulsa, Oklahoma
February 9, 2000
I
<PAGE>
Exhibit 99.1
Form of Questa Oil & Gas Co. proxy
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QUESTA OIL & GAS CO.
SPECIAL MEETING OF STOCKHOLDERS
March 14, 2000
THIS PROXY IS SOLICITED ON BEHALF OF QUESTA OIL & GAS CO.'S BOARD OF DIRECTORS
P The undersigned hereby appoints Warren L. Meeks and Alan W. Meeks, and
each of them, proxies for the undersigned, with full power of substitution,
R to vote all shares of Questa Oil & Gas Co. Common Stock which the
undersigned may be entitled to vote at the Special Meeting of Stockholders
O of Questa Oil & Gas Co., Tulsa, Oklahoma, on March 14, 2000 at 10:00 A.M.,
or at any adjournment thereof, upon the matters set forth on
X the reverse side and described in the accompanying Proxy
Statement/Prospectus and upon such other business as may properly come
Y 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.
_____________________________________________________________________________
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
(Continued, and to be marked, dated & signed on reverse side)
- --------------------------------------------------------------------------------
I
<PAGE>
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR Item 1.
Please mark
your votes [X]
this way
FOR AGAINST ABSTAIN
Item 1 - Approval of the
Agreement and [ ] [ ] [ ]
Plan of Merger,
dated as of
December 8, 1999,
among Questa,
Unit Corporation
and Unit
Acquisition
Company
PLEASE MARK THIS BOX IF YOU [ ] COMMENTS/ADDRESS CHANGE [ ]
PLAN TO ATTEND THE MEETING Please mark this box if
you have written
comments/address change on
the reverse side.
Receipt is hereby acknowledged of the Questa Oil & Gas Co.
Notice of Special Meeting and Proxy Statement/Prospectus.
Signature(s)_______________________________ Date: ____________________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
II
