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As filed with the Securities and Exchange Commission on January 5, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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PATTERSON ENERGY, INC.
(Exact name of registrant as specified in charter)
Delaware 75-2504748
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organizations)
4510 Lamesa Highway
Snyder, Texas 79549
(915) 573-1104
(Address, including zip code and telephone number, including area code,
of registrant's principal executive offices)
Cloyce A. Talbott
4510 Lamesa Highway
Snyder, Texas 79549
(915) 573-1104
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Thomas H. Maxfield, Esq.
Baker & Hostetler LLP
303 East Seventeenth Avenue
Suite 1100
Denver, Colorado 80203
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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 earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) 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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed maximum Proposed maximum
Title of each class of Amount to be offering price per aggregate Amount of
securities to be registered registered share(1) offering price(1) registration fee
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<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share 285,664 Shares $32.875 $9,391,204 $2,770.41
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, on the
basis of the average of the high and low reported sale prices of the
Registrant's Common Stock on December 29, 1997, as reported on the Nasdaq
National Market.
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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PROSPECTUS
285,664 SHARES
PATTERSON ENERGY, INC.
COMMON STOCK
Patterson Energy, Inc., a Delaware corporation (the "Company"), is
registering for possible future resale, from time to time, by the holders
thereof (the "Selling Stockholders"), 285,664 shares (the "Shares") of the
Company's common stock, par value $0.01 per share (the "Common Stock"). See
"Selling Stockholders." The Company has granted registration rights to the
Selling Stockholders with regard to resale of the Shares. Pursuant to the
terms of these registration rights, the Company is obligated to pay all fees
and expenses incurred by it incident to this offering. It is estimated that
such fees and expenses will be approximately $ . The Company will
not receive any proceeds from the sale of the Shares.
The Common Stock is traded on the NASDAQ National Market under the
symbol "PTEN." On December 29, 1997, the closing sales price of the Common
Stock was $32.875 per share.
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PROSPECTIVE PURCHASERS OF COMMON STOCK SHOULD CONSIDER CAREFULLY THE MATTERS
SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 4.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------------------------
The Selling Stockholders may offer the Shares offered hereby from time
to time to purchasers directly or through agents, brokers or dealers. The
Shares may be sold at market prices prevailing at the time of sale or at
negotiated prices. The agents, brokers or dealers through whom sales are made
may be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and any amounts received by them in
exchange for their services in connection with such sales may be deemed to be
underwriting commissions. See "Plan of Distribution."
January , 1998
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
following regional offices: 7 World Trade Center, Suite 1300, New York, New
York 10048, and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained at prescribed
rates from the Public Reference Section of the Commission at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. The Company's
Common Stock is traded on the NASDAQ National Market. The foregoing materials
can also be inspected at the National Association of Securities Dealers, Inc.,
1735 K. Street, N.W., Washington, D.C. 20006.
The Company has also filed with the Commission a Registration
Statement on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the Shares
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Company and the Shares offered hereby, reference
is made to the Registration Statement, copies of which may be inspected without
charge at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of which may be obtained from the Commission upon payment of the
prescribed fees.
In addition, the Commission maintains a web site that contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the Commission. The Company is such
a filer. The Commission's web site address is (http://www.sec.gov).
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are hereby incorporated by reference into this Prospectus:
(a) The Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
(b) The Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997.
(c) The Company's Current Report on Form 8-K dated July
30, 1996, and filed with the Commission on August 2, 1996, as amended
by Form 8-K/A dated July 30, 1996, and filed with the Commission on
August 15, 1996, as further amended by Form 8-K/A dated July 30, 1996,
and filed with the Commission on September 27, 1996.
(d) The Company's Current Report on Form 8-K dated
January 3, 1997, and filed with the Commission on January 16, 1997.
(e) The Company's Current Report on Form 8-K dated
January 7, 1997, and filed with the Commission on January 8, 1997.
(f) The Company's Current Report on Form 8-K dated
January 27, 1997, and filed with the Commission on February 12, 1997.
(g) The Company's Current Report on Form 8-K dated May 7,
1997, and filed with the Commission on May 19, 1997.
(h) The Company's Current Report on Form 8-K dated June
3, 1997, and filed with the Commission on June 11, 1997.
(i) The Company's Current Report on Form 8-K dated June
12, 1997, and filed with the Commission on June 19, 1997, as amended
by Form 8-K/A dated June 12, 1997, and filed with the Commission on
August 12, 1997, as further amended by Form 8-K/A dated June 12, 1997,
and filed with the Commission on December 18, 1997.
(j) The Company's Current Report on Form 8-K dated July
1, 1997, and filed with the Commission on July 15, 1997.
(k) The Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, and filed with the Commission on August
14, 1997.
(l) The Company's Current Report on Form 8-K dated July
24, 1997, and filed with the Commission on August 26, 1997.
(m) The Company's Current Report on Form 8-K dated August
5, 1997, and filed with the Commission on August 26, 1997.
(n) The Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, and filed with the Commission
November 13, 1997.
(o) The Company's Current Report on Form 8-K dated
November 14, 1997, and filed with the Commission on December 24, 1997.
(p) The description of the Company's Common Stock
contained in the Company's Registration Statement on Form 8-A filed
with the Commission under the Exchange Act.
All documents filed by the Company after the date of this Prospectus
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to
the termination of the offering hereunder shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge to each person to whom a copy
of this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by reference,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to James C. Brown, Vice President - Finance, Patterson
Energy, Inc., at the Company's principal executive offices located at 4510
Lamesa Highway, Snyder, Texas 79549. Telephone requests may be directed to Mr.
Brown at (915) 573-1104.
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THE COMPANY
The Company is engaged in onshore contract drilling for oil and
natural gas, and, to a lesser extent in the exploration, development and
production of oil and natural gas. The Company owns 99 drilling rigs, 92 of
which are currently operable, and at June 30, 1997, owned leasehold interests
in approximately 59,750 gross (8,836 net) developed acres, 353 gross (88 net)
productive wells, and 122,029 gross (28,398 net) undeveloped acres. The
Company's operations are conducted in the Permian Basin in West Texas and
Southeastern New Mexico, in South and Southeast Texas, primarily in the Austin
Chalk Trend, and in the Hardeman Basin in North Texas. The Company was
organized as a Texas corporation in January 1978 and was reorganized as a
Delaware corporation in 1993.
RECENT ACQUISITIONS
Since December 31, 1996, the Company has acquired a total of 38
drilling rigs in five separate transactions. Of these total rigs, 35 were
fully operable at the time of acquisition. The rigs are mechanical with depth
ratings from 7,000 to 15,000 feet. These acquisitions have expanded the
Company's drilling rig fleet from 61 drilling rigs to 99 drilling rigs (92 of
which are currently operable). The following subparagraphs set forth a brief
description of each of the transactions:
o Five drilling rigs, together with related equipment, two
rig-hauling trucks, an office, shop and a yard located in
Hobbs, New Mexico, were acquired in April 1997 from a
privately-held company based in Hobbs in consideration for a
total of $5.5 million in cash. These five rigs were added to
the Company's drilling rig fleet during April.
o Twenty-one drilling rigs, together with related equipment,
rig-hauling trucks and trailers and a yard and shop located in
Abilene, Texas, were acquired from Wes-Tex Drilling Company
("Wes-Tex") in June 1997 for a purchase price of approximately
$35.4 million, consisting of $25 million in cash, 566,000
shares of Common Stock of the Company valued at $15.75 per
share, and a three-year stock purchase warrant valued at $3.12
per share to purchase an additional 400,000 shares of the
Company's Common Stock exercisable at $16.00 per share and
approximately $190,000 of other direct costs incurred relative
to the transaction. These 21 rigs were added to the Company's
drilling rig fleet during June. Wes-Tex is a privately held
company based in Abilene, Texas.
o Three drilling rigs, together with related drilling equipment
and a vehicle were acquired in August 1997 from a privately
held company based in Midland, Texas in consideration for a
cash payment of $4.25 million. These rigs were added to the
Company's drilling rig fleet in August.
o Eight drilling rigs, five of which were operable, together
with related drilling equipment, rolling stock and four yards
and a shop located in Odessa, Texas, were acquired in November
1997 from a privately held company in consideration for a cash
payment of $13 million. The five operable rigs were added to
the Company's drilling fleet in November.
o One operable drilling rig, together with related drilling
equipment, was acquired in late November 1997 from a
privately-held limited partnership based in Shreveport,
Louisiana, in consideration for a cash payment of $1.46
million. The drilling rig was located in Southeast Texas at
the time of acquisition and has been added to the Company's
drilling fleet in that area.
In addition to the foregoing drilling rig acquisitions, the Company
acquired Lone Star Mud, Incorporated ("Lone Star"), a Texas corporation based
in Midland, Texas and engaged in the sale of drilling fluids, in consideration
for $1.43 million in cash and the 285,664 Shares offered hereby. The
acquisition was completed in January 1998.
RISK FACTORS
In addition to the other information contained in, or incorporated by
reference into, this Prospectus, prospective purchasers in this offering should
carefully consider the following factors relating to the Company and its
businesses and the oil and natural gas industry when evaluating an investment
in the shares offered hereby.
VOLATILITY OF OIL AND NATURAL GAS PRICES. The Company's revenue,
profitability and future rate of growth are substantially dependent upon
prevailing prices for oil and natural gas, both with respect to its contract
drilling operations and its oil and natural gas operations. In recent years,
oil and natural gas prices and, therefore, the level of drilling, exploration,
development and production, have been extremely volatile. Prices are affected
by market supply and demand factors as well as actions of state and local
agencies, the U.S. and foreign governments and international cartels. All of
these factors are beyond the control of the Company. Any significant or
extended decline in oil and/or natural gas prices will have a material adverse
effect on the Company's financial condition and operations and could impair
access to sources of capital.
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MARKET CONDITIONS FOR CONTRACT DRILLING SERVICES. The contract
drilling business has experienced increased demand for drilling services since
approximately 1995 due to stronger oil and natural gas prices. However, the
market for onshore contract drilling services was generally depressed between
mid-1982, when crude oil and natural gas prices began to weaken, and
approximately 1995. A particularly sharp decline in demand for contract
drilling services occurred in 1986 because of the worldwide collapse in oil
prices (to approximately $10.00 per Bbl in April 1986 in the U.S.). Since this
time and except during the occasional upturns, there have been substantially
more drilling rigs available than necessary to meet demand in most operating
and geographic segments of the domestic drilling industry. As a result,
drilling contractors have had difficulty sustaining profit margins. In
addition to adverse effects that future declines in demand could have on the
Company, ongoing movement or reactivation of onshore drilling rigs or new
construction of drilling rigs could adversely affect rig utilization rates and
pricing, even in an environment of stronger oil and natural gas prices and
increased drilling activity. The Company cannot predict either the future
level of demand for its contract drilling services or future conditions in the
contract drilling industry.
SEVERE SHORTAGE OF DRILL PIPE IN THE CONTRACT DRILLING INDUSTRY.
There continues to be a severe shortage of drill pipe in the contract drilling
industry in the U.S. This shortage has caused the price of drill pipe to
increase significantly over the past approximate 44 months and has required
orders for new drill pipe to be placed at least one year in advance of expected
use. The price increase and the delay in delivery has caused the Company to
substantially increase capital expenditures in its contract drilling segment
over the past approximate 44 months, primarily with respect to new drill pipe
purchases. In the event the shortage continues, the Company may be unable to
obtain the drill pipe required for its contract drilling operations.
RECENT RAPID GROWTH; ASSOCIATED RISKS. The Company has experienced
rapid and substantial growth over the past four years, particularly in its
contract drilling segment, and, if favorable opportunities arise in the future,
intends to further expand its drilling fleet through selected acquisitions.
Continued growth could strain the Company's management, operations, employees
and resources. There can be no assurance that the Company will be able to
manage growth effectively or that it will be successful in maintaining the
market share attributable to operable drilling rigs acquired by the Company. If
the Company is unable to manage its growth, its business, results of operations
or financial condition could be materially adversely affected.
NO ASSURANCE OF ADDITIONAL GROWTH THROUGH ACQUISITIONS. The Company's
growth has been enhanced materially by strategic acquisitions that have
substantially increased the Company's drilling rig fleet. One element of the
Company's strategy is to make acquisitions in markets in which it currently
operates. While the Company believes that the land drilling industry is highly
fragmented and that significant acquisition opportunities are available, there
can be no assurance that suitable acquisition candidates can be found, and the
Company is likely to face competition from other companies for available
acquisition opportunities. In addition, if the prices paid by buyers of
drilling rigs remain at current levels or continue to rise, the Company may
find fewer acceptable acquisition opportunities. There can be no assurance
that the Company will have sufficient capital resources to complete
acquisitions, that acquisitions can be completed on terms acceptable to the
Company or that any completed acquisition would improve the Company's financial
condition, results of operations, business or prospects in any material manner.
CURRENT SHORTAGES OF QUALIFIED DRILLING RIG PERSONNEL. Increases in
domestic drilling demand since mid-1995 and recent increases in contract
drilling activity have resulted in a shortage of qualified drilling rig
personnel in the industry. If the Company is unable to attract and retain
sufficient qualified personnel, its ability to market and operate its drilling
rigs will be restricted. Further, labor shortages could result in wage
increases, which could reduce the Company's operating margins.
RELIANCE ON KEY PERSONNEL. The Company is highly dependent upon its
executive officers and key employees. The unexpected loss of the services of
any of these individuals, particularly Cloyce A. Talbott or A. Glenn Patterson,
the Chief Executive Officer and the President of the Company, respectively,
could have a detrimental effect on the Company. The Company has no employment
agreements with any of its executive officers. The Company maintains key man
insurance on the lives of Messrs. Talbott and Patterson in the amount of $3
million each.
RISKS OF OIL AND NATURAL GAS EXPLORATION, DEVELOPMENT AND PRODUCTION.
The search for oil and natural gas often results in unprofitable efforts, not
only from dry holes, but also from wells which, though productive, do not
produce oil or natural gas in sufficient quantities to return a profit on the
costs incurred. No assurance can be given that any oil or natural gas reserves
located by the Company in the future will be commercially productive. In
addition, the cost of drilling, completing and operating wells is often
uncertain, and drilling may be delayed or canceled as a result of many factors,
including unacceptably low oil and natural gas prices, oil and natural gas
property title problems, inclement weather conditions and financial instability
of well operators and working interest owners. Furthermore, the availability
of a ready market for the Company's oil and natural gas depends on numerous
factors beyond its control, including demand for and supply of oil and natural
gas, general economic conditions, proximity of natural gas reserves to
pipelines, weather conditions and government regulation.
COMPETITION. The Company encounters intense competition in its
contract drilling operations from other drilling contractors. The competitive
environment for contract drilling services involves such factors as drilling
rates, availability and condition of drilling rigs and equipment, reputation
and customer relations. The Company faces strong competition
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from major oil companies, independent oil and natural gas companies and
individual producers and operators in acquiring oil and natural gas leases for
exploration and development. Many of the competitors in each of the Company's
lines of business have substantially greater financial and other resources than
the Company.
OPERATING HAZARDS AND UNINSURED RISKS. Contract drilling and oil and
natural gas activities are subject to a number of risks and hazards which could
cause serious injury or death to persons, suspension of drilling operations and
serious damage to equipment or property of others and, in addition to
environmental damage, could cause substantial damage to producing formations
and surrounding areas. Damages to the environment could result from the
Company's operations, particularly through oil spills, gas leaks, discharges of
toxic gases or extensive uncontrolled fires. In addition, the Company could
become subject to liability for reservoir damages. The occurrence of a
significant event, including pollution or environmental damage, could
materially affect the Company's operations and financial condition. Although
the Company believes that it is adequately insured against normal and
foreseeable risks in its operations in accordance with industry standards, such
insurance may not be adequate to protect the Company against liability from all
consequences of well disasters, extensive fire damage or damage to the
environment. No assurance can be given that the Company will be able to
maintain adequate insurance in the future at rates it considers reasonable or
that any particular types of coverage will be available. Furthermore, a
portion of the Company's contract drilling is done on a turnkey basis, which
involves substantial economic risks. Under turnkey drilling contracts, the
Company contracts to drill a well to a contract depth under specified
conditions for a fixed price. The risks to the Company under this type of
drilling contract are substantially greater than on a well drilled on a daywork
or footage basis since the Company assumes most of the risks associated with
the drilling operations generally assumed by the operator of the well in a
daywork or footage contract, including risk of blowout, machinery breakdowns
and abnormal drilling conditions. Accordingly, if severe drilling problems are
encountered in drilling wells under a turnkey contract, the Company could
suffer substantial losses associated with that contract. For the year ended
December 31, 1996, and six months ended June 30, 1997, the percentage of the
Company's contract drilling operation revenues attributable to turnkey
contracts was 8.0% and 5.6%, respectively.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION MATTERS. The
Company's operations are subject to numerous domestic laws and regulations that
relate directly or indirectly to the drilling of oil and natural gas wells,
including laws and regulations controlling the discharge of materials into the
environment, requiring removal and cleanup under certain circumstances or
otherwise relating to the protection of the environment. Laws and regulations
protecting the environment have generally become more stringent in recent
years, and may in certain circumstances impose strict liability, rendering a
person liable for environmental damage without regard to negligence or fault on
the part of such person. To date, the Company has not been required to expend
significant resources in order to comply with applicable environmental laws and
regulations nor has it incurred any fines or penalties for noncompliance.
However, compliance costs under existing legal requirements and under any new
requirements could become material, and the Company could incur liability in
the future for noncompliance. Additional matters subject to governmental
regulation include discharge permits for drilling operations, performance
bonds, reports concerning operations, spacing of wells, unitization and pooling
of properties, disposal of produced water and taxation. From time to time,
regulatory agencies have imposed price controls and limitations on production
by restricting the rate of flow of oil and natural gas wells below actual
production capacity in order to conserve supplies of oil and natural gas. In
addition, although the Company performed visual inspections on three yards
acquired by it during 1996, the Company did not obtain Phase I environmental
reports on any of the yards, which reports, if obtained, may have revealed
potential environmental liabilities not otherwise apparent from the Company's
visual inspection. The Company typically does not have indemnifications from
the respective sellers of the yards for preclosing environmental liabilities.
Accordingly, any loss resulting from environmental liabilities from any of
these yards, or from any other properties acquired or sold by the Company or
its predecessors in interest, may be borne by the Company.
UNCERTAINTY OF OIL AND NATURAL GAS RESERVE ESTIMATES. Estimates of
the Company's proved developed reserves and future net revenues are based on
engineering reports prepared by an independent petroleum engineer based upon a
review of production histories and other geologic, economic, ownership and
engineering data provided by the Company. These estimates are based on several
assumptions that the Securities and Exchange Commission requires oil and
natural gas companies to use, including for example, constant oil and natural
gas prices. Such estimates are inherently imprecise indications of future net
revenues. Actual future production, revenues, taxes, production costs and
development costs may vary substantially from those assumed in the estimates.
Any significant variance could materially affect the estimates. In addition,
the Company's reserves might be subject to upward or downward adjustment based
on future production, results of future exploration and development, prevailing
oil and natural gas prices and other factors.
CONFLICTS OF INTEREST. Certain of the Company's directors and
executive officers and their respective affiliates have participated and may
continue to participate from time to time in oil and natural gas prospects and
properties in which the Company has an interest. Conflicts of interest may
arise between such persons and the Company as to the advisability of conducting
drilling and recompletion activities on these properties. Of the 249 wells
operated by the Company at March 31, 1997, the Company's directors, officers
and/or their respective affiliates were working interest owners in
approximately 106 wells.
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NO PAST DIVIDENDS. The Company has paid no cash dividends on the
Common Stock in the past and does not intend to do so in the foreseeable
future. The terms of an existing $60 million bank line of credit prohibit the
payment of dividends by the Company without the prior written consent of the
bank.
ANTI-TAKEOVER MEASURES. The Company, a Delaware corporation, is
subject to the General Corporation Law of the State of Delaware, including
Section 203, an anti-takeover law enacted in 1988. The Company has also
enacted certain anti-takeover measures, including a stockholder rights plan. As
a result of these provisions, potential acquirors of the Company may find it
more difficult or be discouraged from attempting to effect an acquisition
transaction with the Company, thereby possibly depriving holders of the
Company's securities of certain opportunities to sell or otherwise dispose of
such securities at above-market prices pursuant to such transactions. See
"Description of Capital Stock."
SUPERIOR RIGHTS OF PREFERRED STOCK. The Company has a class of
authorized Preferred Stock. The Board of Directors, without stockholder
approval, may issue shares of the Preferred Stock with rights and preferences
adverse to the voting power or other rights of the holders of the Common Stock.
No Preferred Stock has been issued. However, such number of shares of
Preferred Stock as is sufficient to permit the exercise in full of the Rights
(approximately 158,000 shares as of the date of this Prospectus) has been
reserved for issuance upon exercise of the Rights described under "Description
of Capital Stock - Stockholder Rights Plan."
SHARES ELIGIBLE FOR FUTURE SALE. As of the date of this Prospectus,
the Company had 15,766,622 shares of Common Stock outstanding, 14,470,650 of
which are freely tradable without substantial restriction or the requirement of
future registration under the Securities Act. Of the remaining 1,295,972
shares, 609,308 shares are held by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act, and may be sold subject to the
provisions of Rule 144, 401,000 shares are eligible for sale under a shelf
registration statement currently in effect and 285,664 shares are eligible for
sale under the Registration Statement. Also, 173,524 shares of Common Stock
issuable upon the exercise of outstanding options that are vested are eligible
for sale in the public market and 396,336 shares of Common Stock issuable upon
exercise of outstanding options that are not vested will become eligible for
sale in the public market as such options become vested. Sales of substantial
amounts of Common Stock in the public market could adversely affect the
prevailing market price of the Common Stock.
No prediction can be made as to the effect, if any, that future sales
of shares or the availability of shares for sale will have on the market price
for Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market, or the perception of the availability of
shares for sale, could adversely affect the prevailing market price of the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares.
DIVIDEND POLICY
The Company has not paid cash dividends on the Common Stock in the
past and does not expect to pay any cash dividends on the Common Stock in the
foreseeable future. The Company instead intends to retain its earnings to
support the operations and growth of its businesses. Any future cash dividends
would depend on future earnings, capital requirements, the Company's financial
condition and other factors deemed relevant by the Board of Directors. In
addition, the terms of an existing $60 million bank line of credit prohibit
payment of dividends by the Company without the prior written consent of the
bank.
7
<PAGE> 9
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Selling Stockholders and the beneficial ownership of Common Stock by each of
them before and after the offering being made hereby. Such information was
provided to the Company by the Selling Stockholders for inclusion in this
Prospectus. Additional information concerning the Selling Stockholders and the
Shares is set forth in the notes to the table.
<TABLE>
<CAPTION>
SHARES BEING
SHARES OWNED OFFERED SHARES OWNED
NAME BEFORE OFFERING (1) IN THE OFFERING AFTER OFFERING (2)
---- ---------------------------- --------------- ----------------------------
NUMBER PERCENT NUMBER PERCENT
--------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Spencer D. Armour . . . . . . . . 145,689 * 145,689 -0- -0-
Richard G. Price . . . . . . . . 139,975 * 139,975 -0- -0-
</TABLE>
_________________
* Less than 1%.
(1) The Shares stated in the table were issued to Messrs. Armour and Price
as partial consideration for the acquisition of Lone Star by the
Company in January 1998. Messrs. Armour and Price were the sole
stockholders of Lone Star. The Shares are being offered hereby
pursuant to registration rights granted in the acquisition. Neither
Mr. Armour nor Mr. Price had any material relationship with the
Company or any of its affiliates prior to the acquisition. Each of
these persons was an executive officer and a director of Lone Star
prior to the acquisition and is continuing in those positions under
five-year employment agreements with the Company and Lone Star.
(2) Assumes all Shares offered hereby are sold.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue (i) 50,000,000 shares of Common
Stock, $0.01 par value, of which 15,766,622 shares are issued and outstanding
as of the date of this Prospectus, and (ii) 1,000,000 shares of Preferred
Stock, $0.01 par value, of which no shares have been issued.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share of
Common Stock held of record on all matters submitted to a vote of stockholders.
Holders of a majority of the shares of Common Stock outstanding may authorize a
merger, consolidation, dissolution of the Company, the sale of all or
substantially all of the Company's assets if not made in the usual or ordinary
course of the Company's business, or an amendment of the Company's Restated
Certificate of Incorporation. In the event of liquidation, holders of Common
Stock are entitled to share pro rata in any distribution of the Company's
assets to holders of Common Stock after payment of liabilities and liquidation
preferences, if any, granted to holders of Preferred Stock. There are no
preemptive, subscription, conversion or redemption rights regarding the Common
Stock. Holders of Common Stock are entitled to receive such dividends as may
be declared on the Common Stock by the Board of Directors in its discretion out
of funds legally available for that purpose.
PREFERRED STOCK
Preferred Stock may be issued in series from time to time with such
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions thereof, to the extent that such are not fixed in
the Company's Restated Certificate of Incorporation, as the Board of Directors
determines. The rights, preferences, limitations and restrictions of different
series of Preferred Stock may differ with respect to dividend rates, amounts
payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and other matters. The Board of Directors
may authorize the issuance of Preferred Stock which ranks senior to the Common
Stock with respect to the payment of dividends and the distribution of assets
on liquidation. In addition, the Board of Directors is authorized to fix the
limitations and restrictions, if any, upon the payment of dividends on Common
Stock to be effective while any shares of Preferred Stock are outstanding. The
Board of Directors, without stockholder approval, can issue Preferred Stock
with voting and conversion rights which could adversely affect the voting power
of the holders of Common Stock. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has not issued any shares of Preferred Stock. However, such number
of shares of Preferred Stock as is sufficient to permit the exercise in full of
the Rights pursuant to the Rights Agreement (approximately 158,000 shares as of
the date of this Prospectus) has been reserved for issuance upon exercise of
the Rights described under "--Stockholder Rights Plan."
8
<PAGE> 10
STOCKHOLDER RIGHTS PLAN
GENERAL. In January 1997, the Board of Directors of the Company
declared a dividend distribution of one preferred share purchase right (a
"Right") for each outstanding share of Common Stock. The dividend was paid to
the stockholders of record on January 17, 1997 (the "Record Date"), and with
respect to Common Stock issued thereafter until the Distribution Date (as
defined below), and, in certain circumstances, with respect to Common Stock
issued after the Distribution Date. Except as set forth below, each Right,
when it becomes exercisable, entitles the registered holder to purchase from
the Company one one-hundredth of a share of Series A Participating Preferred
Stock, $0.01 par value (the "Preferred Shares"), of the Company at a price of
$166 per one one-hundredth of a Preferred Share (the "Purchase Price"), subject
to adjustment. The description and terms of the Rights are set forth in a
Rights Agreement (the "Rights Agreement") between the Company and Continental
Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent"), dated as
of January 2, 1997. The following discussion is a summary of the material
terms of the Rights Agreement, a copy of which has been incorporated by
reference as an exhibit to the Registration Statement.
THE RIGHTS AGREEMENT. Initially, the Rights will be attached to all
certificates representing Common Stock then outstanding, and no separate Right
Certificates will be distributed. The Rights will separate from the Common
Stock upon the earliest to occur of (i) a person or group of affiliated or
associated persons having acquired beneficial ownership of 15% or more of the
outstanding shares of Common Stock (except pursuant to a Permitted Offer, as
hereinafter defined), or (ii) 10 days (or such later date as the Board of
Directors may determine) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in a person or group becoming an Acquiring Person (as hereinafter
defined) (the earliest of such dates being called the "Distribution Date"). A
person or group whose acquisition of Common Stock causes a Distribution Date
pursuant to clause (i) above is an "Acquiring Person." The date that a person
or group becomes an Acquiring Person is the "Shares Acquisition Date."
The Rights Agreements provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date upon transfer or new
issuance of Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Stock outstanding as of the Record Date, even without such notation or a
copy of a summary of the Rights being attached thereto, will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date (and to each initial record holder of certain Common Stock
issued after the Distribution Date), and such separate Right Certificates alone
will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on January 2, 2007, unless earlier redeemed by
the Company as described below.
In the event that any person becomes an Acquiring Person (except
pursuant to a tender or exchange offer which is for all outstanding Common
Stock at a price and on terms which a majority of certain members of the Board
of Directors determines to be adequate and in the best interests of the
Company, its stockholders and other relevant constituencies, other than such
Acquiring Person, its affiliates and associates (a "Permitted Offer")), each
holder of a Right will thereafter have the right (the "Flip-In Right") to
receive upon exercise the number of shares of Common Stock or, in the
discretion of the Board of Directors of the Company, of one one-hundredths of a
Preferred Share (or, in certain circumstances, other securities of the Company)
having a value (immediately prior to such triggering event) equal to two times
the Purchase Price. Notwithstanding the foregoing, following the occurrence of
the event described above, all Rights that are, or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by any Acquiring
Person or any affiliate or associate thereof will be null and void.
In the event that, at any time following the Shares Acquisition Date,
(i) the Company is acquired in a merger or other business combination
transaction in which the holders of all of the outstanding Common Stock
immediately prior to the consummation of the transaction are not the holders of
all of the surviving company's voting power, or (ii) more than 50% of the
Company's assets or earning power is sold or transferred, in either case with
or to an Acquiring Person or any affiliate or associate or any other person in
which such Acquiring Person, affiliate or associate has an interest or any
person acting on behalf of or in concert with such Acquiring Person, affiliate
or associate, or, if in such transaction all holders of Common Stock are not
treated alike, any other person, then each holder of a Right (excepts Rights
which previously have been voided as set forth above) shall thereafter have the
right (the "Flip-Over Right") to receive, upon exercise, common shares of the
acquiring company having a value equal to two times the Purchase Price. The
holder of a Right will continue to have the Flip-Over Right whether or not such
holder exercises or surrenders the Flip-In Right.
The Purchase Price payable, and the number of Preferred Shares, shares
of Common Stock or other securities issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then current market price of the Preferred Shares or
9
<PAGE> 11
(iii) upon the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock
dividend on the Common Stock payable in Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case,
prior to the Distribution Date.
DESCRIPTION OF PREFERRED SHARES. Preferred Shares purchasable upon
exercise of the Rights will not be redeemable. Each Preferred Share will be
entitled to a minimum preferential quarterly dividend payment of $0.01 per
share but, if greater, will be entitled to an aggregate dividend per share of
100 times the dividend declared per share of Common Stock. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $1.00 per share; thereafter, and after the
holders of the Common Stock receive a liquidation payment of $0.01 per share,
the holders of the Preferred Shares and the holders of the Common Stock will
share the remaining assets in the ratio of 100 to 1 (as adjusted) for each
Preferred Share and share of Common Stock so held, respectively. Finally, in
the event of any merger, consolidation or other transaction in which shares of
Common Stock are exchanged, each Preferred Share will be entitled to receive
100 times the amount received per share of Common Stock. These rights are
protected by customary antidilution provisions. In the event that the amount
of accrued and unpaid dividends on the Preferred Shares is equivalent to six
fully quarterly dividends or more, the holders of the Preferred Shares shall
have the right, voting as a class, to elect two directors in addition to the
directors elected by the holders of the Common Stock until all cumulative
dividends on the Preferred Shares have been paid through the last quarterly
dividend payment date or until noncumulative dividends have been paid regularly
for at least one year.
REDEMPTION. At any time prior to the earlier to occur of (i) a person
becoming an Acquiring Person or (ii) the expiration of the Rights, and under
certain other circumstances, the Company may redeem the Rights in whole, but
not in part, at a price of $0.01 per Right (the "Redemption Price"), which
redemption shall be effective upon the action of the Board of Directors.
Additionally, following the Shares Acquisition Date, the Company may redeem the
then outstanding Rights in whole, but not in part, at the Redemption Price
provided that such redemption is in connection with a merger or other business
combination transaction or series of transactions involving the Company in
which all holders of Common Stock are treated alike but not involving an
Acquiring Person or its affiliates or associates.
ANTI-TAKEOVER EFFECT. The distribution of the Rights may have the
effect of delaying, deferring or preventing a change in control of the Company
notwithstanding that a majority of the stockholders might benefit from such a
change in control.
10
<PAGE> 12
OTHER PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECT
Delaware, like many other states, permits a corporation to adopt a
number of measures through amendment of the corporate charter or bylaws or
otherwise, which, along with certain provisions of the Delaware General
Corporation Law (the "DGCL"), may have the effect of delaying or deterring any
unsolicited takeover attempts notwithstanding that a majority of the
stockholders might benefit from such a takeover or attempt. In connection with
the Company's reincorporation, the right of stockholders to cumulate votes in
the election of directors was eliminated. In addition, Section 203 of the
DGCL, which will apply to the Company since the Common Stock has been approved
for quotation on the NASDAQ National Market, restricts certain "business
combinations" with an "interested stockholder" for three years following the
date such person becomes an interested stockholder, unless the Board of
Directors approves the business combination. "Business combination" is defined
to include mergers, sale of assets and other similar transactions with an
"interested stockholder." An "interested stockholder" is defined as a person
who, together with affiliates and associates, owns (or, within the prior three
years, did own) 15% or more of the corporation's voting stock. By delaying or
deterring unsolicited takeover attempts, these provisions could adversely
affect prevailing market prices for the Company's Common Stock.
The Company's Restated Certificate of Incorporation and Bylaws contain
certain provisions that could discourage potential takeover attempts and make
more difficult attempts by stockholders to change management. The following
paragraphs set forth a summary of these provisions:
SPECIAL MEETINGS OF STOCKHOLDERS. The Restated Certificate of
Incorporation provides that special meetings of stockholders may be called only
by the Board of Directors (or a majority of the members thereof), the Chief
Executive Officer, the President or the holders of a majority of the
outstanding stock entitled to vote at such special meeting. This provision
will make it more difficult for stockholders to call a special meeting.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT. The Restated Certificate of
Incorporation provides that stockholder action may be taken only at annual or
special meetings and not by written consent of the stockholders.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than 30 days nor more than 60 days prior to the meeting as
originally scheduled; provided that in the event less than 40 days written
notice is given to stockholders, notice by the stockholder to be made timely
must be received not later than the close of business on the 10th day following
the day on which such notice of the date of the annual meeting was mailed.
These Bylaws also specify certain requirements for a stockholder's notice to be
in proper written form. These provisions may preclude some stockholders from
bringing matters before the stockholders at an annual meeting or from making
nominations for directors at an annual meeting.
AUTHORIZED CLASS OF PREFERRED STOCK. See "---Preferred Stock" for
information concerning the Company's Preferred Stock.
TRANSFER AGENT
The transfer agent for the Common Stock is Continental Stock Transfer
& Trust Company, New York, New York.
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholders may be
effected from time to time in one or more transactions (which may involve block
transactions) on the NASDAQ National Market or otherwise, in negotiated
transactions, or a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholders may effect such
transactions by selling the Shares to or through broker dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Stockholders or purchasers of
Shares for whom they may act as agent (which compensation may be in excess of
customary commissions). Such brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales and any commissions received by them may be deemed to be underwriting
compensation.
In accordance with applicable rules and regulations promulgated under
the Exchange Act, any person engaged in the distribution of any of the Shares
may not simultaneously engage in market activities with respect to any of the
Common Stock for a period of nine business days prior to the commencement of
such distribution. In addition and without limiting the foregoing, the Selling
Stockholders may be subject to applicable provisions of the Exchange Act and
the rules and regulations promulgated thereunder, including, without
limitation, Regulation M, which provisions may limit the timing of purchases
and sales of Shares by the Selling Stockholders.
11
<PAGE> 13
The Company and the Selling Stockholders have agreed to indemnify each
other against certain liabilities, including liabilities, under the Securities
Act.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Baker & Hostetler LLP, Denver, Colorado.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1996 and
the consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996, incorporated by
reference in this Prospectus, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in auditing and accounting. With respect to
the unaudited interim financial information for the periods ended March 31,
1996 and 1997, June 30, 1996 and 1997 and September 30, 1996 and 1997
incorporated by reference in this Prospectus, the independent accountants have
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate reports included in the Company's quarterly reports on Form 10-Q for
the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997 and
incorporated by reference herein, states that they did not audit and they do
not express an opinion on that interim 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. The accountants
are not subject to the liability provisions of Section 11 of the Securities Act
of 1933 for their report on the unaudited interim financial information because
that report is not a "report" or a "part" of the Registration Statement
prepared or certified by the accountants within the meaning of Sections 7 and
11 of the Securities Act.
The balance sheet of Patterson Drilling Company (formerly known as
Tucker Drilling Company, Inc.) as of March 31, 1996, and the related statements
of operations, changes in stockholders' equity and cash flows for each of the
two years in the period ended March 31, 1996, incorporated by reference in this
Prospectus and elsewhere in the Registration Statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in giving said reports.
The statements of assets acquired as of December 31, 1996 and 1995 for
Wes-Tex Drilling Company and the related statements of direct drilling revenue
and direct operating expenses for each of the three years in the period ended
December 31, 1996, incorporated by reference to this Prospectus, have been
included herein in reliance on the report of Davis, Kinard & Co., P.C.,
independent accountants, given on the authority of that firm as experts in
auditing and accounting. With respect to the unaudited interim financial
information as of March 31, 1997, and for the three-month periods ended March
31, 1997 and 1996, incorporated by reference in this Prospectus, Davis, Kinard
& Co., P.C. have reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report included in the Company's Current Report on Form
8-K, as amended, dated June 12, 1997, and incorporated by reference herein,
states that they did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on their
report of such information should be restricted in light of the limited nature
of review procedures applied. The accountants are not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their report on the
unaudited financial information because that report is not a "report" or a
"part" of the Registration Statement prepared or certified by the accountants
within the meaning of Sections 7 and 11 of the Securities Act.
12
<PAGE> 14
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings
ascribed to them in the Prospectus included as part of this Registration
Statement.
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of Common Stock registered
hereby, all of which expenses, except for the Commission registration fee and
the Nasdaq National Market listing fee, are estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- ----------
<S> <C>
Securities and Exchange Commission registration fee . . . . . . . . . . . . . . . . . . . . . $ 2,770.41
Nasdaq National Market listing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,713.00
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Blue Sky fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Miscellaneous expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
==========
</TABLE>
- ---------------
* To be completed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The DGCL provides for indemnification by a corporation of costs
incurred by directors, employees and agents in connection with an action, suit
or proceeding brought by reason of their position as a director, employee or
agent. The person being indemnified must have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation. The DGCL provides that a corporation may advance payment of
expenses. The DGCL further provides that the indemnification and advancement
of expenses provisions of the DGCL will not be deemed exclusive of any other
rights to which these indemnifications or advancements of expenses may be
entitled under bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action under official capacity and as to
action in another capacity when holding such office.
In addition to the general indemnification section, Delaware law
provides further protection for directors under Section 102(b)(7) of the DGCL.
This section was enacted in June 1986 and allows a Delaware corporation to
include in its certificate of incorporation a provision that eliminates and
limits certain personal liability of a director for monetary damages for
certain breaches of the director's fiduciary duty of care, provided that any
such provision does not (in the words of the statute) do any of the following:
"eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
Section 174 of this Title [dealing with willful or negligent violation
of the statutory provision concerning dividends and stock purchases
and redemptions], or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall
eliminate or limit the liability of a director for any act or omission
occurring prior to the date when such provision becomes effective...."
II-1
<PAGE> 15
The Board of Directors is empowered to make other indemnification as
authorized under any bylaw, agreement, the Restated Certificate of
Incorporation, Bylaws or corporate resolution so long as the indemnification is
consistent with the DGCL.
The Company's Restated Certificate of Incorporation provides that, to
the fullest extent permitted by the DGCL, a director of the Company will not be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director. The Company's Bylaws provide that to the extent
that a director or officer of the Company is successful on the merits of
defense of a suit or proceeding brought against him by reason of the fact that
he is a director or officer of the Company, he shall be indemnified against
expenses (including attorneys' fees) reasonably incurred in connection with
such action. In other circumstances, a director or officer of the Company may
be indemnified against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in and not opposed to the best
interest of the Company, and, with respect to a criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful; however, in an
action or suit by or in the right of the Company to procure a judgment in its
favor, such person will not be indemnified if he has been adjudged to be liable
to the Company unless and only to the extent that the Delaware Court of
Chancery or the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
deems proper. A determination that indemnification of a director or officer is
proper will be made by a disinterested majority of the Company's Board of
Directors, by independent legal counsel or by the stockholders of the Company.
The Company's Bylaws also provide that the Company may advance the payment of
expenses and that the indemnification and advancement of expenses provisions of
the Bylaws are nonexclusive. The Company maintains director and officer
liability insurance covering director and officer indemnification.
ITEM 16. EXHIBITS.
The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
Exhibit Item 601 Cross
Number Reference Document as Form S-3 Exhibit
------ --------------- ----------------------------
<S> <C> <C>
2.1 2 Asset Purchase Agreement, dated April 22, 1997, among and between Patterson
Drilling Company and Ziadril, Inc. (1)
2.2 2 Asset Purchase Agreement, dated June 4, 1997, among Patterson Energy, Inc.,
Patterson Drilling Company and Wes-Tex Drilling Company.(2)
2.2.1 2 Amendment to Asset Purchase Agreement, dated June 4, 1997, among Patterson
Energy, Inc., Patterson Drilling Company and Wes-Tex Drilling Company.(2)
2.3 2 Agreement, dated June 4, 1997, among Patterson Energy, Inc., Patterson
Drilling Company, Greathouse Foundation and Myrle Greathouse, Trustee under
Agreement dated June 2, 1997.(2)
2.4 2 Asset Purchase Agreement, dated August 1, 1997, between Patterson Drilling
Company and McGee Drilling Corporation. (1)
2.5 2 Asset Purchase Agreement, dated November 14, 1997, between Patterson Drilling
Company and V&B Drilling, Inc. (3)
2.6 2 Asset Purchase Agreement, dated December 20, 1997, between Patterson Drilling
Company and Circle R Drilling, Ltd. 1981-A. (3)
2.7 2 Stock Purchase Agreement, dated January 5, 1998, among Patterson Energy, Inc.,
Spencer D. Armour, III, and Richard G. Price.
4.1 4 Excerpt from Restated Certificate of Incorporation of Patterson Energy, Inc.
regarding authorized Common Stock and Preferred stock. (4)
4.2 4 Rights Agreement dated as of January 2, 1997, between Patterson Energy, Inc.
and Continental Stock Transfer & Trust Company, as Rights Agent. (5)
4.3 4 Credit Agreement, dated December 9, 1997, among Patterson Energy, Inc.,
Patterson Drilling Company, Patterson Petroleum, Inc., and Patterson
Petroleum Trading Company, Inc. and Norwest Bank Texas, National Association. (3)
4.3.1 4 Note, dated December 9, 1997, executed by Patterson Energy, Inc. (3)
4.3.2 4 Guaranty, dated December 9, 1997, by Patterson Drilling Company, Patterson
Petroleum, Inc., and Patterson Petroleum Trading Company, Inc. in favor of
Norwest Bank Texas, National Association. (3)
4.3.3 4 Security Agreement, dated December 9, 1997, between Patterson Drilling Company
and Norwest Bank Texas, National Association. (3)
5.1 5 Opinion of Baker & Hostetler LLP regarding legality of the Shares to be
offered.
15.1 15 Awareness Letter of Coopers & Lybrand L.L.P.
</TABLE>
II-2
<PAGE> 16
<TABLE>
<S> <C> <C>
15.2 15 Awareness Letter of Davis, Kinard & Co., P.C.
23.1 23 Consent of Independent Accountants, Coopers & Lybrand L.L.P.
23.2 23 Consent of Independent Public Accountants, Arthur Andersen LLP
23.3 23 Consent of M. Brian Wallace, independent petroleum engineer
23.4 23 Consent of Baker & Hostetler LLP (included in Exhibit 5.1)
23.5 23 Consent of Independent Accountants, Davis, Kinard & Co., P.C.
24.1 24 Powers of Attorney included on the signature page of this Form S-3
Registration Statement
</TABLE>
(1) Filed as an Exhibit to Amendment No. 1 to Form S-3 (Registration No.
333-29035) filed with the Commission on August 5, 1997.
(2) Incorporated by reference to Item 7, "Financial Statements and Exhibits,"
to Form 8-K dated June 3, 1997, filed with the Commission on June 11, 1997.
(3) Incorporated by reference to Item 7, "Financial Statements and Exhibits,"
to Form 8-K dated November 14, 1997, filed with the Commission on December
24, 1997.
(4) Filed as an Exhibit to Form S-3 (Registration No. 333-181123) filed with
the Commission on December 18, 1996.
(5) Incorporated by reference to Item 2, "Exhibits", to Form 8-A dated January
10, 1997, and filed with the Commission on January 14, 1997.
II-3
<PAGE> 17
ITEM 17. UNDERTAKINGS.
1. The Company hereby undertakes:
(a) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, unless the information
required to be included in such post-effective amendment is
contained in a periodic report filed by the Company pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 and incorporated herein by reference;
(ii) to reflect in the Prospectus any facts or
events arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
Registration Statement, unless the information required to be
included in such post-effective amendment is contained in a
periodic report filed by the Company pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 and
incorporated herein by reference; and
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement;
Provided, however, that paragraphs (1)(a)(i) and
(1)(a)(ii) do not apply if the information required to be included in
a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Company pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(b) That, for the 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) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(d) That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 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.
2. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission 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 Company of expenses incurred or paid by a director, officer
or controlling person of the Company 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 Company 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.
II-4
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Snyder, State of Texas on the 5th day of
January, 1998.
PATTERSON ENERGY, INC.
By: /s/ A. Glenn Patterson
------------------------------------
A. Glenn Patterson, President
Each of the undersigned officers and directors of Patterson Energy,
Inc. hereby appoints Cloyce A. Talbott, as attorney and agent for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933 any and all amendments (including
post-effective amendments) and exhibits to this Registration Statement and any
and all applications, instruments or documents to be filed with the Securities
and Exchange Commission pertaining to the registration of the securities
covered hereby, with full power and authority to do and perform any and all
acts and things whatsoever requisite and necessary or desirable.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed as of January 5, 1998, by the
following persons in the capacities indicated:
<TABLE>
<S> <C>
/s/ Cloyce A. Talbott Chairman of the Board, Director and Chief
- ------------------------------------------------------- Executive Officer
Cloyce A. Talbott
Principal Executive Officer
/s/ A. Glenn Patterson President, Chief Operating Officer and Director
- -------------------------------------------------------
A. Glenn Patterson
/s/ Robert C. Gist Director
- -------------------------------------------------------
Robert C. Gist
/s/ Kenneth E. Davis Director
- -------------------------------------------------------
Kenneth E. Davis
/s/ Vincent A. Rossi, Jr. Director
- -------------------------------------------------------
Vincent A. Rossi, Jr.
/s/ James C. Brown Vice President--Finance, Secretary and Treasurer
- ------------------------------------------------------- and Chief Financial Officer
James C. Brown
(Principal Accounting Officer)
</TABLE>
II-5
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document as Form S-3 Exhibit Page No.
------- ---------------------------- --------
<S> <C>
2.1 Asset Purchase Agreement, dated April 22, 1997, among and between
Patterson Drilling Company and Ziadril, Inc. (1)
2.2 Asset Purchase Agreement, dated June 4, 1997, among Patterson
Energy, Inc., Patterson Drilling Company and Wes-Tex Drilling
Company.(2)
2.2.1 Amendment to Asset Purchase Agreement, dated June 4, 1997, among
Patterson Energy, Inc., Patterson Drilling Company and Wes-Tex
Drilling Company.(2)
2.3 Agreement, dated June 4, 1997, among Patterson Energy, Inc.,
Patterson Drilling Company, Greathouse Foundation and
Myrle Greathouse, Trustee under Agreement dated June 2, 1997.(2)
2.4 Asset Purchase Agreement, dated August 1, 1997, between Patterson
Drilling Company and McGee Drilling Corporation. (1)
2.5 Asset Purchase Agreement, dated November 14, 1997, between
Patterson Drilling Company and V&B Drilling, Inc. (3)
2.6 Asset Purchase Agreement, dated November 20, 1997, between
Patterson Drilling Company and Circle R Drilling, Ltd. 1981-A. (3)
2.7 Stock Purchase Agreement, dated January 5, 1998, among Patterson
Energy, Inc., Spencer D. Armour, III, and Richard G. Price.
4.1 Excerpt from Restated Certificate of Incorporation of Patterson
Energy, Inc. regarding authorized Common Stock and Preferred
Stock. (4)
4.2 Rights Agreement dated as of January 2, 1997, between Patterson
Energy, Inc. and Continental Stock Transfer & Trust Company, as
Rights Agent. (5)
4.3 4 Credit Agreement, dated December 9, 1997, among Patterson Energy, Inc.,
Patterson Drilling Company, Patterson Petroleum, Inc., and Patterson
Petroleum Trading Company, Inc. and Norwest Bank Texas, National Association. (3)
4.3.1 4 Note, dated December 9, 1997, executed by Patterson Energy, Inc. (3)
4.3.2 4 Guaranty, dated December 9, 1997, by Patterson Drilling Company, Patterson
Petroleum, Inc., and Patterson Petroleum Trading Company, Inc. in favor of
Norwest Bank Texas, National Association. (3)
4.3.3 4 Security Agreement, dated December 9, 1997, between Patterson Drilling Company
and Norwest Bank Texas, National Association. (3)
5.1 Opinion of Baker & Hostetler LLP regarding legality of the Shares
to be offered.
15.1 Awareness Letter of Coopers & Lybrand L.L.P.
15.2 Awareness Letter of Davis, Kinard & Co., P.C.
23.1 Consent of Independent Accountants, Coopers & Lybrand L.L.P.
23.2 Consent of Independent Public Accountants, Arthur Andersen LLP
23.3 Consent of M. Brian Wallace, independent petroleum engineer
23.4 Consent of Baker & Hostetler LLP (included in Exhibit 5.1)
23.5 Consent of Independent Accountants, Davis, Kinard & Co., P.C.
24.1 Powers of Attorney included on the signature page of this Form S-
3 Registration Statement
</TABLE>
_________________
(1) Filed as an Exhibit to Amendment No. 1 to Form S-3 (Registration No.
333-29035) filed with the Commission on August 5, 1997.
(2) Incorporated by reference to Item 7, "Financial Statements and Exhibits,"
to Form 8-K dated June 3, 1997, filed with the Commission on June 11, 1997.
(3) Incorporated by reference to Item 7, "Financial Statements and Exhibits,"
to Form 8-K dated November 14, 1997, filed with the Commission on December
24, 1997.
(4) Filed as an Exhibit to Form S-3 (Registration No. 333-181123) filed with
the Commission on December 18, 1996.
(5) Incorporated by reference to Item 2, "Exhibits", to Form 8-A dated January
10, 1997, and filed with the Commission on January 14, 1997.
<PAGE> 1
EXHIBIT 2.7
STOCK PURCHASE AGREEMENT
AMONG
PATTERSON ENERGY, INC.,
SPENCER D. ARMOUR, III
AND
RICHARD G. PRICE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE STOCK PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
SECTION 1.1 The Stock Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
SECTION 1.2 Stock Purchase Consideration . . . . . . . . . . . . . . . . . . . . . . . . -1-
SECTION 1.3 No Further Ownership Rights in Lone Star Common Stock . . . . . . . . . . . . -2-
SECTION 1.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
SECTION 2.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . -2-
SECTION 2.2 Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . -2-
SECTION 2.3 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
SECTION 2.4 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
SECTION 2.5 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
SECTION 2.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
SECTION 2.7 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
SECTION 3.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . -6-
SECTION 3.2 Capital Structure of Lone Star and Subsidiary . . . . . . . . . . . . . . . . -6-
SECTION 3.3 Ownership of Lone Star Common Stock . . . . . . . . . . . . . . . . . . . . . -7-
SECTION 3.4 Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . -7-
SECTION 3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
SECTION 3.6 Absence of Material Adverse Change . . . . . . . . . . . . . . . . . . . . . -8-
SECTION 3.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
SECTION 3.8 Real and Personal Property; Title Thereto . . . . . . . . . . . . . . . . . . -9-
SECTION 3.9 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 3.10 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 3.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 3.12 Contracts and Other Agreements . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 3.13 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
SECTION 3.14 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . -10-
SECTION 3.15 Employee Benefit Plans; Employment Agreements . . . . . . . . . . . . . . -10-
SECTION 3.16 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
SECTION 3.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
SECTION 3.18 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
SECTION 3.19 Governmental Licenses and Permits; Compliance with Law . . . . . . . . . . -12-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.20 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
SECTION 3.21 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
SECTION 3.22 Distributions to Stockholders . . . . . . . . . . . . . . . . . . . . . . -13-
SECTION 3.23 Workers' Compensation Claims . . . . . . . . . . . . . . . . . . . . . . . -13-
ARTICLE IV
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
SECTION 4.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
SECTION 4.2 Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
SECTION 4.3 S. Armour and R. Price Indemnification . . . . . . . . . . . . . . . . . . -13-
SECTION 4.4 PEC Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
SECTION 4.5 Filing of Registration Statement on Form S-3 . . . . . . . . . . . . . . . -14-
SECTION 4.6 Nasdaq National Market . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
SECTION 4.7 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
SECTION 4.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
SECTION 4.9 First Right of Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
SECTION 4.10 Payment of Western National Bank Loan . . . . . . . . . . . . . . . . . . -15-
ARTICLE V
CONDITIONS PRECEDENT TO THE STOCK PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
SECTION 5.1 Conditions to Each Party's Obligation to Effect the Stock Purchase . . . . -15-
SECTION 5.2 Conditions to Obligation of the Shareholders to Effect the Stock Purchase . -16-
SECTION 5.3 Conditions to Obligations of PEC to Effect the Stock Purchase . . . . . . . -18-
ARTICLE VI
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
SECTION 6.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
SECTION 6.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
SECTION 6.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
SECTION 6.4 Entire Agreement; No Third-Party Beneficiaries . . . . . . . . . . . . . . -21-
SECTION 6.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 6.6 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 6.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 6.8 Enforcement of This Agreement . . . . . . . . . . . . . . . . . . . . . . . -22-
</TABLE>
EXHIBIT A(I) Non-Competition Agreement of Spencer D. Armour, III
EXHIBIT A(II) Non-Competition Agreement of Richard G. Price
EXHIBIT B(I) Employment Agreement with Spencer D. Armour, III
EXHIBIT B(II) Employment Agreement with Richard G. Price
-ii-
<PAGE> 4
EXHIBIT C Registration Rights Agreement
EXHIBIT D Form of Investment Representation Letter
-iii-
<PAGE> 5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of January 5, 1998 (this
"Agreement"), among PATTERSON ENERGY, INC., a Delaware corporation ("PEC"),
SPENCER D. ARMOUR, III ("S. Armour"), and RICHARD G. PRICE ("R. Price") (S.
Armour and R. Price being sometimes referred to herein collectively as the
"Shareholders").
WITNESSETH:
WHEREAS, S. Armour and R. Price own (beneficially and of
record) all of the outstanding common stock, par value $1.00 per share ("Lone
Star Common Stock"), of Lone Star Mud, Incorporated, a Texas corporation ("Lone
Star");
WHEREAS, PEC desires to purchase, and S. Armour and R. Price
desire to sell, or cause the sale of, all of the outstanding Lone Star Common
Stock (the "Stock Purchase") for the consideration set forth and provided for
herein; and
WHEREAS, PEC, on the one hand, and S. Armour and R. Price, on
the other, desire to make certain representations, warranties and agreements in
connection with the Stock Purchase.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
ARTICLE I
THE STOCK PURCHASE
SECTION 1.1 The Stock Purchase. Upon the terms and subject
to the conditions of this Agreement, at the Closing (as defined in Section 1.4
below) provided herein, PEC shall purchase from S. Armour and R. Price, and S.
Armour and R. Price shall sell, or cause to be sold, to PEC, all of the
outstanding shares of Lone Star Common Stock.
SECTION 1.2 Stock Purchase Consideration. PEC agrees to pay
or issue to the Shareholders the following consideration (the "Stock Purchase
Consideration"): (a) a total of $1,430,000 in cash, with $729,300 in cash
being paid to S. Armour and $700,700 in cash being paid to R. Price; and (b)
285,664 shares (collectively, the "PEC Shares") of the common stock, par value
$0.01 per share (the "PEC Common Stock"), of PEC, with a total of 145,689
shares of PEC Common Stock being issued to S. Armour and 139,975 shares of PEC
Common Stock being issued to R. Price.
<PAGE> 6
SECTION 1.3 No Further Ownership Rights in Lone Star Common
Stock. All Stock Purchase Consideration paid and issued in accordance with the
terms hereof shall be deemed to have been paid and issued in full satisfaction
of all rights pertaining to the outstanding shares of Lone Star Common Stock.
SECTION 1.4 Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of PEC in Snyder, Texas at 10:00 a.m. local time, on the date of this Agreement
or at such other time and place as PEC and the Shareholders shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PEC
PEC represents and warrants to the Shareholders as follows:
SECTION 2.1 Organization, Standing and Power. PEC (i) is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to carry on its business as now being conducted, and (ii) is in good
standing in each jurisdiction where the character of its business owned or held
under lease or the nature of its activities makes such qualification necessary,
except where the failure to be so qualified would not individually or in the
aggregate, have a Material Adverse Effect on PEC. "Material Adverse Change" or
"Material Adverse Effect" means, when used with respect to PEC or Lone Star,
any change or effect that is or, so far as can reasonably be determined, is
likely to be materially adverse to the assets, properties, condition (financial
or otherwise), business or results of operations of PEC and its subsidiaries
taken as a whole or Lone Star, as the case may be.
SECTION 2.2 Authority; Non-Contravention. PEC has all
requisite power and authority to enter into this Agreement and to consummate
the Stock Purchase. The execution and delivery by PEC of this Agreement and
the consummation by PEC of the Stock Purchase have been duly authorized by all
necessary corporate action on the part of PEC. This Agreement has been duly
executed and delivered by PEC and (assuming the valid authorization, execution
and delivery of this Agreement by S. Armour and R. Price) constitutes a valid
and binding obligation of PEC enforceable against PEC in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other similar
laws of general applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of equity (regardless
of whether enforceability is considered in a proceeding in equity or at law).
The execution and delivery of this Agreement do not or will not, as the case
may be, and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or 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, security interest, charge or encumbrance upon
-2-
<PAGE> 7
any of the properties or assets of PEC under, any provision of (i) the Articles
of Incorporation or Bylaws of PEC, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to PEC, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to PEC or
any of its properties or assets, other than, in the case of clauses (ii) or
(iii), any such conflicts, violations, defaults, rig losses, liens, security
interests, charges or encumbrances that, individually or in the aggregate,
would not have a Material Adverse Effect on PEC, materially impair the ability
of PEC to perform its obligations hereunder or under the Registration Rights
Agreement required by Section 5.2(d) hereof or prevent the consummation of any
of the transactions contemplated hereby or thereby.
SECTION 2.3 Capital Structure. As of the date hereof, the
authorized capital stock of PEC consists of 50,000,000 shares of common stock,
par value $0.01 per share ("PEC Common Stock"), and 1,000,000 shares of
preferred stock, par value $0.01 per share ("PEC Preferred Stock"). At the
close of business on the day immediately preceding the date of this Agreement,
(i) 15,766,622 shares of PEC Common Stock were validly issued and outstanding,
fully paid and nonassessable and free of preemptive rights, and (ii) no shares
of PEC Preferred Stock are issued and outstanding. The PEC Common Stock is
designated as a national market security on an inter-dealer quotation system by
the National Association of Securities Dealers, Inc. All shares of PEC Common
Stock issuable pursuant to the Stock Purchase in accordance with this Agreement
will be, when so issued, duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights.
SECTION 2.4 SEC Documents. PEC has filed all required
documents with the Securities and Exchange Commission ("SEC") since January 1,
1996 (the "PEC/SEC Documents"). As of their respective dates, the PEC/SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and none of the PEC/SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of PEC included in the
PEC/SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of the unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly present the consolidated financial position of PEC and its
consolidated subsidiaries) as at the dates thereof and the consolidated results
of their operations and statements of cash flows for the periods then ended
(subject, in the case of the unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein).
SECTION 2.5 Environmental Matters.
(a) Except to the extent that the inaccuracy of any of
the following, individually or in the aggregate, would not have a Material
Adverse Effect on PEC, to the knowledge of the executive officers of PEC:
-3-
<PAGE> 8
(i) PEC and its subsidiaries hold, and are in compliance
with and have been in compliance with for the last three years, all
Environmental Permits, and are otherwise in substantial compliance and
have been in substantial compliance for the last three years with, all
applicable Environmental Laws and there is no condition that is
reasonably likely to prevent or materially interfere prior to the
Closing with compliance by PEC and its subsidiaries with Environmental
Laws;
(ii) no modification, revocation, reissuance, alteration,
transfer or amendment of any Environmental Permit, or any review by,
or approval of, any third party of any Environmental Permit is
required in connection with the execution or delivery of this
Agreement or the consummation by PEC of the transactions contemplated
hereby or the operation of the business of PEC or any of its
subsidiaries on the date of the Closing;
(iii) neither PEC nor any of its subsidiaries has received
any Environmental Claim, nor has any Environmental Claim been
threatened against PEC or any of its subsidiaries;
(iv) neither PEC nor any of its subsidiaries has entered
into, agreed to or is subject to any outstanding judgment, decree,
order or consent arrangement with any governmental authority under any
Environmental Laws, including, without limitation, those relating to
compliance with any Environmental Laws or to the investigation,
cleanup, remediation or removal of Hazardous Materials;
(v) there are no circumstances that are reasonably likely
to give rise to liability under any agreements with any person
pursuant to which PEC or any of its subsidiaries would be required to
defend, indemnify, hold harmless, or otherwise be responsible for any
violation by or other liability or expense of such person, or alleged
violation by or other liability or expense of such person, arising out
of any Environmental Law; and
(vi) there are no other circumstances or conditions that
are reasonably likely to give rise to liability of PEC or any of its
subsidiaries under any Environmental Laws.
(b) For purposes of this Agreement, the terms below shall
have the following meanings:
"Environmental Claim" means any written complaint,
notice, claim, demand, action, suit or judicial,
administrative or arbitral proceeding by any person to PEC or
any of its subsidiaries (or, for purposes of Section 3.17,
Lone Star) asserting liability or potential liability
(including, without limitation, liability or potential
liability for investigatory costs, cleanup costs, governmental
response costs, natural resource damages, property damage,
personal injury, fines or penalties) arising out of, relating
to, based on or resulting from (i) the presence, discharge,
emission, release or threatened release of any Hazardous
Materials at any location, (ii) circumstances
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forming the basis of any violation or alleged violation of any
Environmental Laws or Environmental Permits, or (iii)
otherwise relating to obligations or liabilities of PEC or any
of its subsidiaries (or, for purposes of Section 3.17, Lone
Star) under any Environmental Law.
"Environmental Permits" means all permits, licenses,
registrations, exemptions and other governmental
authorizations required under Environmental Laws for PEC or
any of its subsidiaries (or, for purposes of Section 3.17,
Lone Star) to conduct its operations as presently conducted.
"Environmental Laws" means all applicable foreign,
federal, state and local statutes, rules, regulations,
ordinances, orders, decrees and common law relating in any
manner to pollution or protection of the environment, to the
extent and in the form that such exist at the date hereof.
"Hazardous Materials" means all hazardous or toxic
substances, wastes, materials or chemicals, petroleum
(including crude oil or any fraction thereof) and petroleum
products, asbestos and asbestos-containing materials,
pollutants, contaminants and all other materials and
substances, including but not limited to radioactive
materials, regulated pursuant to any Environmental Laws.
SECTION 2.6 Litigation. There is no suit, action,
investigation or proceeding pending or, to the knowledge of the executive
officers of PEC, threatened against PEC or any of its subsidiaries at law or in
equity before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind, that would impair the ability of
PEC to perform its obligations hereunder or to consummate the transactions
contemplated hereby, and there is no judgment, decree, injunction, rule or
order of any court, governmental department, commission, board, bureau, agency,
instrumentality or arbitrator to which PEC or any of its subsidiaries is
subject that would impair the ability of PEC to perform its obligations
hereunder or to consummate the transactions contemplated hereby.
SECTION 2.7 Brokers. No broker, investment banker or other
person is entitled to any broker's, finder's or similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of PEC.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
S. Amour and R. Price jointly and severally represent and
warrant to PEC as follows:
SECTION 3.1 Organization, Standing and Power. Lone Star (i)
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Texas and has the requisite corporate power and
authority to carry on its business as now being conducted, (ii) is duly
qualified to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except as set forth in Section
3.1 of the disclosure schedule of S. Armour and R. Price, dated as of the date
of this Agreement, previously delivered to PEC (the "Armour and Price
Disclosure Schedule"). Except for the LSM Trucking Corporation (the
"Subsidiary"), Lone Star has no subsidiaries. The Subsidiary (i) is a
wholly-owned subsidiary of Lone Star, (ii) is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Texas, and
(iii) has the requisite corporate power and authority to carry on its business
as now being conducted. The Subsidiary is duly qualified to do business, and
is in good standing, in each jurisdiction where the character of its properties
owned or held under lease or the nature of its activities makes such
qualification necessary, except as set forth in Section 3.1 of the Armour and
Price Disclosure Schedule. Prior to the Closing, Lone Star owned all of the
issued and outstanding capital stock of MUD-TECH, INC., a Texas corporation
("Mud-Tech"). Mud-Tech had no assets or operations and conducted no business.
All record and beneficial ownership of the issued and outstanding capital stock
of Mud-Tech (the "Mud-Tech Common Stock") was fully and effectively transferred
to S. Armour and R. Price, the sole shareholders of Lone Star, immediately
prior to the Closing and is now owned beneficially and of record by S. Armour
and R. Price. At the time of such transfer, the fair market value of the
Mud-Tech Common Stock was zero.
SECTION 3.2 Capital Structure of Lone Star and Subsidiary.
The authorized capital stock of Lone Star consists of 500,000 shares of Lone
Star Common Stock, of which 1,000 shares are issued and outstanding. All
outstanding shares of Lone Star Common Stock are validly issued, fully paid and
nonassessable and have not been issued in violation of any preemptive rights.
There are no options, warrants, rights, commitments, agreements, arrangements
or undertakings of any kind to which Lone Star is a party or by which it is
bound obligating Lone Star to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of Lone Star. The
authorized capital stock of Subsidiary consists of 1,000,000 shares of Common
Stock, par value $1.00 per share ("Subsidiary Common Stock"), of which 1,000
shares are issued and outstanding. All outstanding shares of Subsidiary Common
Stock are validly issued, fully paid and nonassessable and have not been issued
in violation of any preemptive rights. There are no options, warrants, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Subsidiary is a party or by which it is bound obligating Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of Subsidiary.
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SECTION 3.3 Ownership of Lone Star Common Stock. Section 3.3
of the Armour and Price Disclosure Schedule sets forth a true and correct list
of the ownership of Lone Star Common Stock by the stockholders of Lone Star.
Each of the stockholders of Lone Star beneficially holds such Lone Star Common
Stock free and clear of any restrictions on transfer (other than restrictions
under the Securities Act of 1933 and state securities laws), taxes, Liens (as
defined below in this Section), options, warrants, purchase rights, contracts,
commitments, equities, claims and demands. None of the stockholders of the
Company is a party to (i) any option, warrant, purchase right, or other
contract or commitment that could require him to sell, transfer, or otherwise
dispose of any Lone Star Common Stock (other than pursuant to this Agreement)
or (ii) any voting trust, proxy, or other agreement or understanding with
respect to the Lone Star Common Stock. For purposes of this Agreement "Liens"
means liens, mortgages, pledges, security interests, encumbrances, claims or
charges of any kind.
SECTION 3.4 Authority; Non-Contravention. Each of the
Shareholders has all requisite power and authority to enter into this Agreement
and to consummate the Stock Purchase. This Agreement has been duly executed
and delivered by the Shareholders and (assuming the valid authorization,
execution and delivery of this Agreement by PEC) constitutes a valid and
binding obligation of each of the Shareholders enforceable against him in
accordance with its terms, except to the extent enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws of general applicability relating to or affecting the
enforcement of creditors' rights and by the effect of general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law). Except as set forth on Section 3.4 of the Armour and Price
Disclosure Schedule, the execution and delivery of this Agreement do not, and
the consummation of the Stock Purchase and compliance with the provisions
hereof will not, conflict with, or result in any violation of, or default (with
or without notice of lapse of time, or both) under, or 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, security
interest, charges or encumbrances upon any of the properties or assets of Lone
Star or Subsidiary under, any provision of (i) the Articles of Incorporation or
Bylaws of Lone Star or Subsidiary (true and complete copies of which as of the
date hereof have been delivered to PEC), (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to either of the Shareholders, Lone
Star or Subsidiary, or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to either of the Shareholders, Lone
Star or Subsidiary or any of the respective properties or assets of Lone Star
or Subsidiary, other than, in the case of clauses (ii) or (iii), any such
conflicts, violations, defaults, rights, liens, losses, security interests,
charges or encumbrances that, individually or in the aggregate, would not have
a Material Adverse Effect on Lone Star or Subsidiary, materially impair the
ability of either of the Shareholders to perform his obligations hereunder or
prevent the consummation of the Stock Purchase. Except as set forth on Section
3.4 of the Armour and Price Disclosure Schedule, no filing or registration
with, or authorization, consent or approval of, any Governmental Entity is
required by or with respect to either of the Shareholders, Lone Star or
Subsidiary in connection with the execution and delivery of this Agreement by
the Shareholders or is necessary for the consummation by the Shareholders of
the Stock Purchase or any other transaction contemplated by this Agreement.
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SECTION 3.5 Financial Statements. Included in Section 3.5 of
the Armour and Price Disclosure Schedule are the following unaudited financial
statements (collectively, the "Lone Star Financial Statements") of Lone Star
and Subsidiary; (i) balance sheets as of December 31, 1996 and September 30,
1997; and (ii) statements of income for (x) each of the four years in the
period ended December 31, 1996, and (y) the nine-month period ended September
30, 1997.
Except as may be set forth in Section 3.5 of the Armour and
Price Disclosure Schedule, the Lone Star Financial Statements (a) are complete
and correct in all material respects, (b) have been prepared in conformity with
accrual tax basis accounting consistently applied, and (c) present fairly the
financial condition of Lone Star and Subsidiary at the dates presented and the
results of operations of Lone Star and Subsidiary for the periods covered.
There does not, and there will not be at Closing, exist any fact, event,
condition or claim known to the Shareholders which would cause a Material
Adverse Change in the Lone Star Financial Statements as presented other than as
set forth therein.
SECTION 3.6 Absence of Material Adverse Change. Except as
otherwise set forth in Section 3.6 of the Armour and Price Disclosure Schedule,
there has not been any Material Adverse Change with respect to Lone Star or
Subsidiary since September 30, 1997.
SECTION 3.7 Taxes. Except as otherwise set forth in Section
3.7 of the Armour and Price Disclosure Schedule: (i) all Tax Returns required
to be filed by Lone Star and Subsidiary have been filed or extensions have been
validly obtained; (ii) Tax Returns referred to in clause (i) are true and
correct in all material respects and have been completed in all material
respects in accordance with applicable law; (iii) all Taxes shown to be due on
the Tax Returns referred to in clause (i) have been timely paid or extensions
have been duly obtained or such taxes have been adequately provided for on Lone
Star's balance sheet or are being timely and properly contested; (iv) neither
Lone Star nor Subsidiary has waived any statute of limitations in respect of
Taxes of Lone Star or Subsidiary; (v) the Tax Returns referred to in clause (i)
have been examined by the Internal Revenue Service or the appropriate state
taxing authority or the period for assessment of the Taxes in respect of such
Tax Returns were required to be filed has expired; (vi) no issues that have
been raised in writing by the relevant taxing authority in connection with the
examination of the Tax Returns referred to in clause (i) are currently pending;
(vii) all deficiencies asserted or assessments made as a result of any
examination of the Tax Returns referred to in clause (i) by a taxing authority
have been paid in full or adequately provided for on Lone Star's balance sheet
or are being timely and properly contested; and (viii) Lone Star and Subsidiary
have made available to PEC correct and complete copies of all federal and state
income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by Lone Star. For purposes of this Agreement,
(a) "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any
federal, state, local or foreign income, gross receipts, property, sales, use,
license, excise, franchise, employment, payroll, withholding, alternative or
added minimum, ad valorem, transfer, severance or excise tax, or any other tax,
custom, duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, imposed by any governmental
authority, and (b) "Tax Return" means any return, report or similar statement
required to be filed with respect to any Tax (including any
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attached schedules), including, without limitation, any information return,
claim for refund, amended return or declaration of estimated Tax.
SECTION 3.8 Real and Personal Property; Title Thereto. Set
forth in Section 3.8 of the Armour and Price Disclosure Schedule is a complete
and accurate schedule of (a) all real and personal property owned by Lone Star
or Subsidiary having an individual fair market value in excess of $10,000, and
(b) any real or personal property held by Lone Star or Subsidiary under lease.
Except as set forth in Section 3.8 of the Armour and Price Disclosure Schedule,
Lone Star or Subsidiary has good and, with respect to real property,
indefeasible title to all of such real property and personal property, subject
to no Liens except for (i) Liens for taxes not yet delinquent or the validity
of which is being contested in good faith, and (ii) any Liens arising by
operation of law securing obligations not yet overdue. Any real or personal
property held by Lone Star or Subsidiary under lease are held under valid and
enforceable leases which will continue in full force and effect immediately
after the Closing Date; neither Lone Star nor Subsidiary is in default with
respect to any such lease.
SECTION 3.9 Accounts Receivable. Set forth in Section 3.9 of
the Armour and Price Disclosure Schedule is a complete and accurate schedule of
the accounts receivable of Lone Star and Subsidiary as of September 30, 1997,
as reflected in the balance sheet as of that date included in the Lone Star
Financial Statements, together with an accurate aging of those accounts. To
the best knowledge of Lone Star, the accounts described in Section 3.9 have
been collected in full or are valid obligations owing to Lone Star. Except as
set forth in Section 3.9 of the Armour and Price Disclosure Schedule, Lone Star
has no knowledge of any facts or circumstances indicating that any of such
accounts (to the extent not yet collected) will not be collected in full.
SECTION 3.10 Liabilities. There are no liabilities of Lone
Star or Subsidiary of any kind, whether contingent or fixed, other than (i)
liabilities disclosed or provided for in the balance sheet of Lone Star as of
September 30, 1997 included in Lone Star Financial Statements or disclosed in
Section 3.10 of the Armour and Price Disclosure Schedule, or (ii) liabilities
incurred in the ordinary course of business since September 30, 1997, none of
which, either individually or in the aggregate, may be reasonably expected to
be materially adverse to the business, assets, condition (financial or
otherwise) or results of operations of Lone Star.
SECTION 3.11 Insurance. Set forth in Section 3.11 of the
Armour and Price Disclosure Schedule is an accurate and complete list and brief
description of all policies of fire and extended coverage, liability, worker
compensation and other forms of similar insurance or indemnity bonds held by
Lone Star or Subsidiary. Neither Lone Star nor Subsidiary is in default in any
material respect with respect to any provisions of any such policy or indemnity
bond and has not failed to give any notice or present any claim thereunder in
due and timely fashion, which failure would materially adversely affect the
condition (financial or otherwise), results of operations, assets, liabilities
or business of Lone Star or Subsidiary.
SECTION 3.12 Contracts and Other Agreements. Except as
disclosed on Section 3.12 of the Armour and Price Disclosure Schedule, neither
Lone Star nor Subsidiary is
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<PAGE> 14
a party to or bound by any written or oral (i) employment, agency, consulting
or similar contract which cannot be terminated upon 30 days' notice without
liability to Lone Star or Subsidiary, as the case may be, (ii) lease, whether
as lessor or lessee, with respect to any real or personal property, (iii)
contract or commitment involving more than $10,000 a year, other than contracts
with Lone Star's drilling fluids customers in the ordinary course of business;
(iv) credit agreements; (v) guarantee, suretyship, indemnification or
contribution agreement, or (vi) other contracts not made in the ordinary course
of business.
SECTION 3.13 Records. The stock record books and minute
books of each of Lone Star and Subsidiary are complete and correct in all
material respects, and record all transactions required to be set forth
concerning all proceedings, consents, actions and meetings of the stockholders
and the Board of Directors of Lone Star or Subsidiary, as the case may be.
SECTION 3.14 Transactions with Affiliates. Except as
otherwise set forth in Section 3.14 of the Armour and Price Disclosure
Schedule, no Affiliate (as hereinafter defined) has any direct or indirect
interest in or owns directly or indirectly any asset or right owned by or used
in the conduct of the respective businesses of Lone Star or Subsidiary or is
party to any contract, lease, agreement, arrangement or commitment used in such
business.
"Affiliate" as used in this Section 3.14 means a person which
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under, control with Lone Star or Subsidiary. For purposes
of this definition, the officers, directors and stockholders of Lone Star or
Subsidiary shall be deemed Affiliates.
SECTION 3.15 Employee Benefit Plans; Employment Agreements.
With respect to all the employee benefit plans, programs and arrangements of
Lone Star or Subsidiary, including, but not limited to, the Lone Star Mud, Inc.
Retirement Plan (the "Lone Star Profit Sharing Plan") and related trust
maintained for the benefit of any current or former employee, officer or
director of Lone Star or Subsidiary (collectively, the "Lone Star Plans"),
except as would not, individually or in the aggregate, have a Material Adverse
Effect on Lone Star and Subsidiary: (i) none of the Lone Star Plans is a
multi-employer plan within the meaning of ERISA; (ii) none of the Lone Star
Plans promises or provides retiree medical or life insurance benefits to any
person, except as otherwise required by law; (iii) each Lone Star Plan intended
to be qualified under Section 401(k) of the Code has received a favorable
determination letter from the Internal Revenue Service that it is so qualified
and nothing has occurred since the date of such letter that could reasonably be
expected to affect the qualified status of such Lone Star Plan; (iv) each Lone
Star Plan has been operated in all respects in accordance with its terms and
the requirements of applicable law; and (v) neither Lone Star nor Subsidiary
has incurred any direct or indirect liability under, arising out of or by
operation of Title IV of ERISA in connection with the termination of, or
withdrawal from, any Lone Star Plan or other retirement plan or arrangement,
and no fact or event exists that could reasonably be expected to give rise to
any such liability. The aggregate accumulated benefit obligations of any Lone
Star Plan subject to Title IV of ERISA do not exceed the fair market value of
the assets of such Lone Star Plan. Except as set forth in Section 3.15 of the
Armour and Price Disclosure Schedule, neither
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<PAGE> 15
Lone Star nor Subsidiary has any Lone Star Plans or any employment or severance
agreements with any of its employees.
SECTION 3.16 Labor Matters. (i) Neither Lone Star nor
Subsidiary is a party to any collective bargaining agreement or other material
contract or agreement with any labor organization or other representative of
employees nor is any such contract being negotiated; (ii) there is no material
unfair labor practice charge or complaint pending nor, to the knowledge of Lone
Star, threatened, with regard to employees of Lone Star or Subsidiary; (iii)
there is no labor strike, material slowdown, material work stoppage or other
material labor controversy in effect, or, to the knowledge of Lone Star,
threatened against Lone Star or Subsidiary; (iv) as of the date hereof, no
representation question exists, nor to the knowledge of Lone Star are there any
campaigns being conducted to solicit cards from the employees of Lone Star or
Subsidiary to authorize representation by a labor organization; (v) neither
Lone Star nor Subsidiary is party to, or is not otherwise bound by, any consent
decree with any governmental authority relating to employees or employment
practices of Lone Star or Subsidiary; (vi) neither Lone Star nor Subsidiary has
incurred any liability under, and has complied in all respects with, the Worker
Adjustment Retraining Notification Act, and no fact or event exists that could
give rise to liability under such Act; and (vii) except as disclosed in Section
3.16 of the Armour and Price Disclosure Schedule, each of Lone Star and
Subsidiary is in compliance with all applicable agreements, contracts and
policies relating to employment, employment practices, wages, hours and terms
and conditions of employment of the employees, except where the failure to be
in compliance with each such agreement, contract and policy would not, either
singly or in the aggregate, have a Material Adverse Effect on Lone Star or
Subsidiary.
SECTION 3.17 Environmental Matters.
(a) Except to the extent that the inaccuracy of any of
the following, individually or in the aggregate, would not have a Material
Adverse Effect on Lone Star or Subsidiary, to the knowledge of the
Shareholders:
(i) Lone Star and Subsidiary hold, and are in compliance
with and have been in compliance with for the last three years, all
Environmental Permits, and are otherwise in substantial compliance and
have been in substantial compliance for the last three years with, all
applicable Environmental Laws and there is no condition that is
reasonably likely to prevent or materially interfere prior to the
Closing with compliance by Lone Star and Subsidiary with Environmental
Laws;
(ii) no modification, revocation, reissuance, alteration,
transfer or amendment of any Environmental Permit, or any review by,
or approval of, any third party of any Environmental Permit is
required in connection with the execution or delivery of this
Agreement or the consummation by the Shareholders of the transactions
contemplated hereby or the operation of the business of Lone Star or
Subsidiary on the date of the Closing;
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(iii) Neither Lone Star nor Subsidiary has received any
Environmental Claim, nor has any Environmental Claim been threatened
against Lone Star or Subsidiary;
(iv) Neither Lone Star nor Subsidiary has entered into,
agreed to or is subject to any outstanding judgment, decree, order or
consent arrangement with any governmental authority under any
Environmental Laws, including, without limitation, those relating to
compliance with any Environmental Laws or to the investigation,
cleanup, remediation or removal of Hazardous Materials;
(v) there are no circumstances that are reasonably likely
to give rise to liability under any agreements with any person
pursuant to which Lone Star or Subsidiary would be required to defend,
indemnify, hold harmless, or otherwise be responsible for any
violation by or other liability or expense of such person, or alleged
violation by or other liability or expense of such person, arising out
of any Environmental Law; and
(vi) there are no other circumstances or conditions that
are reasonably likely to give rise to liability of Lone Star or
Subsidiary under any Environmental Laws.
SECTION 3.18 Litigation. Except as set forth in Section 3.18
of the Armour and Price Disclosure Schedule, there is no suit, action,
investigation or proceeding pending or, to the knowledge of the Shareholders,
threatened against Lone Star or Subsidiary at law or in equity before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or before any
arbitrator of any kind, that would have a Material Adverse Effect on either
Lone Star or Subsidiary or, with respect to such matters that are pending or
threatened as of the date hereof, materially impair the ability of either of
the Shareholders to perform his obligations hereunder or to consummate the
Stock Purchase, and there is no judgment, decree, injunction, rule or order of
any court, governmental department, commission, board, bureau, agency,
instrumentality or arbitrator to which either of the Shareholders, Lone Star or
Subsidiary is subject that would have a Material Adverse Effect on Lone Star or
Subsidiary or, with respect to such items that are outstanding and applicable
as of the date hereof, materially impair the ability of either of the
Shareholders to perform his obligations hereunder or to consummate the Stock
Purchase.
SECTION 3.19 Governmental Licenses and Permits; Compliance
with Law. Neither Lone Star nor Subsidiary has received notice of any
revocation or modification of any federal, state, local or foreign governmental
license, certification, tariff, permit, authorization or approval, the
revocation or modification of which would have a Material Adverse Effect on
Lone Star or Subsidiary. To the best knowledge of the Shareholders, the
conduct of the business of Lone Star or Subsidiary complies with all statutes,
laws, regulations, ordinances, rules, judgments, orders, decrees or arbitration
awards applicable thereto, except for violations or failures to comply, if any,
that, individually or in the aggregate, would not have a Material Adverse
Effect on Lone Star or Subsidiary.
SECTION 3.20 Brokers. No broker, investment banker or other
person is entitled to any broker's, finder's or other similar fee or commission
in connection with the transactions
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contemplated by this Agreement based upon arrangements made by or on behalf of
either of the Shareholders, Lone Star or Subsidiary.
SECTION 3.21 Bank Accounts. A complete list of each bank
account maintained by Lone Star or Subsidiary, including safe deposit boxes
maintained by Lone Star or Subsidiary, the account balances and the names of
the persons authorized to draw down upon or have access thereto is set forth in
Section 3.21 of the Armour and Price Disclosure Schedule.
SECTION 3.22 Distributions to Stockholders of Lone Star.
Neither Lone Star nor Subsidiary, since September 30, 1997, has declared, set
aside or paid any dividends on, or made any other actual, constructive or
deemed distributions in respect of, any of its capital stock, or otherwise made
any payments to any of the stockholders of Lone Star other than salaries in the
ordinary course of business and bonuses accrued on the September 30, 1997
balance sheet of Lone Star.
SECTION 3.23 Workers' Compensation Claims. Except as set
forth in Section 3.23 of the Armour and Price Disclosure Schedule, there are no
workers' compensation claims pending or, to the knowledge of the Shareholders,
threatened against Lone Star or Subsidiary.
ARTICLE IV
ADDITIONAL AGREEMENTS
SECTION 4.1 Fees and Expenses. All costs and expenses
incurred by PEC in connection with this Agreement and the transactions
contemplated hereby shall be paid by PEC; such costs and expenses incurred by
the Shareholders shall be paid by Lone Star.
SECTION 4.2 Reasonable Best Efforts. Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use all reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Stock
Purchase and the other transactions contemplated by this Agreement and the
prompt satisfaction of the conditions hereto.
SECTION 4.3 S. Armour and R. Price Indemnification. On and
after the date of Closing, the Shareholders shall jointly and severally
indemnify and hold PEC harmless against and in respect of all actions, suits,
demands, judgments, costs and expenses (including reasonable attorneys' fees of
PEC), relating to any misrepresentation, breach of any representation or
warranty or non-fulfillment of any agreement on the part of the Shareholders
contained in this Agreement. The indemnification provided for in this Section
4.3 shall terminate and be of no further force and effect two years from the
date of Closing, except as to any representation or warranty as to which a
written notice of claim for indemnification has been given to S. Armour and R.
Price prior to the expiration of such two-year period.
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SECTION 4.4 PEC Indemnification. On and after the Closing
Date, PEC shall indemnify and hold the Shareholders harmless against and in
respect of all actions, suits, demands, judgments, costs and expenses
(including reasonable attorneys' fees of the Shareholders) relating to any
misrepresentation, breach of any misrepresentation or warranty or
non-fulfillment of any agreement on the part of PEC contained in this
Agreement. The indemnification provided for in this Section 4.4 shall
terminate and be of no further force and effect two years from the date of
Closing, except as to any representation or warranty as to which a written
notice of claim for indemnification has been given to PEC prior to the
expiration of such two-year period.
SECTION 4.5 Filing of Registration Statement on Form S-3.
PEC agrees to file a Registration Statement on Form S-3 with the SEC on the
date of Closing covering the distribution of the PEC Shares and further agrees
to use its best efforts to cause such Registration Statement to become
effective with the SEC, all as more fully provided in the Registration Rights
Agreement attached hereto as Exhibit C.
SECTION 4.6 Nasdaq National Market. PEC shall use its
reasonable best efforts to list on the Nasdaq National Market, upon official
notice of issuance, the PEC Shares issued in connection with the Stock
Purchase.
SECTION 4.7 Employee Benefits. All employee benefits plans
and programs of Lone Star ("Lone Star Employee Plans") shall survive the
Closing with the understanding that following the Closing, the Board of
Directors of Lone Star will review the Lone Star Employee Plans and determine
the feasibility of maintaining the Lone Star Employment Plans following the
Stock Purchase. To the extent one or more of the various Lone Star Employee
Plans are terminated, employees of Lone Star who continue as employees of Lone
Star shall be provided with employee benefits under PEC plans and programs
(including, but not limited to, stock option, life insurance, medical, profit
sharing (including 401(k)), severance, salary continuation and fringe
benefits).
SECTION 4.8 Tax Matters. Each of PEC and the Shareholders
understands and acknowledges that the Stock Purchase will be a taxable sale of
stock for federal income tax purposes.
SECTION 4.9 First Right of Refusal. If, during the First
Right of Refusal Period (as defined below), PEC desires to sell Lone Star, the
sale shall be made only pursuant to a bona fide written offer to purchase
received by PEC from a third party (the "Offer"). PEC shall give written
notice (the "Notice") of the Offer to S. Armour and R. Price. The Notice
shall include a copy of the Offer and shall state the name of the proposed
purchaser, the nature of the transaction, the price, and all other terms and
conditions of the proposed sale. For 30 days following receipt of the Notice,
S. Armour and R. Price (in such proportions as they may agree, or, if they do
not agree, then in the same proportion as their ownership of the issued and
outstanding Lone Star Common Stock immediately prior to the execution of this
Agreement) shall have the option to purchase all (but not less than all) of
Lone Star at the price and on the terms set forth in the Offer. If S. Armour
and R. Price do not elect within such 30-day period to purchase Lone Star in
accordance with the terms of the Offer, Lone Star may be sold by PEC
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<PAGE> 19
to the third party pursuant to the Offer. For purposes of this Section 5.9,
the sale or merger of PEC, or the sale of all or substantially all of the
assets of PEC, to or with a third party shall not be deemed to be a sale of
Lone Star. As used herein, the term "First Right of Refusal Period" means the
period beginning on the date of this Agreement and ending on the last to
terminate of the employment of S. Armour and R. Price with Lone Star.
SECTION 4.10 Payment of Western National Bank Loan. Within
30 days after the Closing, PEC shall pay in full the outstanding principal and
interest (presently equal to $1,582,939.89) due under the two Promissory Notes,
each dated March 4, 1997, by Lone Star, as Borrower, to Western National Bank,
as Lender in the original principal amounts of $2,000,000 and $488,300,
respectively.
ARTICLE V
CONDITIONS PRECEDENT TO THE STOCK PURCHASE
SECTION 5.1 Conditions to Each Party's Obligation to Effect
the Stock Purchase. The respective obligations of each party to effect the
Stock Purchase shall be subject to the fulfillment or waiver (where
permissible) at or prior to the date of Closing of each of the following
conditions:
(a) Nasdaq National Market Listing. The PEC Shares
issuable on the date of Closing pursuant to this Agreement shall have been
authorized for listing on the Nasdaq National Market upon official notice of
issuance.
(b) No Order. No Governmental Entity or court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is then in effect and
has the effect of prohibiting the Stock Purchase or any of the other
transactions contemplated hereby; provided that, in the case of any such
decree, injunction or other order, each of the parties shall have used
reasonable best efforts to prevent the entry of any such injunction or other
order and to appeal as promptly as practicable any decree, injunction or other
order that may be entered.
(c) Non-Competition Agreements. A Non-Competition
Agreement in the respective forms attached hereto as Exhibits A(I) and A(II)
shall have been executed and delivered by PEC and Lone Star, and S. Armour or
R. Price, as the case may be.
(d) Employment Agreements. An Employment Agreement in
the form attached hereto as Exhibit B(I) in the case of S. Armour, and in the
form attached hereto as Exhibit B(II) in the case of R. Price shall have been
executed and delivered by PEC and Lone Star and S. Armour or R. Price, as the
case may be.
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<PAGE> 20
SECTION 5.2 Conditions to Obligation of the Shareholders to
Effect the Stock Purchase. The obligation of the Shareholders to effect the
Stock Purchase shall be subject to the fulfillment at or prior to the Closing
of the following additional conditions; provided that the Shareholders may
waive any of such conditions in their sole discretion:
(a) Performance of Obligations; Representations and
Warranties. PEC shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior to
the Closing, each of the representations and warranties of PEC contained in
this Agreement shall be true and correct on and as of the date of Closing as if
made on and as of such date.
(b) Officers' Certificate. PEC shall have furnished to
the Shareholders a certificate, dated the Closing, signed by the appropriate
officers of PEC, certifying to the effect that, to the best of the knowledge
and belief of each of them, the conditions set forth in Section 5.1 and Section
5.2(a) have been satisfied in full.
(c) Opinion of Baker & Hostetler LLP. The Shareholders
shall have received an opinion from Baker & Hostetler LLP, counsel to PEC,
dated the date of Closing, substantially to the effect that:
(i) The incorporation, existence and good
standing of PEC are as stated in this Agreement; the authorized shares
of PEC are as stated in this Agreement; all outstanding shares of PEC
Common Stock are duly and validly authorized and issued, fully paid
and nonassessable and have not been issued in violation of any
preemptive right of any stockholders.
(ii) PEC has full corporate power and authority to
execute, deliver and perform this Agreement and this Agreement has
been duly authorized, executed and delivered by PEC, and (assuming due
and valid authorization, execution and delivery by the Shareholders)
constitutes the legal, valid and binding agreement of PEC, enforceable
against PEC in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws
of general applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(iii) PEC has full corporate power and authority to
execute, deliver and perform each of the Non-Competition Agreements
and the Employment Agreements, and each of such Non-Competition
Agreements has been duly authorized, executed and delivered by PEC and
(assuming due and valid execution and delivery by Lone Star, S. Armour
and R. Price of such Non-Competition Agreements and Employment
Agreements) each constitutes the legal, valid and binding agreement of
PEC, enforceable against PEC in accordance with its terms, except to
the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws
of general applicability relating to or affecting the enforcement of
creditors'
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<PAGE> 21
rights and by the effect of general principles of equity (regardless
of whether enforceability is considered in a proceeding in equity or
at law).
(iv) PEC has full corporate power and authority to
execute, deliver and perform the Registration Rights Agreement and the
Registration Rights Agreement has been duly authorized, executed and
delivered by PEC and (assuming due and valid execution and delivery by
S. Armour and R. Price of the Registration Rights Agreement)
constitutes the legal, valid and binding agreement of PEC enforceable
against PEC in accordance with its terms, except with respect to the
indemnification provisions thereof, as to which no opinion will be
expressed by such counsel, and except to the extent enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by
the effect of general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
(v) The execution and performance by PEC of this
Agreement, the respective Non-Competition Agreements and Employment
Agreements, and the Registration Rights Agreement, will not violate
the Certificate of Incorporation or Bylaws of PEC, as the case may be,
and, to the knowledge of such counsel, will not violate, result in a
breach of or constitute a default under any material lease, mortgage,
contract, agreement, instrument, law, rule, regulation, judgment,
order or decree to which PEC is a party or by which it or any of its
properties or assets may be bound.
(vi) To the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental agency
or body which has not been obtained is required on behalf of PEC for
the consummation of the transactions contemplated by this Agreement.
(vii) To the knowledge of such counsel, there are
no actions, suits or proceedings, pending or threatened, against or
affecting PEC by any Governmental Entity which seek to restrain,
prohibit or invalidate the transactions contemplated by this
Agreement.
(viii) The shares of PEC Common Stock to be issued
pursuant to this Agreement, when so issued, will be duly authorized,
validly issued and outstanding, fully paid and nonassessable.
(ix) The PEC Shares have been authorized for
listing on the Nasdaq National Market subject to official notice of
issuance.
In rendering such opinion, counsel for PEC may rely as to matters of fact upon
the representations of officers of PEC contained in any certificate delivered
to such counsel and certificates of public officials. Such opinion shall be
limited to the General Corporation Law of the State of Delaware and the laws of
the United States of America and the State of Texas.
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<PAGE> 22
(d) Registration Statement on Form S-3. PEC shall have
filed a Registration Statement on Form S-3 with the SEC relating to the PEC
Shares.
(e) Registration Rights Agreement. PEC shall have
executed and delivered the Registration Rights Agreement in the form attached
hereto as Exhibit C.
(f) Delivery of Stock Purchase Consideration. PEC shall
have made delivery of the Stock Purchase Consideration.
SECTION 5.3 Conditions to Obligations of PEC to Effect the
Stock Purchase. The obligations of PEC to effect the Stock Purchase shall be
subject to the fulfillment at or prior to the Closing of the following
additional conditions, provided that PEC may waive any such conditions in its
sole discretion:
(a) Performance of Obligations; Representations and
Warranties. The Shareholders shall have performed in all material respects
each of their agreements contained in this Agreement required to be performed
on or prior to the Closing and each of the respective representations and
warranties of the Shareholders contained in this Agreement shall be true and
correct on and as of the Closing as if made on and as of such date.
(b) Officers' Certificate. The Shareholders shall have
furnished to PEC a certificate, dated the Closing, certifying to the effect
that, to the best of the knowledge and belief of the Shareholders, the
conditions set forth in Section 5.1 and Section 5.3(a) have been satisfied.
(c) Opinion of Stubbeman, McRae, Sealy, Laughlin &
Browder, Inc. PEC shall have received an opinion of counsel from Stubbeman,
McRae, Sealy, Laughlin & Browder, Inc., counsel to the Shareholders and Lone
Star, dated the Closing, substantially to the effect that:
(i) The incorporation, existences, good standing,
and capitalization of Lone Star and Subsidiary are as stated in this
Agreement; the authorized shares of Lone Star Common Stock and
Subsidiary Common Stock are as stated in this Agreement; all
outstanding shares of Lone Star Common Stock and Subsidiary Common
Stock are duly and validly authorized and issued, fully paid and
non-assessable and have not been issued in violation of any preemptive
right of shareholders; and, to the knowledge of such counsel, there is
no existing option, warrant, right, call, subscription, or other
agreement or commitment obligating Lone Star or Subsidiary to issue or
sell, or to purchase or redeem, any shares of its capital stock other
than as stated in this Agreement.
(ii) Each of the Shareholders has full power and
authority to execute, deliver and perform this Agreement, and this
Agreement has been duly authorized, executed and delivered by each of
the Shareholders, and (assuming the due and valid authorization,
execution and delivery by PEC) constitutes the legal, valid and
binding agreement of each of the Shareholders enforceable against each
of the Shareholders in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar
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<PAGE> 23
laws of general applicability relating to or affecting the enforcement
of creditors' rights and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(iii) The execution and performance by the
Shareholders of this Agreement will not violate the Articles of
Incorporation or Bylaws of Lone Star and, to the best knowledge of
such counsel, will not violate, result in a breach of, or constitute
a default under, any material lease, mortgage, contract, agreement,
instrument, law, rule, regulation, judgment, order or decree known to
such counsel to which either of the Shareholders, Lone Star, or
Subsidiary is a party or to which him or it or any of his or its
properties or assets may be bound.
(iv) The respective Non-Competition Agreements and
Employment Agreements dated the date of Closing among PEC, Lone Star
and S. Armour or R. Price constitute the legal, valid and binding
agreement of each of S. Armour and R. Price enforceable against S.
Armour and R. Price in accordance with their terms, except to the
extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer, or other similar laws
of general applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of equity
whether enforceability is considered in a proceeding in equity or at
law.
(v) To the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental agency
or body which has not been obtained is required on behalf of either of
the Shareholders, Lone Star or Subsidiary for consummation of the
transactions contemplated by this Agreement.
(vi) To the knowledge of such counsel, there are
no actions, suits or proceedings, pending or threatened, against or
affecting either of the Shareholders, Lone Star, or Subsidiary by any
Governmental Entity which seeks to restrain, prohibit or invalidate
the transactions contemplated by the Agreement.
In rendering such opinion, counsel for the Shareholders and
Lone Star may rely as to matters of fact upon the representations of officers
of Lone Star and Subsidiary and of the Shareholders contained in any
certificate delivered to such counsel and certificates of public officials.
Such opinion shall be limited to the laws of the United States of America and
the State of Texas.
(d) Investment Representation Letter. Each of S. Armour
and R. Price shall have executed and delivered an investment representation
letter substantially in the form attached hereto as Exhibit D.
(e) Phase I Environmental Report. PEC shall have
received a Phase I Environmental Report (at its expense) relating to the real
property owned or leased by Lone Star or Subsidiary with conclusions
satisfactory to PEC.
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<PAGE> 24
(f) Transfer of Mud-Tech Common Stock. All of the
Mud-Tech Common Stock shall have been transferred to S. Armour and R. Price as
specified in Section 3.1 hereof, and PEC shall have received copies of stock
powers or other documents evidencing such transfer.
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.1 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, sent by overnight courier or telecopied (with a confirmatory copy
sent by overnight courier) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to PEC, to:
Patterson Energy, Inc.
4510 Lamesa Highway
P.O. Drawer 1416
Snyder, Texas 79550
Telecopier No. (915) 573-0281
Attention: Cloyce A. Talbott
Chairman and Chief Executive Officer
with copies to:
Thomas H. Maxfield, Esq.
Baker & Hostetler LLP
303 East 17th Avenue, Suite 1100
Denver, Colorado 80203-1264
Telecopier No.: (303) 861-2307
(b) if to S. Armour, to:
Spencer D. Armour, III
4111 Cardinal Lane
Midland, Texas 79707
Telecopier No.: (915) 684-7473
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<PAGE> 25
with copies to:
Jack D. Ladd, Esq.
Stubbeman, McRae, Sealy, Laughlin & Browder, Inc.
Fasken Center - Tower Two
550 West Texas Avenue, Suite 800
P.O. Box 1540
Midland, Texas 79702
Telecopier No.: (915) 682-1351
(c) if to R. Price, to:
Richard G. Price
3708 Cardinal Lane
Midland, Texas 79707
Telecopier No.: (915) 684-7473
with copies to:
Jack D. Ladd, Esq.
Stubbeman, McRae, Sealy, Laughlin & Browder, Inc.
Fasken Center - Tower Two
550 West Texas Avenue, Suite 800
P.O. Box 1540
Midland, Texas 79702
Telecopier No.: (915) 682-1351
SECTION 6.2 Interpretation. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated, and the words "hereof," "herein" and "hereunder"
and similar terms refer to this Agreement as a whole and not to any particular
provision of this Agreement, unless the context otherwise requires. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 6.3 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 6.4 Entire Agreement; No Third-Party Beneficiaries.
This Agreement, including the documents and instruments referred to herein, (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (ii) is not intended to confer upon any person other
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<PAGE> 26
than the parties any rights or remedies hereunder; provided, however, that
legal counsel for the parties hereto may rely upon the representations and
warranties contained herein and in the certificates delivered pursuant to
Sections 6.2(b) and 6.3(b).
SECTION 6.5 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Texas,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
SECTION 6.6 Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties without the prior written consent of the other parties. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
SECTION 6.7 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule
of law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, 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 a mutually
acceptable manner in order that the transactions be consummated as originally
contemplated to the fullest extent possible.
SECTION 6.8 Enforcement of This Agreement. The parties agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
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<PAGE> 27
IN WITNESS WHEREOF, PEC, S. Armour and R. Price have executed
this Agreement as of the date first written above.
PEC:
PATTERSON ENERGY, INC.
By:
---------------------------------------
James C. Brown
Vice President - Finance
------------------------------------------
SPENCER D. ARMOUR, III
------------------------------------------
RICHARD G. PRICE
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<PAGE> 28
EXHIBIT A(I)
PATTERSON ENERGY, INC.
AND
LONE STAR MUD, INC.
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT is made and entered into this
5th day of January, 1998 (this "Agreement"), between and among PATTERSON
ENERGY, INC., a Delaware corporation ("PEC"), LONE STAR MUD, INC., a Texas
corporation ("Lone Star") wholly-owned by PEC, and SPENCER D. ARMOUR, III, an
individual residing in Midland, Texas ("S. Armour").
RECITALS:
A. Simultaneously with the execution of this Agreement,
(i) PEC, S. Armour and Richard G. Price ("R. Price") have consummated the
transactions contemplated by that certain Stock Purchase Agreement, dated
January 5, 1998 (the "Stock Purchase Agreement"), among PEC, S. Armour, and R.
Price, providing for, among other things, the purchase (the "Stock Purchase")
by PEC of all of the issued and outstanding shares of capital stock of Lone
Star; and (ii) PEC, Lone Star and S. Armour have entered into an employment
agreement (the "Armour Employment Agreement").
B. S. Armour is or was an officer, a director and a
stockholder of Lone Star.
C. The execution and delivery of this Agreement is a
condition to the consummation of the Stock Purchase contemplated by the Stock
Purchase Agreement, and the parties are entering into this Agreement in order
to fulfill such condition.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound, hereby agree as follows:
1. Period of Agreement and Compensation.
(a) The period of this Agreement shall commence on the
date hereof and remain in effect through the first to occur of (i) termination
of the Armour Employment Agreement either (A) by PEC or Lone Star without
"Cause" as that term is defined in Section 11(a) of the Armour Employment
Agreement or (B) by S. Armour as a result of a material breach of the Armour
Employment Agreement by PEC or Lone Star pursuant to Section 11(b) thereof, or
(ii) November 1, 2004, unless Armour is still in the employ of PEC or Lone Star
on that date, in which event this Agreement shall terminate on the second
anniversary
EX A(I)-1
<PAGE> 29
of the termination of the employment of Armour with Lone Star and PEC (the
"Non-Compete Period").
(b) As compensation to S. Armour for this Agreement, S.
Armour shall be entitled to receive cash payable monthly at an annual rate of
$10,000, except as provided below. Notwithstanding anything to the contrary,
the compensation payable hereunder shall terminate upon (and not be payable
after) expiration of the Armour Employment Agreement pursuant to Section 3
thereof or termination of the Armour Employment Agreement by Lone Star or S.
Armour pursuant to Section 11 thereof or by S. Armour for any reason other than
pursuant to Section 11 thereof, and S. Armour's obligations hereunder shall be
unaffected and shall remain in full force and effect even though the
compensation payable under this Section 1(b) has terminated as provided above.
2. Covenant Not to Compete.
(a) S. Armour covenants and agrees that during the
Non-Compete Period, S. Armour shall not, without the prior written consent of
PEC and Lone Star, directly or indirectly, and whether as a principal or as an
agent, officer, director, employee, consultant, or otherwise, alone or in
association with any other person, carry on, be engaged, concerned, or take
part in, render services to, or own, share in the earnings of, or invest in the
stock, bonds, or other securities of, any person which is engaged in the
drilling fluids business (the "Competitive Business") within the states of
Texas, New Mexico and Oklahoma or in any other states in which Lone Star is
conducting the Competitive Business at the time of termination of the Armour
Employment Agreement; provided, however, that S. Armour may (i) invest in
stock, bonds, or other securities of any Competitive Business (but without
otherwise participating in the Competitive Business) if: (A) such stock,
bonds, or other securities are listed on any national securities exchange or
are registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended; (B) the investment does not exceed, in the case of any class of
capital stock of any one issuer, two percent (2%) of the issued and outstanding
shares, or, in the case of bonds or other securities of any one issuer, two
percent (2%) of the aggregate principal amount thereof issued and outstanding;
and (C) such investment would not prevent, directly or indirectly, the
transaction of business by PEC or Lone Star or any affiliate of PEC or Lone
Star with any state, district, territory, or possession of the United States or
any governmental subdivision, agency, or instrumentality thereof by virtue of
any statute, law, regulation or administrative practice. The period of time
during which S. Armour is prohibited from engaging in certain activities by
this Section shall be extended by the length of time during which S. Armour is
in breach of the terms of this section.
(b) It is understood by and between the parties hereto
that the foregoing covenant by S. Armour not to enter into competition with PEC
or Lone Star as set forth in Section 2(a) hereof is an essential element of
this Agreement and the Stock Purchase Agreement and that, but for the agreement
of S. Armour to comply with such covenant, neither PEC nor Lone Star would have
agreed to enter into this Agreement or the Stock Purchase Agreement. PEC and
Lone Star on the one hand and S. Armour on the other hand have independently
EX A(I)-2
<PAGE> 30
consulted with their respective counsel and have been advised in all respects
concerning the reasonableness and propriety of such covenant, with specific
regard to the nature of the business conducted by PEC and Lone Star and their
respective affiliates. S. Armour agrees that such covenant is reasonable in
scope, geographic area, and duration, and that compliance with such covenant
would not impose economic or professional hardship on S. Armour.
3. Restrictions on Soliciting Business of PEC and Lone
Star.
S. Armour further covenants and agrees that during the
Non-Compete Period, S. Armour will not, either for himself or for any other
person or entity, directly or indirectly, engage in any of the following
activities in a Competitive Business without the express prior written consent
of PEC and Lone Star:
(a) Solicit or hire any of the employees of PEC or Lone
Star or solicit or take away any of PEC's or Lone Star's customers, lessors, or
suppliers or attempt any of the foregoing:
(b) Acquire or attempt to acquire rights providing any
product or service in a Competitive Business within the territory described in
Section 2 hereof; or
(c) Engage in any act which would interfere with or harm
any business relationship PEC or Lone Star has with any customer, lessor,
employee, principal or supplier.
4. Specific Performance.
Without intending to limit the remedies available to PEC or
Lone Star, S. Armour acknowledges that PEC or Lone Star will have no adequate
remedies at law if S. Armour violates the terms of Section 2 or 3, hereof. In
such event, S. Armour agrees that PEC or Lone Star shall have the right, in
addition to any other rights it may have, to obtain in any court of competent
jurisdiction specific performance of such Sections of this Agreement or
injunctive relief to restrain any breach or threatened breach thereof. Nothing
herein shall be construed as prohibiting PEC or Lone Star from pursuing any
other remedies available to PEC or Lone Star (whether at law or in equity) for
such breach or threatened breach, including, without limitation, the recovery
of monetary damages from S. Armour.
The provisions of this Section 4 shall survive the expiration,
termination or cancellation of this Agreement.
5. Attorneys Fees and Costs.
If an action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys fees, costs and necessary expenses in addition to any
other relief to which that party may be entitled. This provision is applicable
to this entire Agreement.
EX A(I)-3
<PAGE> 31
6. Representations and Warranties of PEC, Lone Star and
S. Armour.
(a) Representations and Warranties of PEC and Lone Star.
PEC and Lone Star hereby jointly and severally represent and warrant to S.
Armour that: (i) they have all requisite power to enter into and perform their
obligations under this Agreement; (ii) this Agreement has been duly and validly
authorized by all necessary corporate action on the part of PEC and Lone Star;
(iii) the execution of this Agreement by PEC and Lone Star and performance of
their obligations hereunder do not require the consent or approval of any other
party; and (iv) this Agreement is a valid and binding obligation of PEC and
Lone Star.
(b) Representations and Warranties of S. Armour. S.
Armour hereby represents and warrants to PEC and Lone Star that: (i) S. Armour
has the capacity and power to enter into and perform obligations of S. Armour
under this Agreement; (ii) S. Armour has duly and validly executed this
Agreement; (iii) the execution of this Agreement and performance of obligations
of S. Armour hereunder do not require the consent or approval of any other
party; and (iv) this Agreement constitutes a valid and binding obligation of S.
Armour.
7. General Provisions.
(a) Compliance with Laws. The parties agree that they
will comply with all applicable laws and regulations of government bodies or
agencies in their respective performance of their obligations under this
Agreement.
(b) Governing Law and Construction. This Agreement will
be governed by and construed in accordance with the laws of the State of Texas
without reference to its conflict-of-laws principles. This Agreement's final
form resulted from review and negotiations among the parties and their
attorneys, and no part of this Agreement should be construed against any party
on the basis of authorship.
(c) Forum for Dispute Resolution. If any dispute arises
among the parties concerning the interpretation or performance of any portion
of this Agreement which the parties are unable to resolve themselves, and any
party brings an action against any other party seeking a declaratory order,
specific performance, damages, or any other legal or equitable relief based on
this Agreement, the parties agree that the forum for any such action shall be
an appropriate federal or state court in Texas having jurisdiction, agree that
venue will be proper in such courts, and waive any objections based on
inconvenience of the forum, and further agree that the prevailing party in any
such action, as determined by the court, shall be awarded its reasonable
attorneys' fees and costs in addition to any relief or judgment the court
awards.
(d) Entire Agreement; Amendment. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter contained herein and supersedes any previous oral or written
communications, representations, understandings or agreements with respect
thereto. The terms of this Agreement may be modified only in a writing, signed
by authorized representatives of both parties.
EX A(I)-4
<PAGE> 32
(e) Assignability. This Agreement will be binding upon
the parties' respective successors and permitted assigns. Neither party may
assign this Agreement and/or any of its rights and/or obligations hereunder
without the prior written consent of the other party, and any such attempted
assignment will be void; provided, however, that PEC or Lone Star may assign
this Agreement to a subsidiary or affiliate without the prior written consent
of S. Armour.
(f) Waiver. A waiver of a breach or default under this
Agreement will not constitute a waiver of any other breach or default. Failure
or delay by either party to enforce compliance with any term or condition of
this Agreement will not constitute a waiver of such term or condition.
(g) Severability. If any provision of this Agreement is
declared to be invalid, the parties agree that such invalidity will not affect
the validity of the remaining provisions of this Agreement, and further agree,
to the extent possible, to substitute for the invalid provision a valid
provision that approximates the intent and economic effect of the invalid
provision as closely as possible.
(h) Headings. The titles of the Sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
(i) Notice. Any notice, request, consent, demand or
other communication required to be given under this Agreement will be in
writing and will be given personally, by facsimile or by mailing the same,
first-class, postage prepaid to the appropriate address and facsimile number
set forth below or to such other person or at such other address as may
hereafter be designated by like notice. Notices by mail will be considered
delivered and become effective three days after the mailing thereof. All
notices by facsimile will be considered delivered and become effective
immediately upon the confirmed (by answer back or other tangible printed
verification or successful receipt) sending thereof.
To PEC: Patterson Energy, Inc.
4510 Lamesa Highway
P.O. Drawer 1410
Snyder, Texas 79550
Facsimile: (915) 573-0281
Attention: Cloyce A. Talbott
Chairman and Chief Executive Officer
To Lone Star: Lone Star Mud, Inc.
4510 Lamesa Highway
P.O. Drawer 1410
Snyder, Texas 79550
Facsimile: (915) 573-0281
Attention: Cloyce A. Talbott
Chairman of the Board
EX A(I)-5
<PAGE> 33
To S. Armour:
Spencer D. Armour, III
4111 Cardinal Lane
Midland, Texas 79707
(j) Counterparts. This Agreement may be executed in
counterparts and by the parties hereto in separate counterparts, each of which
will be deemed an original, but all of which together will constitute one and
the same instrument.
(k) Effective Time. This Agreement shall become
effective simultaneously with the Closing (as defined in the Stock Purchase
Agreement) of the Stock Purchase.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed by their respective representatives as of the day and year first
above written.
"PEC"
PATTERSON ENERGY, INC.
By:
------------------------------------
James C. Brown
Vice President - Finance
"LONE STAR"
LONE STAR MUD, INC.
By:
------------------------------------
James C. Brown
Vice President - Finance
"S. ARMOUR"
---------------------------------------
Spencer D. Armour, III
EX A(I)-6
<PAGE> 34
EXHIBIT A(II)
PATTERSON ENERGY, INC.
AND
LONE STAR MUD, INC.
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT is made and entered into this
5th day of January, 1998 (this "Agreement"), between and among PATTERSON
ENERGY, INC., a Delaware corporation ("PEC"), LONE STAR MUD, INC., a Texas
corporation ("Lone Star") wholly-owned by PEC, and RICHARD G. PRICE, an
individual residing in Midland, Texas ("R. Price").
RECITALS:
A. Simultaneously with the execution of this Agreement,
(I) PEC, Spencer D. Armour, III ("S. Armour") and R. Price have consummated
the transactions contemplated by that certain Stock Purchase Agreement, dated
January 5, 1998 (the "Stock Purchase Agreement"), among PEC, S. Armour and R.
Price, providing for, among other things, the purchase (the "Stock Purchase) by
PEC of all of the issued and outstanding shares of capital stock of Lone Star;
and (ii) PEC, Lone Star and R. Price have entered into an employment agreement
(the "Price Employment Agreement").
B. R. Price is or was an officer, a director and a
stockholder of Lone Star.
C. The execution and delivery of this Agreement is a
condition to the consummation of the Stock Purchase contemplated by the Stock
Purchase Agreement, and the parties are entering into this Agreement in order
to fulfill such condition.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound, hereby agree as follows:
1. Period of Agreement and Compensation.
(a) The period of this Agreement shall commence on the
date hereof and remain in effect through the first to occur of (i) termination
of the Price Employment Agreement either (A) by PEC or Lone Star without
"Cause" as that term is defined in Section 11(a) of the Price Employment
Agreement or (B) by R. Price as a result of a material breach of the Price
Employment Agreement by PEC or Lone Star pursuant to Section 11(b) thereof, or
and (ii) November 1, 2004, unless Price is still in the employ of PEC or Lone
Star on that date, in which
EX A(II)-1
<PAGE> 35
event this Agreement shall terminate on the second anniversary of the
termination of the employment of Price with Lone Star and PEC (the "Non-Compete
Period").
(b) As compensation to R. Price for this Agreement, R.
Price shall be entitled to receive cash payable monthly at an annual rate of
$10,000, except as provided below. Notwithstanding anything to the contrary,
the compensation payable hereunder shall terminate upon (and not be payable
after) expiration of the Price Employment Agreement pursuant to Section 3
thereof or termination of the Price Employment Agreement by Lone Star or R.
Price pursuant to Section 11 thereof or by R. Price for any reason other than
pursuant to Section 11 thereof, and R. Price's obligations hereunder shall be
unaffected and shall remain in full force and effect even though the
compensation payable under this Section 1(b) has terminated as provided above.
2. Covenant Not to Compete.
(a) R. Price covenants and agrees that during the
Non-Compete Period, R. Price shall not, without the prior written consent of
PEC and Lone Star, directly or indirectly, and whether as a principal or as an
agent, officer, director, employee, consultant, or otherwise, alone or in
association with any other person, carry on, be engaged, concerned, or take
part in, render services to, or own, share in the earnings of, or invest in the
stock, bonds, or other securities of, any person which is engaged in the
business of drilling fluids business (the "Competitive Business") within the
states of Texas, New Mexico and Oklahoma or in any other in which PMC is
conducting the Competitive Business at the time of termination of the Price
Employment Agreement; provided, however, that R. Price may (i) invest in stock,
bonds, or other securities of any Competitive Business (but without otherwise
participating in the Competitive Business) if: (A) such stock, bonds, or other
securities are listed on any national securities exchange or are registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended; (B) the
investment does not exceed, in the case of any class of capital stock of any
one issuer, two percent (2%) of the issued and outstanding shares, or, in the
case of bonds or other securities of any one issuer, two percent (2%) of the
aggregate principal amount thereof issued and outstanding; and (C) such
investment would not prevent, directly or indirectly, the transaction of
business by PEC or Lone Star or any affiliate of PEC or Lone Star with any
state, district, territory, or possession of the United States or any
governmental subdivision, agency, or instrumentality thereof by virtue of any
statute, law, regulation or administrative practice. The period of time during
which R. Price is prohibited from engaging in certain activities by this
Section shall be extended by the length of time during which R. Price is in
breach of the terms of this Section.
(b) It is understood by and between the parties hereto
that the foregoing covenant by R. Price not to enter into competition with PEC
or Lone Star as set forth in Section 2(a) hereof is an essential element of
this Agreement and the Stock Purchase Agreement and that, but for the agreement
of R. Price to comply with such covenant, neither PEC nor Lone Star would have
agreed to enter into this Agreement or the Stock Purchase Agreement. PEC and
Lone Star on the one hand and R. Price on the other hand have independently
consulted with
EX A(II)-2
<PAGE> 36
their respective counsel and have been advised in all respects concerning the
reasonableness and propriety of such covenant, with specific regard to the
nature of the business conducted by PEC and Lone Star and their respective
affiliates. R. Price agrees that such covenant is reasonable in scope,
geographic area, and duration, and that compliance with such covenant would not
impose economic or professional hardship on R. Price.
3. Restrictions on Soliciting Business of PEC and Lone
Star.
R. Price further covenants and agrees that during the
Non-Compete Period, R. Price will not, either for himself or for any other
person or entity, directly or indirectly, engage in any of the following
activities in a Competitive Business without the express prior written consent
of PEC and Lone Star:
(a) Solicit or hire any of the employees of PEC or Lone
Star or solicit or take away any of PEC's or Lone Star's customers, lessors, or
suppliers or attempt any of the foregoing:
(b) Acquire or attempt to acquire rights providing any
product or service in a Competitive Business within the territory described in
Section 2 hereof; or
(c) Engage in any act which would interfere with or harm
any business relationship PEC or Lone Star has with any customer, lessor,
employee, principal or supplier.
4. Specific Performance.
Without intending to limit the remedies available to PEC or
Lone Star, R. Price acknowledges that PEC or Lone Star will have no adequate
remedies at law if R. Price violates the terms of Section 2 or 3, hereof. In
such event, R. Price agrees that PEC or Lone Star shall have the right, in
addition to any other rights it may have, to obtain in any court of competent
jurisdiction specific performance of such Sections of this Agreement or
injunctive relief to restrain any breach or threatened breach thereof. Nothing
herein shall be construed as prohibiting PEC or Lone Star from pursuing any
other remedies available to PEC or Lone Star (whether at law or in equity) for
such breach or threatened breach, including, without limitation, the recovery
of monetary damages from R. Price.
The provisions of this Section 4 shall survive the expiration,
termination or cancellation of this Agreement.
5. Attorneys Fees and Costs.
If an action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys fees, costs and necessary expenses in addition to any
other relief to which that party may be entitled. This provision is applicable
to this entire Agreement.
EX A(II)-3
<PAGE> 37
6. Representations and Warranties of PEC, Lone Star and
R. Price.
(a) Representations and Warranties of PEC and Lone Star.
PEC and Lone Star hereby jointly and severally represent and warrant to R.
Price that: (i) they have all requisite power to enter into and perform their
obligations under this Agreement; (ii) this Agreement has been duly and validly
authorized by all necessary corporate action on the part of PEC and Lone Star;
(iii) the execution of this Agreement by PEC and Lone Star and performance of
their obligations hereunder do not require the consent or approval of any other
party; and (iv) this Agreement is a valid and binding obligation of PEC and
Lone Star.
(b) Representations and Warranties of R. Price. R. Price
hereby represents and warrants to PEC and Lone Star that: (i) R. Price has the
capacity and power to enter into and perform obligations of R. Price under this
Agreement; (ii) R. Price has duly and validly executed this Agreement; (iii)
the execution of this Agreement and performance of obligations of R. Price
hereunder do not require the consent or approval of any other party; and (iv)
this Agreement constitutes a valid and binding obligation of R. Price.
7. General Provisions.
(a) Compliance with Laws. The parties agree that they
will comply with all applicable laws and regulations of government bodies or
agencies in their respective performance of their obligations under this
Agreement.
(b) Governing Law and Construction. This Agreement will
be governed by and construed in accordance with the laws of the State of Texas
without reference to its conflict-of-laws principles. This Agreement's final
form resulted from review and negotiations among the parties and their
attorneys, and no part of this Agreement should be construed against any party
on the basis of authorship.
(c) Forum for Dispute Resolution. If any dispute arises
among the parties concerning the interpretation or performance of any portion
of this Agreement which the parties are unable to resolve themselves, and any
party brings an action against any other party seeking a declaratory order,
specific performance, damages, or any other legal or equitable relief based on
this Agreement, the parties agree that the forum for any such action shall be
an appropriate federal or state court in Texas having jurisdiction, agree that
venue will be proper in such courts, and waive any objections based on
inconvenience of the forum, and further agree that the prevailing party in any
such action, as determined by the court, shall be awarded its reasonable
attorneys' fees and costs in addition to any relief or judgment the court
awards.
(d) Entire Agreement; Amendment. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter contained herein and supersedes any previous oral or written
communications, representations, understandings or agreements with respect
thereto. The terms of this Agreement may be modified only in a writing, signed
by authorized representatives of both parties.
EX A(II)-4
<PAGE> 38
(e) Assignability. This Agreement will be binding upon
the parties' respective successors and permitted assigns. Neither party may
assign this Agreement and/or any of its rights and/or obligations hereunder
without the prior written consent of the other party, and any such attempted
assignment will be void; provided, however, that PEC or Lone Star may assign
this Agreement to a subsidiary or affiliate without the prior written consent
of R. Price.
(f) Waiver. A waiver of a breach or default under this
Agreement will not constitute a waiver of any other breach or default. Failure
or delay by either party to enforce compliance with any term or condition of
this Agreement will not constitute a waiver of such term or condition.
(g) Severability. If any provision of this Agreement is
declared to be invalid, the parties agree that such invalidity will not affect
the validity of the remaining provisions of this Agreement, and further agree,
to the extent possible, to substitute for the invalid provision a valid
provision that approximates the intent and economic effect of the invalid
provision as closely as possible.
(h) Headings. The titles of the Sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
(i) Notice. Any notice, request, consent, demand or
other communication required to be given under this Agreement will be in
writing and will be given personally, by facsimile or by mailing the same,
first-class, postage prepaid to the appropriate address and facsimile number
set forth below or to such other person or at such other address as may
hereafter be designated by like notice. Notices by mail will be considered
delivered and become effective three days after the mailing thereof. All
notices by facsimile will be considered delivered and become effective
immediately upon the confirmed (by answer back or other tangible printed
verification or successful receipt) sending thereof.
To PEC: Patterson Energy, Inc.
4510 Lamesa Highway
P.O. Drawer 1410
Snyder, Texas 79550
Facsimile: (915) 573-0281
Attention: Cloyce A. Talbott
Chairman and Chief Executive Officer
To Lone Star: Lone Star Mud, Inc.
4510 Lamesa Highway
P.O. Drawer 1410
Snyder, Texas 79550
Facsimile: (915) 573-0281
Attention: Cloyce A. Talbott
Chairman of the Board
EX A(II)-5
<PAGE> 39
To R. Price: Richard G. Price
3708 Cardinal Lane
Midland, Texas 79707
(j) Counterparts. This Agreement may be executed in
counterparts and by the parties hereto in separate counterparts, each of which
will be deemed an original, but all of which together will constitute one and
the same instrument.
(k) Effective Time. This Agreement shall become
effective simultaneously with the Closing (as defined in the Stock Purchase
Agreement) of the Stock Purchase.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed by their respective representatives as of the day and year first
above written.
"PEC"
PATTERSON ENERGY, INC.
By:
------------------------------------
James C. Brown
Vice President - Finance
"LONE STAR"
LONE STAR MUD, INC.
By:
------------------------------------
James C. Brown
Vice President - Finance
"R. PRICE"
---------------------------------------
Richard G. Price
EX A(II)-6
<PAGE> 40
EXHIBIT B(I)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of January 5, 1998, by and between LONE STAR MUD, INC., a Texas
corporation (hereinafter referred to as "Employer") wholly owned by Patterson
Energy, Inc., a Delaware corporation ("PEC"), PEC and SPENCER D. ARMOUR, III of
Midland, Texas (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employee has served as the President of, and has been
employed by, Employer from the inception of Employer in 1989, and
WHEREAS, Employer agrees to continue to employ Employee in the
capacity of President of the Employer.
NOW, THEREFORE, in consideration of the premises and the
mutual promises and covenants herein contained, Employee and Employer hereby
agree as follows:
1. Employment. Employer agrees to continue to employ
Employee in the capacity of President of Employer subject to the terms and
conditions hereinafter set forth. Employee hereby accepts such employment and
agrees that he will, during the continuance hereof, devote his full time and
attention and best talents and abilities to the duties of employment assigned
to him for the term of this Agreement, and he will comply with the fiduciary
duties of his position with Employer.
2. Duties. Employee shall have and perform the duties
normally associated with those of the President of a corporation and such other
duties as the Board of Directors of Employer or PEC may from time to time
assign him. All duties assigned to Employee hereunder shall be performed in a
manner reasonably satisfactory to the Board of Directors of Employer and PEC.
3. Term. The term of this Agreement shall begin on the
date of this Agreement and shall end on December 31, 2002, subject to the terms
and conditions hereinafter contained. The employment of Employee by Employer
hereunder may thereafter be extended for additional terms of 12 months, each by
mutual agreement of the parties subject to such adjustments in compensation and
benefits as they may agree.
4. Place of Employment. Employer agrees that Employee
will have his principal office at and will perform his principal duties at
Employer's office, located in Midland, Texas. Notwithstanding the foregoing,
Employee acknowledges that it may be necessary from time to time for him in the
performance of his duties, to travel on behalf of the Company and to perform
such duties while temporarily away from his principal office.
EX B(I)-1
<PAGE> 41
5. Compensation. As compensation to Employee for his
performance of the services required hereunder, and for his acceptance of the
responsibilities herein contained, and for his performance of all the
additional obligations of employment, Employer agrees to pay and Employee
agrees to accept the following salary, other compensation and benefits, in
addition to any other compensation and benefits under this Agreement:
(a) Salary. Employee shall be entitled to receive a
salary payable monthly at an annual rate of $115,000. The annual salary of
Employee may be increased, in the sole discretion of the Board of Directors of
Employer, from time to time, to reflect increases in the cost of living,
profitability of Employer and overall performance of Employee. In addition the
Board of Directors of Employer may, in its sole discretion, authorize the
payment to Employee of a bonus to the extent that the respective Boards of
Directors of Employer and PEC believe such a bonus is justified based on
Employee's productivity and the profitability of Employer.
(b) Further Benefits. Employee shall be entitled to
participate, as long as he is employed by Employer, in all employee benefit
plans of Employer or of PEC for employees and executive officers of PEC and
subsidiaries of PEC.
6. Vacations. Employee shall be entitled each calendar
year to a vacation or vacations aggregating a total of ten working days (or a
pro rata number of working days for any period less than a calendar year) and
such public holidays as are provided by PEC to other employees of PEC or
subsidiaries of PEC; provided that such number of working days for the first
calendar year ending December 31, 1998, shall be reduced by the number of
vacation days taken by Employee between January 1, 1998, and the date of this
Agreement. Employer and Employee shall mutually agree as to when Employee may
take his vacation or vacations. Unused vacation time shall not be carried
forward to subsequent years.
7. Expenses. Employer shall pay or reimburse Employee
for reasonable or necessary out-of-pocket expenses incurred by Employee in
conjunction with the performance of his duties hereunder; provided that such
expenses are properly documented in accordance with normal procedures of
Employer.
8. Confidentiality. Employee acknowledges that
information used by PEC and its subsidiaries, including Employer, in the
conduct of their respective business is confidential information which is the
sole and exclusive property of PEC and its subsidiaries. Employee agrees that
he will not, during the term of this Agreement or at any time after the
termination hereof, disclose any of such confidential information to any third
party or use such confidential information in any way to compete with or to act
in any other way adverse to Employer and its subsidiaries. Provisions of this
paragraph shall not however apply to information which is or which becomes
available to the general public through no fault of Employee. Upon termination
of Employee's employment hereunder, regardless of the reason for such
termination, Employee agrees promptly to deliver all tangible materials
constituting confidential information and all other property of PEC and its
subsidiaries, including Employer, to PEC.
EX B(I)-2
<PAGE> 42
9. Enforcement. The parties agree that upon any
violation of the provisions of paragraph 8 hereof, monetary damages would be
inadequate and difficult to ascertain. The parties therefore agree that upon
the existence of any such violation or threatened violation, provided that
Employer is not then in default hereunder, Employer may obtain a temporary
restraining order, preliminary injunction or other appropriate that constitutes
a felony in the jurisdiction involved not subject to further appeal or review,
if such conviction or plea is injurious to Employer.
10. Withholding of Appropriate Taxes. It is understood
and agreed by the parties hereto that Employer shall withhold appropriate taxes
from compensation and with respect to any other economic benefits herein
provided when such withholding is, in the reasonable judgment of PEC, required
by law or regulation.
11. Termination.
(a) By Employer. Employer may terminate this Agreement
only for Cause (as defined below) upon 30 days prior written notice to
Employee.
(i) If the written notice is issued, such notice
shall specify that termination is being made for Cause and it shall state the
basis therefor.
(ii) For purposes of this Agreement, termination
for "Cause" shall mean termination because of:
a. The continued failure by Employee to
substantially perform or the gross negligence in the performance of
his duties hereunder after the Board of Directors of Employer or PEC
has made a written demand for performance which specifically
identifies the manner in which it believed that Employee has not
substantially performed his duties.
b. The commission by Employee of a
willful act of dishonesty or misconduct which is injurious to
Employer, or the breach of a fiduciary duty to Employer.
c. A conviction or a plea of guilty or
nolo contendere in connection with fraud or any crime that constitutes
a felony in the jurisdiction involved not subject to further appeal or
review, if such conviction or plea is injurious to Employer.
d. The commission by Employee of
repeated acts of substance abuse which are injurious to Employer.
(b) By Employee. Employee shall have the right to
terminate this Agreement only: (i) for cause, limited to a material breach of
this Agreement by Employer or PEC which
EX B(I)-3
<PAGE> 43
remains uncured after reasonable notice; or (ii) upon the failure of either
Cloyce A. Talbott or A. Glenn Patterson to serve as the Chairman of the Board,
Chief Executive Officer, President or Chief Operating Officer of PEC.
12. Miscellaneous.
(a) The rights and duties of either party under this
Agreement shall not be assignable by either party except that this Agreement
and all rights and obligations hereunder may be assigned by Employer to, and
assumed by, any corporation or other business entity which succeeds to all or
substantially all of the assets and business of Employer through merger,
consolidation, acquisition of assets or other corporate reorganization.
(b) This Agreement and all provisions hereof shall bind
and inure to the benefit of Employer, Employee and their respective personal
representatives, heirs, successors and assigns.
(c) This Agreement and all questions arising hereunder
shall be governed by the laws of the State of Texas.
(d) If any provision of this Agreement shall be held to
be invalid, illegal or unenforceable, such provision shall be severed or
enforced to the extent possible and such invalidity, illegality or
unenforceability shall not affect the remainder of this Agreement.
(e) This Agreement supersedes any prior agreements or
understandings, oral or written, with respect to employment of Employee and
constitutes the entire agreement with respect thereto. This Agreement may be
amended or modified only by written agreement subscribed to by both of the
parties hereto.
(f) The waiver by either party of a breach of any
provision of this Agreement by the other shall not operate or be construed as a
waiver of any subsequent breach of the same provision or any other provision of
this Agreement.
(g) All notices which a party is required or may desire
to give to the other party under or in connection with this Agreement shall be
sufficient if given by addressing same to such other party as follows:
To Employee, to: Spencer D. Armour, III
4111 Cardinal Lane
Midland, Texas 79707
EX B(I)-4
<PAGE> 44
To Employer, to: Lone Star Mud, Inc.
4510 Lamesa Highway
P.O. Box 1416
Snyder, Texas 79550
Facsimile: (915) 573-0281
Attention: Cloyce A. Talbott
Chairman of the Board
or at such other place as may be designated in writing by like notice. When
notices addressed as required herein shall be deposited, postage prepaid, in
the United States mail, and/or when Employer or Employee shall have delivered
the same addressed as aforesaid to a telegraph office, toll prepaid, Employer
or Employee shall be deemed to have delivered such notice.
(h) This Agreement shall become effective simultaneously
with the Closing (as such term is defined in that certain Stock Purchase
Agreement, dated January 5, 1998 (the "Stock Purchase Agreement), among PEC,
Employee and Richard G. Price) of the purchase of all of the issued and
outstanding shares of capital stock of Employer pursuant to the Stock Purchase
Agreement.
IN WITNESS WHEREOF, Employee, Employer, and PEC have duly
executed this Agreement.
EMPLOYER:
LONE STAR MUD, INC., a Texas corporation
By:
---------------------------------------
James C. Brown
Vice President - Finance
EMPLOYEE:
------------------------------------------
SPENCER D. ARMOUR, III
PEC:
PATTERSON ENERGY, INC.
By:
---------------------------------------
James C. Brown
Vice President - Finance
EX B(I)-5
<PAGE> 45
EXHIBIT B(II)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of January 5, 1998, by and between LONE STAR MUD, INC., a Texas
corporation (hereinafter referred to as "Employer") wholly owned by Patterson
Energy, Inc., a Delaware corporation ("PEC"), PEC and RICHARD G. PRICE of
Midland, Texas (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employee has served as the Vice President of, and has
been employed by, Employer from the inception of Employer in 1989, and
WHEREAS, Employer agrees to continue to employ Employee in the
capacity of Vice President of the Employer.
NOW, THEREFORE, in consideration of the premises and the
mutual promises and covenants herein contained, Employee and Employer hereby
agree as follows:
1. Employment. Employer agrees to continue to employ
Employee in the capacity of Vice President of Employer subject to the terms and
conditions hereinafter set forth. Employee hereby accepts such employment and
agrees that he will, during the continuance hereof, devote his full time and
attention and best talents and abilities to the duties of employment assigned
to him for the term of this Agreement, and he will comply with the fiduciary
duties of his position with Employer.
2. Duties. Employee shall have and perform the duties
normally associated with those of the President of a corporation and such other
duties as the Board of Directors of Employer or PEC may from time to time
assign him. All duties assigned to Employee hereunder shall be performed in a
manner reasonably satisfactory to the Board of Directors of Employer and PEC.
3. Term. The term of this Agreement shall begin on the
date of this Agreement and shall end on December 31, 2002, subject to the terms
and conditions hereinafter contained. The employment of Employee by Employer
hereunder may thereafter be extended for additional terms of 12 months, each by
mutual agreement of the parties subject to such adjustments in compensation and
benefits as they may agree.
4. Place of Employment. Employer agrees that Employee
will have his principal office at and will perform his principal duties at
Employer's office, located in Midland, Texas. Notwithstanding the foregoing,
Employee acknowledges that it may be necessary from
EX B(II)-1
<PAGE> 46
time to time for him in the performance of his duties, to travel on behalf of
the Company and to perform such duties while temporarily away from his
principal office.
5. Compensation. As compensation to Employee for his
performance of the services required hereunder, and for his acceptance of the
responsibilities herein contained, and for his performance of all the
additional obligations of employment, Employer agrees to pay and Employee
agrees to accept the following salary, other compensation and benefits, in
addition to any other compensation and benefits under this Agreement:
(a) Salary. Employee shall be entitled to receive a
salary payable monthly at an annual rate of $115,000. The annual salary of
Employee may be increased, in the sole discretion of the Board of Directors of
Employer, from time to time, to reflect increases in the cost of living,
profitability of Employer and overall performance of Employee. In addition the
Board of Directors of Employer may, in its sole discretion, authorize the
payment to Employee of a bonus to the extent that the respective Boards of
Directors of Employer and PEC believe such a bonus is justified based on
Employee's productivity and the profitability of Employer.
(b) Further Benefits. Employee shall be entitled to
participate, as long as he is employed by Employer, in all employee benefit
plans of Employer or of PEC for employees and executive officers of PEC and
subsidiaries of PEC.
6. Vacations. Employee shall be entitled each calendar
year to a vacation or vacations aggregating a total of ten working days (or a
pro rata number of working days for any period less than a calendar year) and
such public holidays as are provided by PEC to other employees of PEC or
subsidiaries of PEC; provided that such number of working days for the first
calendar year ending December 31, 1998, shall be reduced by the number of
vacation days taken by Employee between January 1, 1998, and the date of this
Agreement. Employer and Employee shall mutually agree as to when may take his
vacation or vacations. Unused vacation time shall not be carried forward to
subsequent years.
7. Employer shall pay or reimburse Employee for
reasonable or necessary out-of-pocket expenses incurred by Employee in
conjunction with the performance of his duties hereunder; provided that such
expenses are properly documented in accordance with normal procedures of
Employer.
8. Confidentiality. Employee acknowledges that
information used by PEC and its subsidiaries, including Employer, in the
conduct of their respective business is confidential information which is the
sole and exclusive property of PEC and its subsidiaries. Employee agrees that
he will not, during the term of this Agreement or at any time after the
termination hereof, disclose any of such confidential information to any third
party or use such confidential information in any way to compete with or to act
in any other way adverse to Employer and its subsidiaries. Provisions of this
paragraph shall not however apply to information which is or which becomes
available to the general public through no fault of Employee. Upon termination
of Employee's employment hereunder, regardless of the reason for such
termination, Employee
EX B(II)-2
<PAGE> 47
agrees promptly to deliver all tangible materials constituting confidential
information and all other property of PEC and its subsidiaries, including
Employer, to PEC.
9. Enforcement. The parties agree that upon any
violation of the provisions of paragraph 8 hereof, monetary damages would be
inadequate and difficult to ascertain. The parties therefore agree that upon
the existence of any such violation or threatened violation, provided that
Employer is not then in default hereunder, Employer may obtain a temporary
restraining order, preliminary injunction or other appropriate form of
equitable relief from any court of competent jurisdiction.
10. Withholding of Appropriate Taxes. It is understood
and agreed by the parties hereto that Employer shall withhold appropriate taxes
from compensation and with respect to any other economic benefits herein
provided when such withholding is, in the reasonable judgment of PEC, required
by law or regulation.
11. Termination.
(a) By Employer. Employer may terminate this Agreement
only for Cause (as defined below) upon 30 days prior written notice to
Employee.
(i) If the written notice is issued, such notice
shall specify that termination is being made for Cause and it shall state the
basis therefor.
(ii) For purposes of this Agreement, termination
for "Cause" shall mean termination because of:
a. The continued failure by Employee to
substantially perform or the gross negligence in the performance of
his duties hereunder after the Board of Directors of Employer or PEC
has made a written demand for performance which specifically
identifies the manner in which it believed that Employee has not
substantially performed his duties.
b. The commission by Employee of a
willful act of dishonesty or misconduct which is injurious to
Employer, or the breach of a fiduciary duty to Employer.
c. A conviction or a plea of guilty or
nolo contendere in connection with fraud or any crime that constitutes
a felony in the jurisdiction involved not subject to further appeal or
review, if such conviction or plea is injurious to Employer.
d. The commission by Employee of
repeated acts of substance abuse which are injurious to Employer.
EX B(II)-3
<PAGE> 48
(b) By Employee. Employee shall have the right to
terminate this Agreement only: (i) for cause, limited to a material breach of
this Agreement by Employer or PEC which remains uncured after reasonable
notice; or (ii) upon the failure of either Cloyce A. Talbott or A. Glenn
Patterson to serve as the Chairman of the Board, Chief Executive Officer,
President or Chief Operating Officer of PEC.
12. Miscellaneous.
(a) The rights and duties of either party under this
Agreement shall not be assignable by either party except that this Agreement
and all rights and obligations hereunder may be assigned by Employer to, and
assumed by, any corporation or other business entity which succeeds to all or
substantially all of the assets and business of Employer through merger,
consolidation, acquisition of assets or other corporate reorganization.
(b) This Agreement and all provisions hereof shall bind
and inure to the benefit of Employer, Employee and their respective personal
representatives, heirs, successors and assigns.
(c) This Agreement and all questions arising hereunder
shall be governed by the laws of the State of Texas.
(d) If any provision of this Agreement shall be held to
be invalid, illegal or unenforceable, such provision shall be severed or
enforced to the extent possible and such invalidity, illegality or
unenforceability shall not affect the remainder of this Agreement.
(e) This Agreement supersedes any prior agreements or
understandings, oral or written, with respect to employment of Employee and
constitutes the entire agreement with respect thereto. This Agreement may be
amended or modified only by written agreement subscribed to by both of the
parties hereto.
(f) The waiver by either party of a breach of any
provision of this Agreement by the other shall not operate or be construed as a
waiver of any subsequent breach of the same provision or any other provision of
this Agreement.
(g) All notices which a party is required or may desire
to give to the other party under or in connection with this Agreement shall be
sufficient if given by addressing same to such other party as follows:
To Employee, to: Richard G. Price
3708 Cardinal Lane
Midland, Texas 79707
EX B(II)-4
<PAGE> 49
To Employer, to: Lone Star Mud, Inc.
4510 Lamesa Highway
P.O. Drawer 1416
Snyder, Texas 79550
Facsimile: (915) 573-0281
Attention: Cloyce A. Talbott
Chairman of the Board
or at such other place as may be designated in writing by like notice. When
notices addressed as required herein shall be deposited, postage prepaid, in
the United States mail, and/or when Employer or Employee shall have delivered
the same addressed as aforesaid to a telegraph office, toll prepaid, Employer
or Employee shall be deemed to have delivered such notice.
(h) This Agreement shall become effective simultaneously
with the Closing (as such term is defined in that certain Stock Purchase
Agreement, dated January 5, 1998 (the "Stock Purchase Agreement), among PEC,
Spencer D. Armour, III and Employee) of the purchase of all of the issued and
outstanding shares of capital stock of Employer pursuant to the Stock Purchase
Agreement.
IN WITNESS WHEREOF, Employee, Employer, and PEC have duly
executed this Agreement.
EMPLOYER:
LONE STAR MUD, INC., a Texas corporation
By:
---------------------------------------
James C. Brown
Vice President - Finance
EMPLOYEE:
------------------------------------------
Richard G. Price
PEC:
PATTERSON ENERGY, INC.
By:
---------------------------------------
James C. Brown
Vice President - Finance
EX B(II)-5
<PAGE> 50
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made and
entered into this 5th day of January, 1998, by and among PATTERSON ENERGY,
INC., a Delaware corporation ("PEC"), and SPENCER D. ARMOUR, III ("S. Armour")
and RICHARD G. PRICE ("R. Price"), each of whom is an individual residing in
Midland, Texas.
A. Pursuant to that certain Stock Purchase Agreement
dated of even date herewith ("Stock Purchase Agreement"), by and among PEC, S.
Armour and R. Price, PEC has agreed to issue 285,664 shares ("Restricted
Shares") of PEC's Common Stock, $0.01 par value (the "Common Stock"), as
partial consideration for the purchase of all of the issued and outstanding
capital stock of Lone Star Mud, Inc.
B. This Agreement is being entered into in connection
with and as a condition to the parties closing the transactions contemplated
under the Stock Purchase Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement the
following terms shall have the following respective meanings:
"Commission" shall mean the United States Securities
and Exchange Commission and any successor federal agency
having similar powers.
"Holder" shall mean, with respect to the Restricted
Shares, S. Armour and R. Price and their respective
successors and assigns.
"Person" shall mean an individual, a partnership, a
joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency
thereof.
The terms "register," "registered," and
"registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses
incident to PEC's performance of or compliance with this
Agreement, including without limitation all registration and
filing fees, fees and expenses of compliance with securities
or blue sky laws and all reasonable printing expenses,
messenger and delivery expenses, and
EX C-1
<PAGE> 51
fees and disbursements of counsel for PEC and all independent
certified public accountants, underwriters (excluding
discounts and commissions) and other Person retained by PEC
(all such expenses being herein called "Registration
Expenses"), will be borne as provided in this Agreement,
except that PEC will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting
duties), the expense of any annual audit or quarterly review,
the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each
securities exchange on which similar securities issued by PEC
are then listed or on the NASD automated quotation system.
"Restricted Shares" shall include Common Stock issued
or issuable with respect to the Restricted Shares by way of a
stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted
Shares, such shares will cease to be Restricted Shares when
they have been distributed to the public pursuant to an
offering registered under the Securities Act or sold to the
public through a broker, dealer or market maker in compliance
with Rule 144 under the Securities Act (or any similar rule
then in force).
"Securities Act" shall mean the Securities Act of
1933, or any successor thereto, as the same shall be amended
from time to time.
2. Restrictions on Transfer. The Restricted Shares were
acquired by each of S. Armour and R. Price from PEC for investment for his own
account and not as a nominee or agent and not with a present view to the resale
or distribution of any part thereof, except in compliance with the Securities
Act. Each of S. Armour and R. Price acknowledges that the Restricted Shares
are "restricted securities" within the meaning of the Securities Act.
3. Registration Under Securities Act, etc.
3.1 Registration.
(a) Filing. Contemporaneously with the execution of this
Agreement, PEC shall have filed a Registration Statement on Form S-3 (the "Form
S-3") with the Commission covering the distribution of the Restricted Shares.
PEC agrees to use its best efforts to have the Form S-3 declared effective.
EX C-2
<PAGE> 52
(b) Expenses. PEC shall pay all Registration Expenses in
connection with the Form S-3.
3.2 Registration Procedures. Following the effective
date of the Form S-3, PEC will promptly:
(a) prepare and file with the Commission such amendments
and supplements to the Form S-3 and the prospectus used in connection therewith
as may be necessary to keep the Form S-3 effective and to comply with the
provisions of the Securities Act with respect to the disposition of the
Restricted Shares until the earlier of (i) such time as all of such Restricted
Shares have been disposed of in accordance with the intended methods of
disposition by S. Armour and R. Price, or (ii) the expiration of twelve (12)
months after such effective date and furnish to S. Armour and R. Price prior to
the filing thereof a copy of any amendment or supplement to the Form S-3 or
prospectus and shall not file any such amendment or supplement to which S.
Armour and R. Price shall have reasonably objected on the grounds that such
amendment or supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations thereunder;
(b) furnish to each of S. Armour and R. Price one
originally executed Form S-3, with all amendments, supplements and additional
documentation; such number of conformed copies of such Form S-3 and of each
such amendment and supplement thereto (in each case including all exhibits) as
S. Armour and R. Price may reasonably request; such number of copies of the
prospectus included in the Form S-3 (including each preliminary prospectus and
any summary prospectus) as required by the Securities Act as such Seller may
reasonably request; such documents, if any, incorporated by reference in the
Form S-3 or prospectus; and such other documents as S. Armour and R. Price,
may reasonably request;
(c) use its best efforts to register or qualify the
Restricted Shares and other securities covered by the Form S-3 under such other
securities or blue sky laws of such jurisdictions as S. Armour and R. Price
shall reasonably request, to keep such registration or qualification in effect
for so long as the Form S-3 remains in effect, and do any and all other acts
and things which may be necessary or advisable to enable S. Armour and R.
Price, to consummate the disposition in such jurisdictions of the Restricted
Shares covered by the Form S-3, except that PEC shall not for any such purpose
be required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subdivision
(c) be obligated to be so qualified, or to subject itself to taxation in any
such jurisdiction, or to consent to general service of process in any such
jurisdiction;
(d) immediately notify S. Armour and R. Price at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in the Form S-3, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, or if it is
necessary to amend or supplement such prospectus
EX C-3
<PAGE> 53
or Form S-3 to comply with law, and at the request of S. Armour and R. Price,
prepare and furnish to S. Armour and R. Price a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Restricted Shares, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statement therein not misleading in light of the circumstances then existing
and shall otherwise comply in all material respects with the law and so that
such prospectus or Form S-3, as amended or supplemented, will comply with law;
and
(e) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
securities holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months beginning with the first
month of the first fiscal quarter after the effective date of the Form S-3, if
such earnings statement is necessary to satisfy the provisions of Section 11(a)
of the Securities Act.
4. Indemnification.
4.1 Indemnification by PEC.
PEC will, and hereby does, indemnify and hold harmless S.
Armour and R. Price or Holder or any director, trustee, officer, employee or
controlling person of such holder against any losses, claims, damages,
liabilities or expenses, joint or several (including, without limitation, the
costs and expenses of investigating, preparing for and defending any legal
proceeding, including reasonable attorney's fees), to which S. Armour and R.
Price or Holder or any director, trustee, officer, employee or controlling
person of such holder become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which the Restricted Shares were registered under
the Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
document incorporated by reference therein, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and PEC will reimburse
S. Armour and R. Price or Holder or any director, trustee, officer, employee or
controlling person of such holder or any other expenses incurred by them in
connection with investigating or defending or settling any such loss, claim,
liability, action or proceeding; provided that PEC shall not be liable in any
such case to the extent that any loss, claim, damage, liability or expense (or
action or proceeding in respect thereof) arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to PEC through an instrument duly
executed by S. Armour and R. Price specifically stating that it is for use in
preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of S. Armour and R. Price
and shall survive the transfer of such securities by S. Armour, R. Price or
Holder.
EX C-4
<PAGE> 54
PEC will make provision for contribution in lieu of any such indemnity that may
be disallowed as shall be reasonably requested by S. Armour and R. Price or
Holder.
4.2 Indemnification by S. Armour and R. Price or Holder.
S. Armour and R. Price or Holder will, and each of them hereby
does, severally indemnify and hold harmless PEC, each director of PEC, each
officer of PEC who shall sign the registration statement covering resale of
Restricted Shares by S. Armour and R. Price or Holder and each other person, if
any, who controls PEC within the meaning of the Securities Act from and against
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of material fact contained in such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
included therein, or any amendment or supplement thereto, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon and in conformity with
written information furnished to PEC through an instrument duly executed by S.
Armour and R. Price or Holder specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement up to the net proceeds
received by S. Armour and R. Price or such Holder. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf
of PEC or any such director, officer or controlling person and shall survive
the transfer of such securities by S. Armour and R. Price or such Holder.
4.3 Notice of Claims, etc.
In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 4, such person (hereinafter
called the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (hereinafter called the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any other party the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i)
the indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for the settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there is a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment.
EX C-5
<PAGE> 55
4.4 Indemnification Unavailable.
If the indemnification provided for in this Section 4 is
unavailable as a matter of law to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under any such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by such indemnified party on the one hand and the
indemnifying parties on the other or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of such indemnified party on the one hand and
the indemnifying parties on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault of
such indemnified party and the indemnifying parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by such parties and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omissions. The parties agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating, defending or settling
any such action or claim. Notwithstanding the foregoing, the liability of S.
Armour and R. Price or a Holder under this Section 4.4 shall be limited to the
net proceeds received by S. Armour and R. Price or such Holder (as the case may
be).
4.5 No Settlement, etc.
No indemnifying party shall, except with the written consent
of the indemnified party, consent to entry of any judgment or entry into
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or action.
4.6 Indemnity Operative and in Full Force.
The indemnity and contribution agreements contained in this
Section 4 shall remain operative and in full force and effect regardless of any
termination of this Agreement.
EX C-6
<PAGE> 56
5. Rule 144.
5.1 Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the Commission which may at
any time permit the sale of the Restricted Shares to the public without
registration, PEC shall use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the date of this Agreement;
(b) File with the Commission in a timely manner all
reports and other documents required of PEC under the Securities Act and the
Exchange Act; and
(c) So long as S. Armour and R. Price or Holder owns any
Restricted Shares, furnish to S. Armour and R. Price or the Holder as soon as
reasonably practicable after request a written statement by PEC as to its
compliance with the reporting requirements of the Exchange Act, a copy of the
most recent annual or quarterly report of PEC filed with the Commission, and
such other reports filed by PEC with the Commission.
5.2 Further Assurances. PEC shall take such action any
Holder may reasonably request from time to time to enable S. Armour and R.
Price or such Holder to sell Restricted Shares without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the Commission. Upon
written request of S. Armour and R. Price or any Holder, PEC will deliver to S.
Armour and R. Price or such Holder a written statement as to whether it has
complied with such requirements.
6. Amendments and Waivers. This Agreement may be
amended, and PEC may take any action herein prohibited or omit to perform any
act herein required to be performed by it, only if PEC shall have obtained the
written consent to such amendment, action or omissions to act of S. Armour and
R. Price or Holders of at least 51% or more of the Restricted Shares.
7. Nominees for Beneficial Owners. In the event that
any Restricted Shares are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election, be treated as S. Armour and
R. Price or the Holder of such Restricted Shares for purposes of any request
or other action by S. Armour and R. Price or any Holder or Holders of
Restricted Shares pursuant to this Agreement or any determination of any number
or percentage of shares of Restricted Shares held by S. Armour and R. Price or
any Holder or Holders of Restricted Shares contemplated by this Agreement. If
the beneficial owner of any Restricted Shares so elects, PEC may require
assurances reasonably satisfactory to it of such owner's beneficial ownership
of such Restricted Shares.
8. Notices. Notices and other communications under this
Agreement shall be in writing and shall be sent by registered mail, postage
prepaid, or courier addressed to:
EX C-7
<PAGE> 57
8.1 if to S. Armour and R. Price or any Holder, at the
address provided to PEC in writing by S. Armour and R. Price or such Holder or
as shown on stock transfer books of PEC unless S. Armour and R. Price or such
Holder has advised PEC in writing of a different address as to which notices
shall be sent to it under this Agreement, and
8.2 if to PEC, at 4510 Lamesa Highway, P.O. Drawer 1416,
Snyder, Texas 79550 to the attention of its President or to such other address
as PEC shall have furnished to S. Armour and R. Price or each Holder.
9. Successors and Assigns. PEC acknowledges and agrees
that the registration rights granted to S. Armour and R. Price in this
Agreement may be transferred and assigned by S. Armour and R. Price in
connection with any valid sale and assignment of the Restricted Shares. All
covenants and agreements in this Agreement by or on behalf of either of the
parties hereto will bind and inure to the benefit of the respective successors
and assigns of the parties hereto whether so expressed or not. In addition,
whether or not any express assignment has been made, the provisions of this
Agreement are for the benefit of S. Armour and R. Price or any Holder of
Restricted Shares.
10. Miscellaneous. This Agreement embodies the entire
agreement and understanding between PEC and the other parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings relating to the subject matter hereof. This Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of Texas. The headings in this Agreement are for the purposes of reference
only and shall not limit or otherwise affect the meaning hereof. This
Agreement may be executed in counterparts, each of which shall be an original,
but both of which together shall constitute one instrument.
EX C-8
<PAGE> 58
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
PEC:
PATTERSON ENERGY, INC.
By:
-------------------------------
James C. Brown
Vice President - Finance
S. ARMOUR
----------------------------------------
Spencer D. Armour, III
R. PRICE
----------------------------------------
Richard G. Price
EX C-9
<PAGE> 59
EXHIBIT D
FORM
OF
INVESTMENT REPRESENTATION LETTER
January ___, 1998
Patterson Energy, Inc.
4510 Lamesa Highway
Snyder, Texas 79549
This letter is being submitted to Patterson Energy, Inc.
("PEC") in connection with and as a condition to closing by PEC of the purchase
by PEC of all of the issued and outstanding capital stock of Lone Star Mud,
Incorporated (the "Stock Purchase") contemplated by the Stock Purchase
Agreement (the "Stock Purchase Agreement") among PEC, Spencer D. Armour, III
and Richard G. Price. Capitalized terms not defined herein shall have the
meaning given them in the Stock Purchase Agreement.
1. Representations and Warranties.
The undersigned hereby represents and warrants to PEC that the
following statements are true:
a. The undersigned has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of an investment in PEC vis-a-vis the PEC Common Stock to be issued by
PEC as partial consideration for the Stock Purchase.
b. The undersigned has had an opportunity to ask
questions of PEC and its management concerning PEC, the business of PEC and the
PEC Common Stock and, if asked, all such questions have been answered to the
full satisfaction of the undersigned.
c. The undersigned understands that PEC has not
registered the offer or sale of the PEC Common Stock under the Securities Act
of 1933, as amended (the "Act"), in reliance upon an exemption therefrom under
Section 4(2) of the Act and the provisions of Regulation D promulgated
thereunder. The undersigned therefore acknowledges that in no event may he
sell or otherwise transfer the PEC Common Stock without registration under the
Act (see paragraph (g) below).
EX D-1
<PAGE> 60
Patterson Energy, Inc.
January ___, 1998
Page 2
d. The undersigned represents that he will acquire the
PEC Common Stock for his own account, with no intention to distribute or offer
to distribute the same to others without registration under the Act, and
understands that the issuance by PEC of the PEC Common Stock will be predicated
upon the undersigned's lack of such intention.
e. The undersigned understands that neither the
Securities and Exchange Commission nor the securities commissioner of any state
has received or reviewed any documents relative to an investment in PEC, or has
made any finding or determination relating to the fairness of an investment in
PEC.
f. The undersigned acknowledges that stop transfer
instructions will be placed with PEC's transfer agent to restrict the resale,
pledge, hypothecation or other transfer of the PEC Common Stock.
g. The undersigned acknowledges that, except as provided
in the Registration Rights Agreement attached as Exhibit C to the Stock
Purchase Agreement, PEC is under no obligation to register the PEC Common Stock
for sale under the Act or to assist the undersigned in complying with any
exemption from registration under the Act, or any state securities laws.
h. The undersigned represents that he has an individual
net worth of at least $1,000,000.
i. The undersigned understands and acknowledges that the
foregoing representations and warranties will be relied upon by PEC in
connection with the issuance of the PEC Common Stock pursuant to the Stock
Purchase Agreement.
2. Indemnification.
The undersigned agrees to indemnify and hold harmless PEC, the
officers, directors and affiliates of PEC and each other person, if any, who
controls either of them, within the meaning of Section 15 of the Act, against
any and all loss, liability, claim, damage and expense whatsoever (including,
but not limited to, any and all expenses reasonably incurred in investigating,
preparing or defending against any litigation commenced or threatened or any
claim whatsoever) arising out of or based upon any false representation or
warranty or failure by the undersigned to comply with any covenant or agreement
made by the undersigned herein.
EX D-2
<PAGE> 61
Patterson Energy, Inc.
January ___, 1998
Page 3
3. Survival.
All representations, warranties and covenants contained in
this letter shall survive the closing of the Stock Purchase.
Very truly yours,
By:
-------------------------
EX D-3
<PAGE> 1
EXHIBIT 5.1
January 5, 1998
Patterson Energy, Inc.
4510 Lamesa Highway
Snyder, Texas 79549
Gentlemen:
We have acted as counsel for Patterson Energy, Inc. (the
"Company") in connection with the registration under the Securities Act of 1933
(the "Act") on Form S-3 of a total of 285,664 (the "Shares") of the Company's
issued and outstanding Common Stock, $0.01 par value, to be sold by certain
stockholders of the Company. The Registration Statement on Form S-3 and
exhibits thereto filed with the Securities and Exchange Commission under the
Act are referred to herein as the "Registration Statement."
We have examined the Restated Certificate of Incorporation of
the Company, the Bylaws of the Company, the Minutes of the Board of Directors
and stockholders of the Company, the applicable laws of the State of Delaware
and a copy of the Registration Statement.
Based on the foregoing and having regard for such legal
considerations as we deem relevant, we are of the opinion that the Shares have
been validly issued and are fully paid and nonassessable.
We hereby consent to the use of this opinion as part of the
Registration Statement.
Very truly yours,
/s/ Baker & Hostetler LLP
BAKER & HOSTETLER LLP
<PAGE> 1
EXHIBIT 15.1
January 5, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Patterson Energy, Inc.
Registration Statement on Form S-3
We are aware that our reports dated April 30, 1997, July 24, 1997 and October
28, 1997 on our reviews of interim financial information of Patterson Energy,
Inc. for the periods ended March 31, 1997, June 30, 1997 and September 30, 1997
and included in the Company's Quarterly Reports on Form 10-Q for the quarters
then ended are incorporated by reference in this registration statement.
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should
not be considered a part of the registration statement prepared or certified by
us within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
<PAGE> 1
EXHIBIT 15.2
January 5, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that our report dated July 7, 1997, on our review of interim
financial information of Wes-Tex Drilling Company for the periods ended March
31, 1997 and 1996, included in Patterson Energy, Inc.'s Current Report on Form
8-K, as amended, dated June 12, 1997, is incorporated by reference in Patterson
Energy, Inc.'s Registration Statement on Form S-3. Pursuant to Rule 436(c)
under the Securities Act of 1933, this report should not be considered a part
of the registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
/s/ Davis, Kinard & Co., P.C.
DAVIS, KINARD & CO., P.C.
Abilene, Texas
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement of Patterson Energy, Inc. on Form S-3 of our report dated March 10,
1997, on our audits of the consolidated financial statements of Patterson
Energy, Inc. as of December 31, 1995 and 1996 and for each of the three years
in the period ended December 31, 1996, which is included in Patterson Energy,
Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
We also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 5, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated May 16, 1996,
included in the Patterson Energy, Inc., Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, and to all references to our firm included
in this Registration Statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
San Antonio, Texas
January 5, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
I hereby consent to the incorporation by reference in this
registration statement of Patterson Energy, Inc. on Form S-3 of certain
information contained in Patterson Energy, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, which information is contained in
my summary reserve report dated February 5, 1997, relating to the oil and
natural gas reserves and revenues as of December 31, 1994, 1995 and 1996 of
certain properties owned by Patterson Energy, Inc. as of December 31, 1996.
/s/ M. Brian Wallace
M. Brian Wallace, P.E.
Dallas, Texas
January 5, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
Patterson Energy, Inc. on Form S-3 of our report dated July 7, 1997, on our
audits of the financial information of Wes-Tex Drilling Company as of December
31, 1996 and 1995, and for each of the three years in the period ended December
31, 1996, which is included in Patterson Energy, Inc.'s Current Report on Form
8-K, as amended, dated June 12, 1997. We also consent to the reference to our
firm under the caption "Experts."
/s/ Davis, Kinard & Co., P.C.
DAVIS, KINARD & CO., P.C.
Abilene, Texas
January 5, 1998
