<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. _____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14(a)-11(c) or Section
240.14a-12
PATTERSON ENERGY, INC.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Name of Registrant as Specified in Its Charter)
Not Applicable
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Aggregate number of securities to which transaction applies:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Proposed maximum aggregate value of transaction:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Total Fee Paid:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by the Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
PATTERSON ENERGY, INC.
P. O. DRAWER 1416
SNYDER, TEXAS 79550
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 1, 1997
To the Stockholders of
PATTERSON ENERGY, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Patterson
Energy, Inc., a Delaware corporation (the "Company"), will be held at the
Embassy Suites Hotel, 3880 West Northwest Highway, Dallas, Texas, on Tuesday,
July 1, 1997, at 10:00 A.M., local time, for the following purposes:
1. To elect five (5) directors of the Company to serve until the next
annual meeting of stockholders or until their respective successors shall
be elected and qualified;
2. To consider and vote upon a proposal to amend Patterson's Restated
Certificate of Incorporation to increase its authorized Common Stock from
9,000,000 shares to 18,000,000 shares;
3. To consider and vote upon a proposal to amend the Patterson Energy,
Inc. 1993 Stock Incentive Plan to increase the number of shares of Common
Stock reserved for issuance thereunder from 175,000 shares to 350,000
shares;
4. To consider and vote upon a proposal to ratify the selection of
Coopers & Lybrand L.L.P., independent accountants, as independent auditors
for the Company for the fiscal year ending December 31, 1997; and
5. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
Only stockholders of record at the close of business on May 14, 1997, are
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU PLAN TO BE PRESENT AT THE MEETING, YOU ARE REQUESTED TO SIGN AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE SO THAT YOUR SHARES MAY BE
VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER THAT THE PRESENCE OF A QUORUM
MAY BE ASSURED. THE GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON, SHOULD YOU LATER DECIDE TO ATTEND THE MEETING. PLEASE DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOUR VOTE IS
IMPORTANT.
By Order of the Board of Directors
James C. Brown
Secretary
Snyder, Texas
May 15, 1997
<PAGE> 3
PATTERSON ENERGY, INC.
P.O. DRAWER 1416
SNYDER, TEXAS 79550
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 1, 1997
This Proxy Statement is furnished to stockholders of Patterson Energy,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of Stockholders (the "Meeting") to be held at the Embassy Suites
Hotel, 3880 West Northwest Highway, Dallas, Texas, on Tuesday, July 1, 1997, at
10:00 A.M., local time, for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders. The approximate date on which this Proxy
Statement and the enclosed Proxy will first be sent to stockholders is May 16,
1997.
ACTIONS TO BE TAKEN AT THE MEETING
Shares represented by a properly executed Proxy, unless the stockholder
otherwise instructs in the Proxy, will be voted (i) for the election of the five
individuals named below under the caption "Election of Directors" as directors
of the Company; (ii) for the proposal to amend the Company's Restated
Certificate of Incorporation to increase its authorized Common Stock from
9,000,000 shares to 18,000,000 shares (the "Capital Stock Charter Amendment");
(iii) for the proposal to amend the Patterson Energy, Inc. 1993 Stock Incentive
Plan ("Stock Incentive Plan") to increase the number of shares of Common Stock
reserved for issuance thereunder from 175,000 shares to 350,000 shares ("Stock
Incentive Plan Amendment"); (iv) for the ratification of the selection of
Coopers & Lybrand L.L.P., independent accountants, as independent auditors of
the Company for the fiscal year ending December 31, 1997 ("Ratification of
Auditors"); and (v) at the discretion of the proxy holders, on any other matter
or business that may be properly presented at the Meeting or any adjournment
thereof. Where a stockholder properly executes a Proxy and gives instructions on
how his shares are to be voted, the shares will be voted in accordance with
those instructions.
A Proxy may be revoked at any time by a stockholder before it is exercised
by giving written notice to the Secretary of the Company or by signing and
delivering a Proxy which is dated later, or if the stockholder attends the
Meeting in person, by either notice of revocation to the inspectors of election
at the Meeting or by voting at the Meeting.
The only matters that management intends to present at the Meeting are the
four matters referenced in subparagraphs (i) through (iv) above. If any other
matter or business is properly presented at the Meeting, the proxy holders will
vote upon it in accordance with their best judgment.
VOTING SECURITIES
The record date for the Meeting is May 14, 1997. Only stockholders of
record at the close of business on May 14, 1997, will be entitled to vote at the
Meeting. At the close of business on that date, there were issued and
outstanding 7,070,657 shares of the Company's common stock, par value $0.01 per
share, (the "Common Stock"), entitled to one vote per share. In the election of
directors, cumulative voting is not allowed. There are no outstanding shares of
preferred stock. A majority of the outstanding Common Stock, present in person
or by Proxy and entitled to vote, will constitute a quorum for the transaction
of business at the Meeting. Shares of Common Stock represented by proxies which
are marked "abstain" or which are not marked as to any particular matter or
matters will be counted as shares present for purposes of determining the
presence of a quorum on all matters. Proxies relating to "street name" shares
that are voted by brokers will be counted as shares present for purposes of
determining the presence of a quorum on all matters, but will not be treated as
shares having voted at the Meeting as to any proposal as to which authority to
vote is withheld by the brokers.
<PAGE> 4
Under Delaware law and the Company's Restated Certificate of Incorporation,
if a quorum is present at the Meeting, (a) to be elected a director, each
nominee must receive a plurality of the votes of the shares of Common Stock
present in person or by Proxy at the Meeting and entitled to vote on the matter,
(b) the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to approve the proposed Capital Stock Charter
Amendment, and (c) the affirmative vote of the majority of shares present in
person or by Proxy at the Meeting and entitled to vote on the matter is required
to approve (i) the proposed Stock Incentive Plan Amendment, (ii) the proposed
Ratification of Auditors, and (iii) any other matter submitted to a vote of
stockholders at the Meeting. In the election of directors, any action other than
a vote for a nominee will have the practical effect of voting against the
nominee. Abstention from voting on the proposed Capital Stock Charter Amendment
or the proposed Stock Incentive Plan Amendment or the Ratification of Auditors
will have the effect of voting against any such matter. Broker non-votes will
have the effect of a vote against the Capital Stock Charter Amendment, but will
not have the effect of a vote for or against the Stock Incentive Plan Amendment.
BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK
The following table sets forth, as of March 31, 1997, information
concerning the beneficial ownership of the Common Stock by (i) each person known
to the Company to be the beneficial owner of more than 5% of the outstanding
shares of the Common Stock, (ii) each director and nominee as director of the
Company, (iii) each of the executive officers named in the Summary Compensation
Table set forth below under the caption "Executive Compensation," and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
OWNERSHIP OF OF
NAME(1) COMMON STOCK(2) CLASS
------- --------------- --------
<S> <C> <C>
Cloyce A. Talbott.......................................... 494,974 7.0%
2500 Towle Park Road
Snyder, Texas 79549
A. Glenn Patterson......................................... 112,143(3) 1.6%
Kenneth E. Davis........................................... 71,554(4) 1.0%
Robert C. Gist............................................. 17,943(5) *
Vincent A. Rossi, Jr....................................... -- --
James C. Brown............................................. 38,727(6) *
All executive officers and directors as a group (6
persons)................................................. 735,341(7) 10.3%
</TABLE>
- ---------------
* Less than 1%
(1) Each person named is an executive officer and/or director of the Company.
(2) Beneficial ownership includes shares over which the indicated beneficial
owner exercises voting and/or investment power. Shares of Common Stock
subject to options currently exercisable or exercisable within 60 days are
deemed outstanding for computing the percentage ownership of the person
holding the options, but not deemed outstanding for computing the percentage
ownership of any other person.
(3) Includes 30,720 shares purchasable under exercisable employee stock options.
(4) Includes 5,474 shares owned by the wife of Mr. Davis and 5,000 shares
purchasable under exercisable non-employee director stock options.
(5) Includes 5,000 shares purchasable under exercisable non-employee director
stock options.
(6) Includes 13,000 shares purchasable under exercisable employee stock options.
(7) Includes the 53,720 shares purchasable under exercisable employee and
non-employee director stock options (see Notes 3, 4, 5 and 6 above).
2
<PAGE> 5
ELECTION OF DIRECTORS
(PROPOSAL 1 ON PROXY CARD)
The Company's Bylaws provide that the number of members of the Board of
Directors shall be fixed either by amendment to the Bylaws or by resolution of
the Board of Directors. Pursuant to Board resolution, the size of the Board is
currently set at five. The Company's Board of Directors is not divided into
classes; therefore, all five directors are to be elected at the Meeting.
Directors are elected to serve until the next annual meeting of stockholders or
until their successors are elected and qualified.
Unless authority is withheld, it is intended that the shares represented by
a properly executed Proxy will be voted for the election of all of the nominees
(Cloyce A. Talbott, A. Glenn Patterson, Robert C. Gist, Kenneth E. Davis and
Vincent A. Rossi, Jr.) as directors. The nominees constitute all of the members
of the Company's present Board of Directors. If these nominees are unable to
serve for any reason, such Proxy will be voted for such persons as shall be
designated by the Board of Directors to replace such nominees. The Board of
Directors has no reason to expect that these nominees will be unable to serve.
The following table sets forth certain information concerning the
individuals nominated for election as directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
Cloyce A. Talbott.......................... 61 Chairman of the Board; Chief Executive
Officer; Director
A. Glenn Patterson......................... 50 President; Chief Operating Officer;
Director
Robert C. Gist............................. 56 Director
Kenneth E. Davis........................... 74 Director
Vincent A. Rossi, Jr....................... 39 Director
</TABLE>
The following is a brief description of each nominee's business experience
during the past five years:
CLOYCE A. TALBOTT has served as a Director of the Company since its
incorporation in 1978. Mr. Talbott is co-founder of the Company, served as Vice
President from 1978 to 1983, and has served as Chairman of the Board and Chief
Executive Officer since 1983. He also serves as Chairman of the Board and Chief
Executive Officer of the Company's four subsidiaries. Mr. Talbott received a
Bachelor of Science degree in Petroleum Engineering in 1958 from Texas Tech
University, Lubbock, Texas.
A. GLENN PATTERSON has served as a Director of the Company since its
incorporation in 1978. Mr. Patterson is a co-founder of the Company and has
served as its President since 1978 and also as Chief Operating Officer since
1983. Mr. Patterson also serves as President of the Company's four subsidiaries.
Mr. Patterson is primarily responsible for the day-to-day management of the
Company's contract drilling activities. Mr. Patterson received his Bachelor of
Science degree in Business in 1970 from Angelo State University, San Angelo,
Texas.
ROBERT C. GIST has served as a Director of the Company since 1985. Mr. Gist
has served as general legal counsel and advisor to the Company since 1987. Mr.
Gist received a Bachelor of Science degree in Economics in 1962 and a law degree
in 1965 from Southern Methodist University. He is currently self-employed as an
attorney and has been for at least the past five years. He has over 20 years
experience in the oil and gas industry.
KENNETH E. DAVIS has served as Director of the Company since 1978 and
served as Treasurer from 1978 to June 1993. Mr. Davis received a Bachelor of
Arts degree in Business from University of North Texas, Denton, Texas, in 1950.
Mr. Davis was the owner and director of Fluid Transports, Inc., an oil field
trucking company, until he sold the company in December 1994 and retired.
VINCENT A. ROSSI, JR. has served as a director of the Company since July
30, 1996. Since 1995, Mr. Rossi has served as a Managing Director of Turnberry
Capital Management L.P., an investment advisory firm. From March 1991 through
1994, he was a Managing Director of CS First Boston and co-founder of the First
Boston Special Situations Fund where he was jointly responsible for capital
commitment. From 1989 to
3
<PAGE> 6
March 1991, he was responsible for proprietary capital commitment in the
Distressed Securities Group at CS First Boston. During the prior two years, he
was a senior member of the Reorganizations Group at CS First Boston. Mr. Rossi
joined CS First Boston in 1987 from Odyssey Partners. He is a 1984 graduate of
the Harvard Business School and received a B.S., summa cum laude, from the
Wharton School, University of Pennsylvania in 1980.
OTHER EXECUTIVE OFFICER
The following table sets forth certain information concerning the only
executive officer of the Company who is not also a director:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
James C. Brown............................. 45 Vice President -- Finance; Chief Financial
Officer; Secretary and Treasurer
</TABLE>
Mr. Brown has served as Secretary and Treasurer of the Company since June
1993 and as Vice President -- Finance and Chief Financial Officer since August
1993. Mr. Brown served as Vice President from 1982 until June 1990, as a
Director of the Company from February 1985 until June 1990, and as Controller
from December 1983 until June 1990. Mr. Brown also serves as Vice
President -- Finance, Treasurer and Secretary of the Company's four
subsidiaries. Mr. Brown is responsible for managing all office personnel of the
Company involved with general financial and tax accounting activities. Mr. Brown
received a Bachelor of Science degree in Accounting in 1973 from Tarleton State
University, Stephenville, Texas. He is a certified public accountant in the
State of Texas and a member of the American Institute of Certified Public
Accountants.
The officers of the Company hold office until their successors are
appointed by the Board of Directors. All officers of the Company are employed on
a full-time basis. There are no arrangements or understandings between any of
the directors or officers and any other person pursuant to which he or she was
or is to be selected as a director, nominee or officer. There is no family
relationship between any director and executive officer of the Company other
than between Messrs. Talbott and Patterson, who are brothers-in-law.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held nine formal meetings during the year ended
December 31, 1996. All directors attended at least 75% of the aggregate of all
meetings of the Board of Directors and committees on which they served in 1996.
In addition to those meetings, certain business was conducted by unanimous
written consent of the Board of Directors. The Company's officers have made a
practice of keeping directors informed of corporate activities by personal
meetings and telephone discussions and (as indicated above) directors ratify or
authorize certain Company actions through unanimous written consent actions.
The Company has an Audit Committee and a Compensation Committee of the
Board of Directors consisting in each case of Kenneth E. Davis and Robert C.
Gist. The Audit Committee's function is to review and approve the services of
the outside public accounting firm. The Compensation Committee's function is to
review and approve proposals by management as to compensation for officers and
other employees of the Company and to administer the Stock Incentive Plan.
During 1996, the Audit Committee held no formal meeting. The Audit Committee
meeting for 1996 was held in February 1997. The Compensation Committee held one
formal meeting during 1996.
At present, the Company has no nominating, executive or similar committees.
4
<PAGE> 7
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued during each
of the years in the three-year period ended December 31, 1996, to the Company's
Chief Executive Officer and to each of the other executive officers, each of
whose total compensation exceeded $100,000 for the last fiscal year for services
in his capacity as such.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- AWARDS
NAME AND OTHER ANNUAL ------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) STOCK OPTIONS COMPENSATION(2)
------------------ ---- -------- -------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Cloyce A. Talbott.................... 1996 $150,900 $ 507 $ -0- -0- $ 4,605
Chairman of the Board/ 1995 125,000 507 15,000 -0- 3,053
Chief Executive Officer 1994 125,000 -0- 15,000 -0- 4,620
A. Glenn Patterson................... 1996 $150,900 $ 507 $ -0- -0- $ 4,693
President/Chief Operating 1995 125,000 115,507 -0- 70,000 3,623
Officer 1994 125,000 60,507 -0- -0- 4,620
James C. Brown....................... 1996 $110,834 $ 507 $ -0- -0- $ 2,780
Vice President -- Finance/ 1995 95,900 507 -0- 25,000 2,308
Chief Financial Officer, 1994 92,917 -0- -0- -0- 2,323
Secretary and Treasurer
</TABLE>
- ---------------
(1) The Company furnishes certain prerequisites and other personal benefits to
its executive officers and certain of its other employees. These benefits
include one or more of the following: The use of an automobile owned or
leased by the Company; payment of annual country club dues and monthly
charges, including personal meals; personal landscape and secretarial
services through Company employees at the Company's expense. The value of
these prerequisites and other personal benefits provided to an executive
officer named in the table are reported for a year only if the aggregate
value of such benefits exceeds the lesser of $50,000 or 10% of such
executive officer's total salary and bonus disclosed in the table for the
year reported.
(2) Represents Company contributions to the Patterson Energy, Inc. 401(k) Plan
(the "Plan") for the account of the executive officers named in the table.
The Plan became effective January 1, 1992. All employees of the Company who
work 1,000 hours or more during the year, are at least 21 years of age, were
employed on the last day of the year and have at least one year of service
with the Company or its subsidiaries are eligible to participate in the
Plan. The Company has no obligation to make contributions under the Plan;
Company contributions are discretionary. Company contributions vest over a
five-year period, based on credited years of service with the Company, and
may be made either by (i) matching all or a portion of the respective
participants' contributions to the Plan, or (ii) a profit sharing
contribution to the accounts of participants which are in turn allocated to
the accounts of active participants in the same proportion that each active
participant's compensation bears to the total compensation of all active
participants for the plan year. Each of the executive officers named in the
table are fully vested in the Plan.
OPTION GRANTS IN 1996
No options were granted during 1996 to any of the executive officers named
in the Summary Compensation Table above.
5
<PAGE> 8
AGGREGATED OPTION EXERCISES AND OPTION VALUES AT DECEMBER 31, 1996
The following table sets forth information concerning the fiscal year-end
value of unexercised options held by each of the executive officers named in the
Summary Compensation Table above, other than Cloyce A. Talbott. No options have
been granted to Mr. Talbott. No options were exercised by either of the named
persons during 1996.
AGGREGATED OPTION EXERCISES
FOR YEAR ENDED DECEMBER 31, 1996 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR END(#)(1) YEAR-END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
A. Glenn Patterson....... -0- -0- 22,720 47,280 $335,040 $752,460
James C. Brown........... -0- -0- 10,000 15,000 $164,000 $246,000
</TABLE>
- ---------------
(1) The total number of unexercised options held as of December 31, 1996,
separated between those options that were exercisable and those options that
were not exercisable.
(2) Calculated by subtracting actual option exercise price from market price at
year end ($25.75 per share) and multiplying the difference by the number of
shares in each category.
DIRECTOR COMPENSATION
Each non-employee director of the Company receives a $1,000 per month fee
as partial compensation for services as board members. In addition, pursuant to
the Company's Non-Employee Directors' Stock Option Plan, each non-employee
director is automatically granted options to purchase 5,000 shares at the time
he becomes a director and, thereafter, options to purchase an additional 1,000
shares for each subsequent year that he serves up to a maximum of 10,000 shares
per director. The exercise price for each such option is the fair market value
of the Common Stock on the date of grant.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
None of the executive officers named in the Summary Compensation Table
above has an employment or severance agreement or any plan or arrangement
providing compensation in the event of a change in control of the Company.
CERTAIN TRANSACTIONS
The Company leases a 1981 Beech King-Air 90 airplane owned by Talbott
Aviation, Inc., a company wholly-owned by Cloyce A. Talbott, Chief Executive
Officer of the Company, under the terms of a lease dated February 15, 1995,
effective January 1, 1995 (the "Lease"). Under the terms of the Lease, the
Company pays a monthly rental of $9,200 and the costs of fuel, insurance, taxes
and maintenance of the aircraft. The Company also pays the salary of the pilot,
who is a full-time employee of the Company. The Lease was scheduled to terminate
on December 31, 1996, but has been extended to December 31, 1997. Mr. Talbott
and Mr. A. Glenn Patterson, the President of the Company, and other Company
officers are entitled to use the aircraft for personal use, for which they pay
the Company $500 per flight hour. The Company has a right of first refusal to
purchase the aircraft. The total cost to the Company for the aircraft (exclusive
of the pilot's salary) under the Lease was $267,000 in 1996. The Company used
the aircraft for 267.9 flight hours out of a total of 316.7 flight hours for the
aircraft in 1996. The Company headquarters are located approximately 100 miles
from the nearest major airport. The Company's management believes that the lease
of the aircraft is necessary for the efficient operation of its business. The
disinterested members of the Board of Directors believe that the Lease is on the
same or better terms than the Company could have obtained from a nonaffiliated
party.
6
<PAGE> 9
In April 1992, the Company obtained a revolving line of credit of $710,000
from Financial Services Partnership, a partnership made up of family members and
family trusts of Messrs. Talbott and Patterson. The original line of credit
provided for interest at 10% per annum, payable monthly, and was due May 1,
1993, but was renewed until May 1, 1994. On November 2, 1993, the interest rate
was reduced to 8% per annum. In December 1993, the line of credit was renewed.
The renewed line of credit provided for interest at 8% per annum, payable
monthly, and was collateralized by the Company's accounts receivable and general
intangibles and was to mature in December 1995. In December 1994, the maturity
date was extended to December 1996 and in December 1995, the maturity was again
extended to December 1997. The note was prepaid in full in December 1996.
Robert C. Gist, a director of the Company, was paid a monthly retainer of
$1,000 during 1996 for legal and consulting services provided to the Company.
The Company intends to continue to obtain such services from Mr. Gist. In
addition, the Company paid premiums in 1996 for Mr. Gist's family health
insurance coverage in the amount of approximately $4,595.
In 1996, the Company provided contract drilling services for which it
received approximately $920,000 from HAT Oil & Gas, Inc., a company in which a
son of Mr. Talbott is a stockholder, director and officer. The Company
competitively bids for these drilling services on the same basis as it bids for
the performance of drilling services for other third parties. The Company also
owns a minor working interest in oil and gas properties operated by that
company.
The Company sells substantially all of the oil produced from
Company-operated wells to BHT Marketing, Inc. ("BHT"), a Texas corporation in
which a son of Mr. Talbott is a stockholder, director and officer, under terms
of crude oil purchase contracts entered into on October 19, 1994 and October 24,
1995 (the "Purchase Contracts"). The purchase price for the oil is the posted
monthly average price plus a bonus per Bbl of oil less basin sediment and water
deductions. The bonus is determined by competitive bid and is currently $0.65 to
$1.40 per Bbl of sweet oil and $0.95 per Bbl of sour oil. The Purchase Contracts
can be terminated by either party upon at least 30 days' prior written notice.
Crude oil sales to BHT in 1996 were approximately $19,564,000. Simultaneously
with the execution of the Purchase Contracts, the Company and BHT have entered
into participation agreements (the "Participation Agreements") pursuant to which
the Company and BHT have agreed to share equally in the net proceeds received by
BHT from the sale of all oil purchased by BHT under the Purchase Contracts. The
term "net sales proceeds" generally means the gross proceeds received by BHT for
the oil less all payments paid to the Company under the Purchase Contracts,
pipeline tariffs and all other costs and expenses actually incurred by BHT
associated with the transportation and sale of such oil. The proceeds received
by the Company under these Participation Agreements were approximately $244,965
in 1996.
Certain of the Company's directors, executive officers and key employees
and their family members (collectively referred to herein as "Affiliated
Persons") have participated, either individually or through entities they
control, in oil and gas prospects or properties in which the Company has an
interest. These participations, which have been on a working interest basis,
have been in prospects or properties originated or acquired by the Company. In
substantially every property in which any of the Affiliated Persons has been a
working interest participant, the Company also has sold working interests to
nonaffiliated persons on the same basis. At December 31, 1996, Affiliated
Persons were working interest owners in 104 of the 215 wells then being operated
by the Company. Of the 104 wells, the Company also sold working interests in 90
wells to nonaffiliated persons. In some cases, the interests sold to affiliated
and nonaffiliated participants were sold on a promoted basis requiring these
participants to pay a portion of the Company's costs. The Company believes that
each of the participations by Affiliated Persons has been on terms no less
favorable to the Company than it could have obtained from nonaffiliated
participants. It is expected that joint participations with the Company will
occur from time to time in the future. Conflicts of interest may arise between
such directors and officers and the Company as to the advisability of conducting
drilling and recompletion activities on those properties. As is the case of
sales of working interests by the Company in its properties to nonaffiliated
persons, sales of working interests to Affiliated Persons are made to reduce the
Company's economic risk in the properties.
7
<PAGE> 10
The following table sets forth production revenues received and joint
production costs paid by each of the Affiliated Persons during 1996 for all
wells operated by the Company in which they have working interests. These
numbers do not necessarily represent their profits or losses from these
interests because the joint production costs do not include the parties' related
drilling and leasehold acquisition costs incurred prior to January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
--------------------------
PRODUCTION JOINT
REVENUES INTEREST
NAME RECEIVED(1) BILLINGS(2)
---- ----------- -----------
<S> <C> <C>
Cloyce A. Talbott........................................... $ 318,782 $ 332,476
Anita Talbott(3)............................................ 221,801 185,358
SSI Oil & Gas, Inc.(4)...................................... 2,107,967 1,625,216
Steve Talbott(3)............................................ 88,427 36,964
Stan Talbott(3)............................................. 96,815 58,638
Lisa Beck and Stacy Talbott(3).............................. 235,574 126,467
H.A. Talbott and Audrey Talbott Children's Trust(5)......... -- (4,506)
---------- ----------
Subtotal.......................................... 3,069,366 2,360,613
---------- ----------
A. Glenn Patterson.......................................... 225,247 314,682
---------- ----------
Kenneth E. Davis............................................ 275,695 303,939
Sandra Davis(6)............................................. 80,174 91,008
---------- ----------
Subtotal.......................................... 355,869 394,947
---------- ----------
James C. Brown.............................................. 753 378
---------- ----------
Total............................................. $3,651,235 $3,070,620
========== ==========
</TABLE>
- ---------------
(1) Revenues received for production of oil and gas, net of state severance
taxes.
(2) Includes leasehold costs, tangible equipment costs, intangible drilling
costs and lease operating expense billed during that period. All joint
interest billings have been paid on a timely basis.
(3) Anita Talbott is the wife of Cloyce A. Talbott. Steve and Stan Talbott, Lisa
Beck and Stacy Talbott are Mr. Talbott's adult children.
(4) SSI Oil & Gas, Inc. is beneficially owned 50% by Cloyce A. Talbott and
directly owned 50% by A. Glenn Patterson.
(5) H.A. Talbott and Audrey Talbott Children's Trust is a trust of which Cloyce
A. Talbott is a beneficiary and co-trustee.
(6) Sandra Davis is the wife of Kenneth E. Davis.
Any future transactions between the Company and its officers, directors,
key employees, 5% stockholders and their family members and affiliates will
continue to be subject to the approval of a majority of disinterested members of
the Board of Directors and will continue to be on terms no less favorable to the
Company than those that could be negotiated with nonaffiliated parties. During
February 1994, the Board adopted a blanket policy approving in advance all Joint
Participations with Affiliated Persons in oil and gas prospects and properties
after that date, provided that the participations of such Affiliated Persons are
on the same basis as participations with nonaffiliated persons. In those
instances when there are no nonaffiliated third-party participants, prior Board
approval is required on a participation-by-participation basis.
8
<PAGE> 11
PERFORMANCE GRAPH
The following graph shows the changes over the past approximate three-year
and two-month period beginning November 2, 1993 (date on which trading in the
Common Stock commenced on a "when issued basis"), and ending December 31, 1996,
in the value of $100 invested in: (1) Patterson Energy, Inc. Common Stock; (2) a
Media General Industrial Group Index consisting of 72 companies engaged in oil
and gas field services (all within SIC Code 1381); and (3) the NASDAQ Market
Index. The year-end values of each investment are based on share price
appreciation and assume that $100 was invested on November 2, 1993, and that all
dividends are reinvested. Calculations exclude trading commissions and taxes.
The comparison in the graph is required by the SEC and, therefore, is not
intended to forecast or be indicative of possible future performance of the
Company's Common Stock.
COMPARE CUMULATIVE TOTAL RETURN AMONG
PATTERSON ENERGY, INC., NASDAQ MARKET
INDEX AND MG GROUP INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD PATTERSON ENERGY, NASDAQ MARKET
(FISCAL YEAR COVERED) INC. MG GROUP INDEX INDEX
<S> <C> <C> <C>
11/2/93 100.00 100.00 100.00
12/31/93 93.22 91.61 98.64
12/31/94 93.22 81.90 103.56
12/31/95 191.53 121.05 134.33
12/31/96 349.15 179.45 166.92
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
NOVEMBER 2 DECEMBER 31
---------- ------------------------------------
1993 1993 1994 1995 1996
---------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Patterson Energy, Inc........................ $100.00 $93.22 $ 93.22 191.53 $349.15
Media General Industrial Group Index......... 100.00 91.61 81.90 121.05 179.45
NASDAQ Market Index.......................... 100.00 98.64 103.56 134.33 166.92
</TABLE>
9
<PAGE> 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Kenneth E. Davis and Robert C. Gist served as members of the Compensation
Committee during calendar 1996. Mr. Davis has not served as an officer of the
Company since June 1993, when he resigned as Treasurer. Mr. Gist has never
served as an officer, but has been paid a monthly retainer of $1,000 since 1993
for legal and consulting services. The Company also pays premiums for Mr. Gist's
family health insurance coverage, $4,595 during 1996.
COMPENSATION COMMITTEE REPORT
Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain information regarding the compensation of
its Chief Executive Officer and other executive officers whose salary and bonus
exceed $100,000 per year. Disclosure requirements include a report explaining
the rationale and considerations that lead to fundamental executive compensation
decisions. The following report has been prepared to fulfill this requirement.
The Compensation Committee ("Committee") of the Board of Directors sets and
administers the policies that govern the annual compensation and long-term
compensation of executive officers of the Company. The Committee consists of
Messrs. Davis and Gist, neither of whom is an employee of the Company. The
Committee makes all decisions concerning compensation of executive officers who
receive salary and bonus in excess of $100,000 annually, determine the total
amount of bonuses to be paid annually and grant all awards of stock options
under the Company's Stock Incentive Plan. The Compensation Committee has
retained Coopers & Lybrand L.L.P. to provide executive compensation consulting
services to assist the Committee in performing its various duties. Coopers &
Lybrand L.L.P. prepared, in 1996, a report comparing the Company's cash
compensation practices for the executive officers to the executive-level cash
compensation practices of similarly-sized companies in the Company's segment of
the oil and gas industry and in general industry.
The Committee's policy is to offer executive officers competitive
compensation packages that will permit the Company to attract and retain highly
qualified individuals and to motivate and reward such individuals on the basis
of the Company's performance. At present, the Company's executive compensation
package consists of base salary, cash bonus awards and long-term incentive
opportunities in the form of stock options and a 401(k) plan. Executive salaries
are reviewed by the Committee on an annual basis and are set for individual
executive officers based on subjective evaluations of each individual's
performance, the Company's performance and a comparison to salary ranges for
executives of other companies in the oil and gas industry with characteristics
similar to those of the Company. This allows the Committee to set salaries in a
manner that is both competitive and reasonable within the Company's industry.
Cash bonuses may be awarded on an annual basis for exceptional effort and
performance. The use of a specific formula to evaluate management performance is
not employed because it is difficult to define an appropriate formula and it
restricts the flexibility of the Committee. The Committee considers the
achievements of the Company, specifically including earnings for the year and
return on stockholders' equity, in determining appropriate levels for bonus
awards. During August 1996, the Committee increased the base annual salary of
each of the executive officers named in the Summary Compensation Table above.
Because of this mid-year increase, no cash bonus awards were paid for 1996.
Stock options may be granted to key employees under the Patterson Energy,
Inc. 1993 Stock Incentive Plan, including executive officers of the Company.
Such stock-based awards continue to be an important element of the executive
compensation package because they aid in the objective of aligning the key
employees' interests with those of the stockholders by giving key employees a
direct stake in the performance of the Company. Decisions concerning the
granting of stock options are made on the same basis as decisions concerning
base salary and cash bonus awards as discussed above. No options were granted in
1996.
The compensation of the Chief Executive Officer of the Company is
determined in the same manner as the compensation for other executive officers
as described above. As a result, the compensation of the Chief Executive Officer
is largely dependent upon the overall performance of the Company as well as a
comparison
10
<PAGE> 13
to compensation being paid by other comparable peer companies to their chief
executive officers. During the year ended December 31, 1996, the base annual
salary of the Chief Executive Officer of the Company, Cloyce A. Talbott,
increased approximately 48% to $185,000 from $125,000. The Company believes that
the Chief Executive Officer's $185,000 base annual salary is approximately at
the median of the competitive data.
Compensation Committee of the Board of Directors
Kenneth E. Davis
Robert C. Gist
PROPOSED CAPITAL STOCK CHARTER AMENDMENT
(PROPOSAL 2 ON PROXY CARD)
The Capital Stock Charter Amendment, if adopted by the stockholders of
Patterson at the Meeting, would increase the number of authorized shares of
Patterson Common Stock from 9,000,000 shares to 18,000,000 shares. The following
table sets forth the respective number of authorized, issued and outstanding,
and reserved shares of Common Stock on May 14, 1997, the Record Date, and as
adjusted to give effect to the respective number of shares of Common Stock that
would be authorized, issued and outstanding, and reserved, if the Capital Stock
Charter Amendment and the Stock Incentive Plan Amendment were approved at the
Meeting.
<TABLE>
<CAPTION>
NUMBER OF SHARES
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
Authorized.................................................. 9,000,000 18,000,000
Issued and outstanding...................................... 7,070,657 7,070,657
Reserved:
Patterson stock options and warrants...................... 334,624 509,624
--------- ----------
Unissued and unreserved................................... 1,594,719 10,419,719
========= ==========
</TABLE>
If the stockholders of the Company approve the Capital Stock Charter
Amendment and the Stock Incentive Plan Amendment at the Meeting, the Company,
immediately following the Meeting and assuming no other issuances of Common
Stock prior to the Meeting, would have 10,419,719 unissued and unreserved shares
of the then authorized 18,000,000 shares of Common Stock. If the Stock Incentive
Plan Amendment is not approved but the Capital Stock Charter Amendment is
approved, the number of such unissued and unreserved shares of Common Stock
would be 10,594,719 shares. The unissued and unreserved shares would be
available for issuance from time to time as may be necessary in connection with
future financings, acquisitions of other companies, stock dividends, stock
splits, other distributions, stock option plans and other employee benefit plans
or other corporate purposes. The Company currently has no plans to issue any of
these unissued and unreserved shares.
Under Delaware law, the Board of Directors of the Company generally may
issue authorized but unissued shares of Common Stock without stockholder
approval. The Company's Board does not currently intend to seek stockholder
approval prior to any future issuance of the shares, except to the extent
otherwise required by the Company's Restated Certificate of Incorporation, by
law or by the Nasdaq National Market or any securities exchange on which the
Common Stock may be listed at that time. The authorization of additional shares
of Common Stock will enable the Company, as the need may arise, to take timely
advantage of market conditions and the availability of favorable opportunities
without the delay and expense associated with the holding of a special meeting
of its stockholders or of waiting for the regularly scheduled annual meeting of
stockholders in order to increase the authorized capital. The Board of Directors
does not intend to issue any shares of Common Stock except on terms which the
Board deems to be in the best interest of the Company and its stockholders.
Existing stockholders of the Company will have no preemptive rights to purchase
any shares of Common Stock issued in the future.
11
<PAGE> 14
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE CAPITAL
STOCK CHARTER AMENDMENT. PROXIES WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
OTHERWISE IN THE PROXY.
PROPOSED STOCK INCENTIVE PLAN AMENDMENT
(PROPOSAL 3 ON PROXY CARD)
The Board of Directors of the Company, subject to approval of stockholders
at the Meeting, has increased the number of shares of the Company's Common Stock
reserved for issuance under the Patterson Energy, Inc. 1993 Stock Incentive Plan
(referred to herein as "Stock Incentive Plan") from 175,000 shares to 350,000
shares. The purpose of the Stock Incentive Plan is to provide continuing
incentives to the key employees of the Company and its subsidiaries, which may
include, but shall not necessarily be limited to, members of the Board of
Directors (excluding members of the Compensation Committee) and officers of the
Company. The effect of the increase in the number of shares reserved for
issuance under the Stock Incentive Plan is to allow the Company to grant
additional awards of stock options and restricted stock from time to time and
thereby augment its program of providing incentives to key employees.
At March 31, 1997, the Company had options outstanding under the Stock
Incentive Plan to purchase a total of 166,000 shares. No awards of restricted
stock have been made to date under the Stock Incentive Plan. Accordingly, if the
proposal is adopted to increase the number of shares available for issuance
under the Stock Incentive Plan to 350,000 shares, there would be an additional
184,000 shares available for grant under the Stock Incentive Plan. At March 31,
1997, the Company and its subsidiaries had approximately 25 key employees
eligible to participate in the Plan. At that date, the closing price of the
Company's Common Stock as quoted on the NASDAQ National Market was $27.625.
The following is a brief summary of the material provisions of the Stock
Incentive Plan as proposed to be amended.
Types of Awards. Under the Stock Incentive Plan, the Company may grant
awards of stock options and restricted stock or any combination thereof to its
key employees and to the key employees of its subsidiaries.
Administration. The Stock Incentive Plan is administered by the
Compensation Committee of the Board of Directors composed of no fewer than two
disinterested members. Subject to the terms of the Stock Incentive Plan, the
Compensation Committee determines, among other matters, persons to whom awards
are granted, type of award granted, number of shares granted, vesting schedule,
employment requirements or performance goals relating to restricted stock
awards, type of consideration to be paid to the Company for restricted stock or
upon exercise of options and the terms of any option (which cannot exceed ten
years).
Stock Option Terms. Under the stock option component of the Stock Incentive
Plan, the Company may grant both incentive stock options ("incentive stock
options") intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and options which are not qualified as incentive
stock options ("non-qualified options"). Incentive stock options may not be
granted at an exercise price less than the fair market value of the Common Stock
on the date of grant. The exercise price of incentive stock options granted to
holders of more than 10% of the Common Stock must be at least 110% of the fair
market value of the Common Stock on the date of grant, and the term of these
options cannot exceed five years. The exercise price of non-qualified stock
options will be determined by the Compensation Committee on the date of grant,
but may not be less than 85% of the fair market value of the Common Stock on
that date.
Options granted under the Stock Incentive Plan are not transferrable,
otherwise than by will or the laws of descent and distribution, and during the
lifetime of the optionholder, options are exercisable only by such optionholder.
In addition, outstanding options may not be exercised more than three months
(but in no event beyond the expiration date of the option) after the
optionholder ceases to be an employee of the Company, except that in the event
of the death or permanent and total disability of the optionholder, the option
may be exercised by the holder (or his estate, as the case may be), until the
first to occur of the expiration of the option period or the expiration of one
year after the date of death or permanent or total disability. The exercise
price may be paid in cash, in shares of Common Stock (valued at fair market
value at the date of exercise), by
12
<PAGE> 15
delivery of a promissory note or by a combination of such means of payment, as
may be determined by the Compensation Committee.
Restricted Stock Terms. Under the restricted stock component of the Stock
Incentive Plan, the Company may, in selected cases, issue to a plan participant
a given number of shares of restricted stock. Restricted stock under the Stock
Incentive Plan is Common Stock restricted as to sale pending fulfillment of such
vesting schedule, employment requirements or performance goals as the
Compensation Committee shall determine. The purchase price, if any, for
restricted stock will be specified by the Compensation Committee. Prior to
lifting of the restrictions, the participant will nevertheless be entitled to
receive distributions in liquidation and dividends on, and to vote the shares
of, the restricted stock. The Stock Incentive Plan provides for forfeiture of
restricted stock for breach of conditions of grant.
Change in Control; Adjustment in Number of Option Shares. Upon a change in
control (as defined in Section 10 of the Stock Incentive Plan) of the Company,
all stock options granted under the Stock Incentive Plan will become exercisable
in full, and all restricted stock grants will become immediately vested and any
applicable restrictions will lapse. Also, in the event the number of outstanding
shares of Common Stock is increased or decreased or changed into or exchanged
for a different number or kind of shares of stock or other securities of the
Company or of another company, whether as a result of a stock split, stock
dividend, combination or exchange of shares, merger or otherwise, each share
subject to an unexercised option will be substituted for the number and kind of
shares of stock into which each share of outstanding Common Stock is to be
changed or for which each such share is to be exchanged and the option price
will be increased or decreased proportionately.
Amendments. The Board of Directors may at any time and from time to time
alter, amendment, suspend or discontinue the Stock Incentive Plan, except no
such action may be taken without stockholder approval which materially increases
the benefits to participants, materially increases the number of shares to be
issued, materially extends the period for granting awards, or materially
modifies the requirements as to eligibility. In addition, no such action may be
taken which adversely affects the rights of a participant without his consent.
Federal Income Tax Consequences -- Stock Options. Neither the Company nor
the optionee will recognize taxable income or deduction for federal income tax
purposes from the grant or exercise of an incentive stock option. When an
optionee sells stock acquired upon exercise of an incentive stock option, the
optionee will be taxed at long-term capital gain rates if the stock has been
held for at least one year and the option was granted at least two years prior
to the date of sale ("Holding Period Requirements"). If the optionee fails to
meet the Holding Period Requirements, the difference between the exercise price
and the fair market value of the stock at the time of exercise will be taxable
to the optionee as ordinary income and the Company will be entitled to a
deduction equal to the amount of ordinary income recognized by the optionee if
the Company complies with applicable withholding requirements and if the amount
qualifies as an ordinary and necessary business expense to the Company. Although
the optionee will not recognize taxable income for federal income tax purposes
upon the exercise of an incentive stock option, the difference between the
exercise price and fair market value of the shares at the time of exercise gives
rise to an adjustment in calculating alternative minimum taxable income.
Neither the Company nor the optionee will recognize taxable income or
deduction from the grant of a non- qualified stock option. At the time of
exercise of a non-qualified stock option, the optionee will recognize ordinary
income in an amount equal to the difference between the exercise price and the
fair market value of the Common Stock. The Company will be entitled to a
deduction for tax purposes in an amount equal to the ordinary income recognized
by the optionee, if the Company complies with applicable tax withholding
requirements.
Federal Income Tax Consequences -- Restricted Stock. If a participant in
the Stock Incentive Plan receives a grant of restricted stock, the federal
income tax consequences will depend on the nature of the restrictions. In
general, the fair market value of the restricted stock will not be taxable to
the recipient until the year in which the restricted stock is freely
transferable or is no longer subject to a substantial risk of forfeiture. At
that time, the current fair market value of the restricted stock will be treated
as ordinary income to the
13
<PAGE> 16
recipient. The recipient may elect, however, to recognize income when the
restricted stock is received, rather than when the restricted stock is freely
transferable or is no longer subject to a substantial risk of forfeiture. If the
recipient makes this election, the amount taxed to the recipient as ordinary
income will be determined as of the date of receipt of the restricted stock.
After the recipient recognizes ordinary income on the restricted stock, the tax
basis of the restricted stock will be the fair market value thereof on the date
the ordinary income was recognized. If an individual disposes of restricted
stock, the individual will recognize gain (or, under certain conditions, loss)
in the year of such disposition equal to the difference between (a) any amount
realized on the disposition and (b) the adjusted tax basis in the restricted
stock disposed of. The gain (or loss) will be a long-term capital gain (or loss)
if more than one year has elapsed between the date income was recognized and the
date of disposition and if the restricted stock was a capital asset in the hands
of the individual.
In general, when an individual recognizes ordinary income with respect to
shares acquired as a result of a grant of restricted stock, the Company will be
entitled to an income tax deduction in an amount equal to the ordinary income
recognized by the individual, provided that all applicable federal income tax
withholding requirements are satisfied and that the amount qualifies as an
ordinary and necessary business expense to the Company.
Grants to Date. Stock options covering a total of 166,000 shares of Common
Stock (the "Outstanding Options") have been granted to date under the Stock
Incentive Plan to key employees of the Company, including A. Glenn Patterson,
President and Chief Operating Officer (options covering 70,000 shares or
approximately 42% of the total options granted) and James C. Brown, Vice
President -- Finance and Chief Financial Officer (options covering 25,000 shares
or approximately 15% of the total options granted). All of the outstanding
options were granted during 1995. Each of the options has a ten-year term and is
exercisable at a price equal to the fair market value of the Common Stock on the
date of grant. The Options will vest in equal annual increments of 20% beginning
on the date of grant and continuing on each succeeding anniversary date.
Vote Required for Approval. Approval of the Stock Incentive Plan Amendment
requires the affirmative vote of the holders of a majority of the Common Stock
present, or represented, and entitled to vote at the Meeting, assuming the
presence of a quorum. Each share of Common Stock is entitled to one vote.
Stockholders should note that because employee directors (subject to
re-election and stockholder approval) have received and may in the future
receive stock options under the Stock Incentive Plan, the current employee
directors of the Company have a personal interest in the proposal and its
approval by stockholders. However, the members of the Board of Directors believe
that the amendment is in the best interests of the Company and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE STOCK
INCENTIVE PLAN AMENDMENT. PROXIES WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
OTHERWISE IN THE PROXY.
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires the Company's officers and directors, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the SEC. Each of these
persons is required by SEC regulation to furnish the Company with copies of
Section 16(a) filings. Based solely on its review of copies of such forms
received by it and written representations from certain reporting persons that
no Form 5's were required for those persons, the Company believes that, during
the fiscal year ended December 31, 1996, its officers, directors, and greater
than 10% beneficial owners complied with all applicable filing requirements.
14
<PAGE> 17
RATIFICATION OF AUDITORS
(PROPOSAL 4 ON PROXY CARD)
The Board of Directors voted to engage Coopers & Lybrand L.L.P. as
independent accountants to audit the financial statements of the Company for the
fiscal year ending December 31, 1997, and directed that such engagement be
submitted to the stockholders of the Company for ratification. In recommending
ratification by the stockholders of such engagement, the Board of Directors is
acting upon the recommendation of the Audit Committee, which has satisfied
itself as to the firm's professional competence and standing. Although
ratification by stockholders of the engagement of Coopers & Lybrand L.L.P. is
not required by Delaware corporate law or the Company's Restated Certificate of
Incorporation or Bylaws, management feels a decision of this nature should be
made with the consideration of the Company's stockholders. If stockholder
approval is not received, management will reconsider the engagement.
It is expected that one or more representatives of Coopers & Lybrand L.L.P.
will be present at the Meeting and will be given the opportunity to make a
statement if they so desire. It also is expected that the representatives will
be available to respond to appropriate questions from the stockholders.
Ratification of the selection of Coopers & Lybrand L.L.P. requires the
affirmative vote of the holders of a majority of the Common Stock present, or
represented, and entitled to vote at the Meeting assuming the presence of a
quorum.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
AUDITORS. PROXIES RECEIVED WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
OTHERWISE IN THE PROXY.
COST AND METHOD OF PROXY SOLICITATION
The accompanying Proxy is being solicited on behalf of the Board of
Directors of the Company. All expenses for soliciting Proxies, including the
expense of preparing, printing and mailing the form of Proxy and the material
used in the solicitation thereof, will be borne by the Company. In addition to
the use of the mail, Proxies may be solicited by personal interview, telephone
and telegram by directors and regular officers and employees of the Company.
Such persons will receive no additional compensation for such services.
Arrangements may also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of stock held of record by such persons, and the Company may
reimburse them for reasonable out-of-pocket expenses incurred by them in
connection therewith.
ANNUAL REPORTS AND CONSOLIDATED FINANCIAL STATEMENTS
You are referred to the Company's annual report, including consolidated
financial statements, for the year ended December 31, 1996, enclosed herewith
for your information. The annual report is not incorporated in this Proxy
Statement and is not to be considered part of the soliciting material.
DEADLINE FOR RECEIPT OF STOCKHOLDER
PROPOSALS FOR 1998 ANNUAL MEETING
Any proposals that stockholders of the Company desire to have presented at
the 1998 Annual Meeting of Stockholders must be received by the Company at its
principal executive offices no later than December 31, 1997.
SNYDER, TEXAS
May 15, 1997
15
<PAGE> 18
- --------------------------------------------------------------------------------
PATTERSON ENERGY, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 1, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Patterson Energy, Inc. (the "Company") hereby
constitutes and appoints Cloyce A. Talbott and A. Glenn Patterson, or either of
them, each with the power of substitution as attorneys and proxies to vote all
of the shares which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at the Embassy Suites Hotel, 3880 West
Northwest Highway, Dallas, Texas, on Tuesday, July 1, 1997, at 10:00 A.M., local
time, and at any and all adjournments thereof, with the same force and effect as
if the undersigned were personally present, and the undersigned hereby instructs
the above-named Attorneys and Proxies to vote as follows:
1. ELECTION OF DIRECTORS. The following five persons have been nominated to
serve on the Company's Board of Directors: Cloyce A. Talbott; A. Glenn
Patterson; Robert C. Gist; Kenneth E. Davis; and Vincent A. Rossi, Jr.
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to vote for all
nominees listed above
(INSTRUCTION: To withhold authority to vote for any one or more individual
nominees, write the name of each such nominee in this space.)
2. Proposal to amend the Company's Restated Certificate of Incorporation to
increase its authorized Common Stock from 9,000,000 shares to 18,000,000
shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to increase the number of shares of the Company's Common Stock
reserved for issuance under the Patterson Energy, Inc. 1993 Stock Incentive
Plan from 175,000 shares to 350,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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<PAGE> 19
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(Continued from other side)
4. Proposal to ratify the selection of Coopers & Lybrand L.L.P. as the
independent auditors of the Company for the fiscal year ending December 31,
1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournment or
adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES SET FORTH IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4.
Dated: , 1997
-------------------------------
(Signature)
-------------------------------
(Signature)
NOTE: Please sign exactly as
your name or names appear on
this card. Joint owners should
each sign personally. When
signing as attorney, executor,
administrator, personal
representative, trustee or
guardian, please give your full
title as such. For a
corporation or a partnership,
please sign in the full
corporate name by the President
or other authorized officer or
the full partnership name by an
authorized person, as the case
may be. (Please mark, sign,
date, and return this proxy in
the enclosed envelope.)
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