<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by rule 14a-6(e)
(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14(a)-11(c) or Section
240.14a-12
PATTERSON ENERGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Not Applicable
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total Fee Paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by the Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
PATTERSON ENERGY, INC.
P.O. BOX 1416
SNYDER, TEXAS 79550
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 1, 1999
To the Stockholders of Patterson Energy, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Patterson
Energy, Inc., a Delaware corporation (the "Company"), will be held at the
Embassy Suites Hotel, 3880 West Northwest Highway, Dallas, Texas, on July 1,
1999, at 10:00 A.M., local time, for the following purposes:
1. To elect five (5) directors of the Company to serve until the next
annual meeting of stockholders or until their respective successors shall
be elected and qualified;
2. To consider and vote upon a proposal to ratify the selection of
PricewaterhouseCoopers LLP, independent accountants, as independent
auditors for the Company for the fiscal year ending December 31, 1999; and
3. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
Only stockholders of record at the close of business on May 19, 1999, are
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU PLAN TO BE PRESENT AT THE MEETING, YOU ARE REQUESTED TO SIGN AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE SO THAT YOUR SHARES MAY BE
VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER THAT THE PRESENCE OF A QUORUM
MAY BE ASSURED. THE GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON, SHOULD YOU LATER DECIDE TO ATTEND THE MEETING. PLEASE DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOUR VOTE IS
IMPORTANT.
By Order of the Board of Directors
[James C. Brown]
James C. Brown
Secretary
Snyder, Texas
May 20, 1999
<PAGE> 3
PATTERSON ENERGY, INC.
P.O. BOX 1416
SNYDER, TEXAS 79550
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 1, 1999
This Proxy Statement is furnished to stockholders of Patterson Energy,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of Stockholders (the "Meeting") to be held at the Embassy Suites
Hotel, 3880 West Northwest Highway, Dallas, Texas, on Thursday, July 1, 1999, at
10:00 A.M., local time, for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders. The approximate date on which this Proxy
Statement and the enclosed Proxy will first be sent to stockholders is May 20,
1999.
ACTIONS TO BE TAKEN AT THE MEETING
Shares represented by a properly executed Proxy, unless the stockholder
otherwise instructs in the Proxy, will be voted (i) for the election of the five
individuals named below under the caption "Election of Directors" as directors
of the Company; (ii) for the ratification of the selection of
PricewaterhouseCoopers LLP, independent accountants, as independent auditors of
the Company for the fiscal year ending December 31, 1999 ("Ratification of
Auditors"); and (iii) at the discretion of the proxy holders, on any other
matter or business that may be properly presented at the Meeting or any
adjournment thereof. Where a stockholder properly executes a Proxy and gives
instructions on how his shares are to be voted, the shares will be voted in
accordance with those instructions.
A Proxy may be revoked at any time by a stockholder before it is exercised
by giving written notice to the Secretary of the Company or by signing and
delivering a Proxy which is dated later, or if the stockholder attends the
Meeting in person, by either notice of revocation to the inspectors of election
at the Meeting or by voting at the Meeting.
The only matters that management intends to present at the Meeting are the
two matters referenced in subparagraphs (i) and (ii) above. If any other matter
or business is properly presented at the Meeting, the proxy holders will vote
upon it in accordance with their best judgment.
VOTING SECURITIES
The record date for the Meeting is May 19, 1999. Only stockholders of
record at the close of business on May 19, 1999, will be entitled to vote at the
Meeting. At the close of business on that date, there were issued and
outstanding 32,473,292 shares of the Company's Common Stock, par value $0.01 per
share, ("Common Stock"), entitled to one vote per share. In the Election of
Directors, cumulative voting is not allowed. There are no outstanding shares of
preferred stock. A majority of the outstanding Common Stock, present in person
or by Proxy and entitled to vote, will constitute a quorum for the transaction
of business at the Meeting. Shares of Common Stock represented by proxies which
are marked "abstain" or which are not marked as to any particular matter or
matters will be counted as shares present for purposes of determining the
presence of a quorum on all matters. Proxies relating to "street name" shares
that are voted by brokers will be counted as shares present for purposes of
determining the presence of a quorum on all matters, but will not be treated as
shares having voted at the Meeting as to any proposal as to which authority to
vote is withheld by the brokers.
Under Delaware law and the Company's Restated Certificate of Incorporation,
as amended, if a quorum is present at the Meeting, (a) to be elected a director,
each nominee must receive a plurality of the votes of the shares of Common Stock
present in person or by Proxy at the Meeting and entitled to vote on the matter,
and (b) the affirmative vote of the majority of shares present in person or by
Proxy at the Meeting and entitled to vote on the matter are required to approve
(i) the proposed Ratification of Auditors, and (ii) any other
<PAGE> 4
matter submitted to a vote of stockholders at the Meeting. In the Election of
Directors, any action other than a vote for a nominee will have the practical
effect of voting against the nominee. Abstention from voting on the Ratification
of Auditors will have the effect of voting against such matter.
BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK
The following table sets forth, as of April 22, 1999, information
concerning the beneficial ownership of the Common Stock by (i) each person known
to the Company to be the beneficial owner of more than 5% of the outstanding
shares of the Common Stock, (ii) each director and nominee as director of the
Company, (iii) each of the executive officers named in the Summary Compensation
Table set forth below under the caption "Executive Compensation," and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial
Ownership of Percent of
Name(1) Common Stock(2) Class
- ------- --------------- ----------
<S> <C> <C>
Cloyce A. Talbott........................................... 1,191,896(3) 3.8%
2500 Towle Park Road
Snyder, Texas 79549
A. Glenn Patterson.......................................... 328,260(4) 1.0%
Kenneth E. Davis............................................ 77,948(5) *
Robert C. Gist.............................................. 83,772(6) *
Vincent A. Rossi, Jr. ...................................... 482,158(7) 1.5%
Spencer D. Armour, III...................................... 10,800(8) *
James C. Brown.............................................. 148,400(9) *
All executive officers, directors and nominees as a group (7
persons).................................................. 2,323,234(10) 7.1%
</TABLE>
- ---------------
* Less than 1%
(1) Each person named is an executive officer, and/or a director or a nominee
for director of the Company.
(2) Beneficial ownership includes shares over which the indicated beneficial
owner exercises voting and/or investment power. Shares of Common Stock
subject to options currently exercisable or exercisable within 60 days are
deemed outstanding for computing the percentage ownership of the person
holding the options, but not deemed outstanding for computing the
percentage ownership of any other person.
(3) Includes 60,000 shares purchasable under exercisable employee stock options
and 60,000 shares owned by an entity in which Mr. Talbott holds a direct
interest and for which he shares voting and investment power.
(4) Includes 142,440 shares purchasable under exercisable employee stock
options and 77,500 shares owned by entities in which Mr. Patterson holds a
direct interest and for which he shares voting and investment power.
(5) Includes 14,974 shares owned by the wife of Mr. Davis and 8,000 shares
purchasable under exercisable non-employee director stock options.
(6) Includes 32,000 shares purchasable under exercisable non-employee director
stock options.
(7) Includes 212,188 shares owned by an entity in which Mr. Rossi holds an
indirect interest and for which he shares voting and investment power,
245,970 shares owned by entities for which Mr. Rossi shares voting and
investment power and 24,000 shares purchasable under exercisable
non-employee director stock options.
(8) Includes 10,800 shares purchasable under exercisable employee stock
options.
(9) Includes 59,400 shares purchasable under exercisable employee stock
options.
(10) Includes the 336,640 shares purchasable under exercisable employee and
non-employee director stock options (see Notes 3 through 8 above).
2
<PAGE> 5
ELECTION OF DIRECTORS
(PROPOSAL 1 ON PROXY CARD)
The Company's Bylaws provide that the number of members of the Board of
Directors shall be fixed either by amendment to the Bylaws or by resolution of
the Board of Directors. Pursuant to Board resolution, the size of the Board is
currently set at five. The Company's Board of Directors is not divided into
classes; therefore, all five directors are to be elected at the Meeting.
Directors are elected to serve until the next annual meeting of stockholders or
until their successors are elected and qualified.
Unless authority is withheld, it is intended that the shares represented by
a properly executed Proxy will be voted for the election of all of the nominees
(Cloyce A. Talbott, A. Glenn Patterson, Robert C. Gist, Vincent A. Rossi, Jr.
and Spencer D. Armour, III) as directors. All of the nominees, other than
Spencer D. Armour, III, constitute four of the five members of the Company's
present Board of Directors. The fifth member, Kenneth E. Davis has chosen not to
run for reelection. If these nominees are unable to serve for any reason, such
Proxy will be voted for such persons as shall be designated by the Board of
Directors to replace such nominees. The Board of Directors has no reason to
expect that these nominees will be unable to serve.
The following table sets forth certain information concerning the
individuals nominated for election as directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ---- --- --------------------------
<S> <C> <C>
Cloyce A. Talbott...................... 63 Chairman of the Board; Chief Executive
Officer; Director
A. Glenn Patterson..................... 52 President; Chief Operating Officer;
Director
Robert C. Gist......................... 58 Director
Vincent A. Rossi, Jr. ................. 41 Director
Spencer D. Armour, III................. 45 --
</TABLE>
The following is a brief description of each nominee's business experience
during the past five years:
Cloyce A. Talbott has served as a Director of the Company since its
incorporation in 1978. Mr. Talbott is co-founder of the Company, served as Vice
President from 1978 to 1983, and has served as Chairman of the Board and Chief
Executive Officer since 1983. He also serves as Chairman of the Board and Chief
Executive Officer of each of the Company's subsidiaries. Mr. Talbott received a
Bachelor of Science degree in Petroleum Engineering in 1958 from Texas Tech
University, Lubbock, Texas.
A. Glenn Patterson has served as a Director of the Company since its
incorporation in 1978. Mr. Patterson is a co-founder of the Company and has
served as its President since 1978 and also as Chief Operating Officer since
1983. Mr. Patterson also serves as President of each of the Company's
subsidiaries. Mr. Patterson is primarily responsible for the day-to-day
management of the Company's contract drilling activities. Mr. Patterson received
his Bachelor of Science degree in Business in 1970 from Angelo State University,
San Angelo, Texas.
Robert C. Gist has served as a Director of the Company since 1985. Mr. Gist
has served as general legal counsel and advisor to the Company since 1987. Mr.
Gist received a Bachelor of Science degree in Economics in 1962 and a law degree
in 1965 from Southern Methodist University. He is currently self-employed as an
attorney and has been for at least the past five years. He has over 20 years
experience in the oil and gas industry.
Vincent A. Rossi, Jr. has served as a director of the Company since July
30, 1996. Since 1995, Mr. Rossi has served as a Managing Director of Turnberry
Capital Management L.P., an investment advisory firm. From March 1991 through
1994, he was a Managing Director of CS First Boston and co-founder of the First
Boston Special Situations Fund where he was jointly responsible for capital
commitment. From 1989 to March 1991, he was responsible for proprietary capital
commitment in the Distressed Securities Group at CS First Boston. During the
prior two years, he was a senior member of the Reorganizations Group at CS First
Boston.
3
<PAGE> 6
Mr. Rossi joined CS First Boston in 1987 from Odyssey Partners. He is a 1984
graduate of the Harvard Business School and received a B.S., summa cum laude,
from the Wharton School, University of Pennsylvania in 1980.
Spencer D. Armour, III is the founder of Lone Star Mud, Inc. and has served
as its President since 1986. Lone Star Mud, Inc. is a wholly-owned subsidiary of
Patterson Energy, Inc. since being acquired in January 1998. Mr. Armour received
a Bachelor of Science degree in Economics from the University of Houston in
1977. He has 20 years experience in the oilfield service business.
OTHER EXECUTIVE OFFICER
The following table sets forth certain information concerning the only
executive officer of the Company who is not also a director:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ---- --- --------------------------
<S> <C> <C>
James C. Brown........................ 47 Vice President -- Finance; Chief
Financial Officer; Secretary and
Treasurer
</TABLE>
Mr. Brown has served as Secretary and Treasurer of the Company since June
1993 and as Vice President -- Finance and Chief Financial Officer since August
1993. Mr. Brown served as Vice President from 1982 until June 1990, as a
Director of the Company from February 1985 until June 1990, and as Controller
from December 1983 until June 1990. Mr. Brown also serves as Vice
President-Finance, Treasurer and Secretary of each of the Company's
subsidiaries. Mr. Brown is responsible for managing all office personnel of the
Company involved with general financial and tax accounting activities. Mr. Brown
received a Bachelor of Science degree in Accounting in 1973 from Tarleton State
University, Stephenville, Texas. He is a certified public accountant in the
State of Texas and a member of the American Institute of Certified Public
Accountants.
The officers of the Company hold office until their successors are
appointed by the Board of Directors. All officers of the Company are employed on
a full-time basis. There are no arrangements or understandings between any of
the directors or officers and any other person pursuant to which he or she was
or is to be selected as a director, nominee or officer. There is no family
relationship between any director and executive officer of the Company other
than between Messrs. Talbott and Patterson, who are brothers-in-law.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held three formal meetings during the year ended
December 31, 1998. All directors attended at least 75% of the aggregate of all
meetings of the Board of Directors and committees on which they served in 1998.
In addition to those meetings, certain business was conducted by unanimous
written consent of the Board of Directors. The Company's officers have made a
practice of keeping directors informed of corporate activities by personal
meetings and telephone discussions and (as indicated above) directors ratify or
authorize certain Company actions through unanimous written consent actions.
The Company has an Audit Committee and a Compensation Committee of the
Board of Directors. Kenneth E. Davis, Robert C. Gist and Vincent A. Rossi, Jr.
served as members of each of these Committees in 1998. The Audit Committee's
function is to review and approve the services of the outside public accounting
firm. The Compensation Committee's function is to review and approve proposals
by management as to compensation for officers and other employees of the Company
and to administer the Company's Stock Incentive Plan. The Audit Committee held
one formal meeting during 1998 and the Compensation Committee held two formal
meetings during 1998.
At present, the Company has no nominating, executive or similar committees.
4
<PAGE> 7
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued during each
of the years in the three-year period ended December 31, 1998, to the Company's
Chief Executive Officer and to each of the other executive officers, each of
whose total compensation exceeded $100,000 for the last fiscal year for services
in his capacity.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION(1) OPTIONS(#) COMPENSATION(2)
- ---------------------------- ---- -------- -------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Cloyce A. Talbott,....... 1998 $290,900 $ -- $ -- 100,000 $ --
Chairman of the Board; 1997 207,271 218,007 -- -- 3,615
Chief Executive Officer 1996 150,900 507 -- -- 4,605
A. Glenn Patterson,...... 1998 $290,900 $ -- $ -- 25,000 $ --
President; Chief 1997 207,271 218,007 -- 150,000 3,615
Operating Officer 1996 150,900 507 -- -- 4,693
James C. Brown,.......... 1998 $175,900 $ -- $ -- 20,000 $ --
Vice President -- 1997 142,140 131,757 -- 50,000 3,614
Finance; Chief Financial 1996 110,834 507 -- -- 2,780
Officer; Secretary and
Treasurer
</TABLE>
- ---------------
(1) The Company furnishes certain and other personal benefits to its executive
officers and certain of its other employees. These benefits include one or
more of the following: The use of an automobile owned or leased by the
Company; payment of annual country club dues and monthly charges, including
personal meals; personal landscape and secretarial services through Company
employees at the Company's expense. The value of these and other personal
benefits provided to an executive officer named in the table are reported
for a year only if the aggregate value of such benefits exceeds the lesser
of $50,000 or 10% of such executive officer's total salary and bonus
disclosed in the table for the year reported.
(2) Represents Company contributions to the Patterson Energy, Inc. 1993 Stock
Incentive Plan (the "Plan") for the account of the executive officers named
in the table. The Plan became effective January 1, 1992. All employees of
the Company who work 1,000 hours or more during the year, are at least 21
years of age, were employed on the last day of the year and have at least
one year of service with the Company or its subsidiaries are eligible to
participate in the Plan. The Company has no obligation to make contributions
under the Plan; Company contributions are discretionary. Company
contributions vest over a five-year period, based on credited years of
service with the Company, and may be made either by (i) matching all or a
portion of the respective participants' contributions to the Plan, or (ii) a
profit sharing contribution to the accounts of participants which, are in
turn allocated to the accounts of active participants in the same proportion
that each active participant's compensation bears to the total compensation
of all active participants for the plan year. Each of the executive officers
named in the table is fully vested in the Plan.
5
<PAGE> 8
OPTION GRANTS IN 1998
The following table sets forth information concerning options granted
during the year ended December 31, 1998, to each of the Company's executive
officers named in the Summary Compensation Table above.
OPTIONS GRANTED DURING YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION
NUMBER OF SHARES OPTIONS GRANTED FOR OPTION TERM
UNDERLYING OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL YEAR 1998 PRICE ($/SH) DATE 5%($) 10%($)
- ---- ------------------ ---------------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cloyce A. Talbott..... 100,000 19.9% $9.875 2/26/2008 $49,375 $ 98,750
A. Glenn Patterson.... 25,000 5.0% 9.875 2/26/2008 12,344 24,688
James C. Brown........ 20,000 4.0% 9.875 2/26/2008 9,875 19,750
------- ---- ------- --------
Totals...... 145,000 28.9% $71,594 $143,188
======= ==== ======= ========
</TABLE>
- ---------------
(1) Options were granted under the Patterson Energy, Inc. 1993 Stock Incentive
Plan, as amended.
AGGREGATED OPTION EXERCISES AND OPTION VALUES AT DECEMBER 31, 1998
The following table sets forth information concerning option exercises
during 1998 and the fiscal 1998 year end value of unexercised options held by
each of the executive officers named in the Summary Compensation Table above.
AGGREGATED OPTION EXERCISES
FOR THE YEAR ENDED DECEMBER 31, 1998
AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#)(2) AT YEAR END($)(3)
SHARES ACQUIRED VALUE REALIZED --------------------------- ---------------------------
NAME ON EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cloyce A. Talbott........ -- $ -- 20,000 80,000 $ -- $ --
A. Glenn Patterson....... 108,320 1,237,960 78,440 208,240 12,607 134,149
James C. Brown........... 12,000 129,006 32,000 66,000 7,504 34,510
</TABLE>
- ---------------
(1) Calculated by subtracting actual option price from market price at
respective dates of exercise and multiplying the difference by the number of
shares in each category.
(2) The total number of unexercised options held as of December 31, 1998,
separated between those options that were exercisable and those options that
were not exercisable.
(3) Calculated by subtracting actual option exercise price from market price at
December 31, 1998 ($4.063 per share) and multiplying the difference by the
number of shares in each category.
DIRECTOR COMPENSATION
Each non-employee director of the Company receives a $1,000 per month fee
as partial compensation for services as board members. In addition, pursuant to
the Company's Non-Employee Directors' Stock Option Plan, each non-employee
director is automatically granted options to purchase 20,000 shares at the time
he becomes a director and, thereafter, options to purchase an additional 4,000
shares for each subsequent year that he serves up to a maximum of 40,000 shares
per director. The exercise price for each such option is the fair market value
of the Common Stock on the date of grant.
6
<PAGE> 9
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
None of the executive officers named in the Summary Compensation Table
above has an employment or severance agreement or any plan or arrangement
providing compensation in the event of a change in control of the Company.
CERTAIN TRANSACTIONS
The Company leases a 1981 Beech King-Air 90 airplane owned by Talbott
Aviation, Inc., a company wholly-owned by Cloyce A. Talbott, Chief Executive
Officer of the Company, under the terms of a lease dated February 15, 1995,
effective January 1, 1995 (the "Lease"). Under the terms of the Lease, the
Company pays a monthly rental of $9,200 and its proportionate share of the costs
of fuel, insurance, taxes and maintenance of the aircraft. The Company also pays
the salary of the pilot, who is a full-time data processing employee of the
Company. The Lease was scheduled to terminate on December 31, 1998, but has been
extended to December 31, 1999. Mr. Talbott and Mr. A. Glenn Patterson, the
President of the Company, and other Company officers are entitled to use the
aircraft for personal use, for which they pay the Company $500 per flight hour.
The Company has a right of first refusal to purchase the aircraft. The total
cost to the Company for the aircraft (exclusive of the pilot's salary) under the
Lease was $211,495 in 1998. The Company's management believes that the lease of
the aircraft is necessary for the efficient operation of its business as the
Company's headquarters are located approximately 100 miles from the nearest
major airport. The disinterested members of the Board of Directors believe that
the Lease is on the same or better terms than the Company could have obtained
from a nonaffiliated party.
Robert C. Gist, a director of the Company, was paid a monthly retainer of
$1,000 during 1998 for legal and consulting services provided to the Company.
The Company intends to continue to obtain such services from Mr. Gist. In
addition, the Company paid premiums in 1998 for Mr. Gist's family health
insurance coverage.
The Company sells a substantial amount of the oil produced from
Company-operated wells to BHT Marketing, Inc. ("BHT"), a Texas corporation in
which a son of Mr. Talbott is a stockholder, director and officer, under terms
of crude oil purchase contracts entered into on October 19, 1994 and October 24,
1995 (the "Purchase Contracts"). The purchase price for the oil is the posted
monthly average price plus a bonus per Bbl of oil less basin sediment and water
deductions. The bonus is determined by competitive bid and is currently $0.75 to
$1.20 per Bbl of sweet oil and $0.90 per Bbl of sour oil. The Purchase Contracts
can be terminated by either party upon at least 30 days prior written notice.
Crude oil sales to BHT in 1998 were approximately $8.1 million. Simultaneously
with the execution of the Purchase Contracts, the Company and BHT have entered
into participation agreements (the "Participation Agreements") pursuant to which
the Company and BHT have agreed to share equally in the net proceeds received by
BHT from the sale of all oil purchased by BHT under the Purchase Contracts. The
term "net sales proceeds" generally means the gross proceeds received by BHT for
the oil less all payments paid to the Company under the Purchase Contracts,
pipeline tariffs and all other costs and expenses actually incurred by BHT
associated with the transportation and sale of such oil. The proceeds received
by the Company under these Participation Agreements were approximately $86,569
in 1998.
Certain of the Company's directors, executive officers and key employees
and their family members (collectively referred to herein as "Affiliated
Persons") have participated, either individually or through entities they
control, in oil and gas prospects or properties in which the Company has an
interest. These participations, which have been on a working interest basis,
have been in prospects or properties originated or acquired by the Company. In
substantially every property in which any of the Affiliated Persons has been a
working interest participant, the Company also has sold working interests to
nonaffiliated persons on the same basis. At December 31, 1998, Affiliated
Persons were working interest owners in 95 of the 130 wells then being operated
by the Company. Of the 95 wells, the Company also sold working interests in 90
wells to nonaffiliated persons. In some cases, the interests sold to affiliated
and nonaffiliated participants were sold on a promoted basis requiring these
participants to pay a portion of the Company's costs. The Company believes that
each of the participations by Affiliated Persons has been on terms no less
favorable to the Company than it could have
7
<PAGE> 10
obtained from nonaffiliated participants. It is expected that joint
participations with the Company will occur from time to time in the future.
Conflicts of interest may arise between such directors and officers and the
Company as to the advisability of conducting drilling and recompletion
activities on those properties. As is the case of sales of working interests by
the Company in its properties to nonaffiliated persons, sales of working
interests to Affiliated Persons are made to reduce the Company's economic risk
in the properties.
The following table sets forth production revenues received and joint
production costs paid by each of the Affiliated Persons during 1998 for all
wells operated by the Company in which they have working interests. These
numbers do not necessarily represent their profits or losses from these
interests because the joint production costs do not include the parties' related
drilling and leasehold acquisition costs incurred prior to January 1, 1998.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-------------------------
PRODUCTION JOINT
REVENUES INTEREST
NAME RECEIVED(1) BILLINGS(2)
- ---- ----------- -----------
<S> <C> <C>
Cloyce A. Talbott........................................... $ 178,095 $ 583,867
Anita Talbott(3)............................................ 105,078 108,061
Steve Talbott(3)............................................ 32,120 10,949
Stan Talbott(3)............................................. 58,085 21,324
Lisa Beck and Stacy Talbott(3).............................. 276,516 298,460
SSI Oil & Gas, Inc.(4)...................................... 455,242 363,528
IDC Enterprises, Ltd.(5).................................... 2,189,865 858,255
SSSL, Ltd.(6)............................................... -- 574,273
T & H Exploration(7)........................................ -- 129,737
H.A. Talbott and Audrey Talbott Children's Trust(8)......... -- (3,572)
---------- ----------
Subtotal.......................................... 3,295,001 2,944,882
---------- ----------
A. Glenn Patterson.......................................... 118,305 1,137,961
---------- ----------
Kenneth E. Davis............................................ 379,322 304,759
Sandra Davis(9)............................................. 97,096 66,821
---------- ----------
Subtotal.......................................... 476,418 371,580
---------- ----------
James C. Brown.............................................. 400 225
---------- ----------
Total............................................. $3,890,124 $4,454,648
========== ==========
</TABLE>
- ---------------
(1) Revenues received for production of oil and natural gas, net of state
severance taxes.
(2) Includes leasehold costs, tangible equipment costs, intangible drilling
costs and lease operating expense billed during that period. All joint
interest billings have been paid on a timely basis.
(3) Anita Talbott is the wife of Cloyce A. Talbott. Steve and Stan Talbott, Lisa
Beck and Stacy Talbott are Mr. Talbott's adult children.
(4) SSI Oil & Gas, Inc. is beneficially owned 50% by Cloyce A. Talbott and
directly owned 50% by A. Glenn Patterson.
(5) IDC Enterprises, Ltd. is 50% owned by Cloyce A. Talbott and 50% owned by A.
Glenn Peterson.
(6) SSSL, Ltd. is a limited partnership whereby Cloyce A. Talbott is the general
partner.
(7) T & H Exploration is a company owned in part by Steve Talbott, who is a
stockholder, director and officer.
(8) H.A. Talbott and Audrey Talbott Children's Trust is a trust of which Cloyce
A. Talbott is a beneficiary and co-trustee.
(9) Sandra Davis is the wife of Kenneth E. Davis.
8
<PAGE> 11
Any future transactions between the Company and its officers, directors,
key employees, 5% stockholders and their family members and affiliates will
continue to be subject to the approval of a majority of disinterested members of
the Board of Directors and will continue to be on terms no less favorable to the
Company than those that could be negotiated with nonaffiliated parties. During
February 1994, the Board of Directors adopted a blanket policy approving in
advance all Joint Participations with Affiliated Persons in oil and gas
prospects and properties after that date, provided that the participations of
such Affiliated Persons are on the same basis as participations with
nonaffiliated persons. In those instances when there are no nonaffiliated
third-party participants, prior approval of the Board of Directors is required
on a participation-by-participation basis.
PERFORMANCE GRAPH
The following graph shows the changes over the past approximate five-year
and two-month period beginning November 2, 1993 (date on which trading of the
Common Stock commenced on a "when issued basis"), and ending December 31, 1998,
in the value of $100 invested in: (1) Patterson Energy, Inc. Common Stock; (2)
an MG Group Index consisting of 57 companies engaged in oil and gas field
services (all within SIC Code 1381); (3) the NASDAQ Market Index; and (4) a Peer
Group Index consisting of five companies who are principally engaged in
providing contract drilling services to the oil and natural gas industry. The
year-end values of each investment are based on share price appreciation and
assume that $100 was invested on November 2, 1993, and that all dividends are
reinvested. Calculations exclude trading commissions and taxes. The comparison
in the graph is required by the SEC and, therefore, is not intended to forecast
or be indicative of possible future performance of the Company's Common Stock.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG PATTERSON ENERGY, INC., NASDAQ MARKET
INDEX, MG GROUP INDEX AND PEER GROUP INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD PATTERSON MG GROUP NASDAQ PEER GROUP
(FISCAL YEAR COVERED) ENERGY, INC. INDEX MARKET INDEX INDEX
<S> <C> <C> <C> <C>
1993 100 100 100 100
1994 100 94.59 104.99 83.74
1995 205.45 127.33 136.18 138.80
1996 374.53 189.09 169.23 245.91
1997 1125.42 286.60 207.00 409.47
1998 236.36 147.37 291.96 159.88
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
NOVEMBER 2, -------------------------------------------------
1993 1994 1995 1996 1997 1998
----------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Patterson Energy,
Inc................... $100.00 $100.00 $205.45 $374.53 $1,125.42 $236.36
MG Group Index.......... 100.00 94.59 127.33 189.09 286.60 147.37
NASDAQ Market Index..... 100.00 104.99 136.18 169.23 207.00 291.96
Peer Group Index........ 100.00 83.74 138.80 245.91 409.47 159.88
</TABLE>
ASSUMES $100 INVESTED ON DECEMBER 31, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 1998
9
<PAGE> 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Kenneth E. Davis, Robert C. Gist and Vincent A. Rossi, Jr. served as
members of the Compensation Committee during 1998. Mr. Davis has not served as
an officer of the Company since June 1993, when he resigned as Treasurer. Mr.
Gist has never served as an officer, but has been paid a monthly retainer of
$1,000 since 1993 for legal and consulting services. The Company also pays
premiums for Mr. Gist's family health insurance coverage. Mr. Rossi has not
served as an officer of the Company.
COMPENSATION COMMITTEE REPORT
Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain information regarding the compensation of
its Chief Executive Officer and other executive officers whose salary and bonus
exceed $100,000 per year. Disclosure requirements include a report explaining
the rationale and considerations that lead to fundamental executive compensation
decisions. The following report has been prepared to fulfill this requirement.
The Compensation Committee (the "Committee") of the Board of Directors sets
and administers the policies that govern the annual compensation and long-term
compensation of executive officers of the Company. The Committee consists of
Messrs. Davis, Gist and Rossi, none of whom are employees of the Company. The
Committee makes all decisions concerning compensation of executive officers who
receive salary and bonus in excess of $100,000 annually, determine the total
amount of bonuses to be paid annually and grant all awards of stock options
under the Company's Stock Incentive Plan. The Compensation Committee has
retained PricewaterhouseCoopers LLP to provide executive compensation consulting
services to assist the Committee in performing its various duties.
PricewaterhouseCoopers LLP prepared a report dated April 29, 1999 comparing the
Company's cash compensation practices for the executive officers to the
executive-level cash compensation practices of similarly-sized companies in the
Company's segment of the oil and natural gas industry and in general industry.
The Committee's policy is to offer executive officers competitive
compensation packages that will permit the Company to attract and retain highly
qualified individuals and to motivate and reward such individuals on the basis
of the Company's performance. At present, the Company's executive compensation
package consists of base salary, cash bonus awards and long-term incentive
opportunities in the form of stock options and a 401(k) plan. Executive salaries
are reviewed by the Committee on an annual basis and are set for individual
executive officers based on subjective evaluations of each individual's
performance, the Company's performance and a comparison to salary ranges for
executives of other companies in the oil and natural gas industry with
characteristics similar to those of the Company. This allows the Committee to
set salaries in a manner that is both competitive and reasonable within the
Company's industry.
Cash bonuses may be awarded on an annual basis for exceptional effort and
performance. The use of a specific formula to evaluate management performance is
not employed because it is difficult to define an appropriate formula and it
restricts the flexibility of the Committee. The Committee considers the
achievements of the Company, specifically including earnings for the year and
return on stockholders' equity in determining appropriate levels for bonus
awards. Currently, the base annual salary of each of the executive officers
named in the Summary Compensation Table above is within the salary parameters
set forth in the analysis prepared by PricewaterhouseCoopers LLP.
Stock options may be granted to key employees under the Patterson Energy,
Inc. 1993 Stock Incentive Plan, including executive officers of the Company.
Such stock-based awards continue to be an important element of the executive
compensation package because they aid in the objective of aligning the key
employees' interests with those of the stockholders by giving key employees a
direct stake in the performance of the Company. Decisions concerning the
granting of stock options are made on the same basis as decisions concerning
base salary and cash bonus awards as discussed above. A total of 145,000 options
were granted in 1998 to the executive officers of the Company, including 100,000
options to Cloyce A. Talbott, the Chief Executive Officer of the Company.
10
<PAGE> 13
The compensation of the Chief Executive Officer of the Company is
determined in the same manner as the compensation for other executive officers
as described above. As a result, the compensation of the Chief Executive Officer
is largely dependent upon the overall performance of the Company as well as a
comparison to compensation being paid by other comparable peer companies to
their chief executive officers. During the year ended December 31, 1998, the
base annual salary of Mr. Talbott, was $290,900.
Compensation Committee of the Board of Directors
Kenneth E. Davis
Robert C. Gist
Vincent A. Rossi, Jr.
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires the Company's officers and directors, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the SEC. Each of these
persons is required by SEC regulation to furnish the Company with copies of
Section 16(a) filings. Based solely on its review of copies of such forms
received by it and written representations from certain reporting persons that
no Form 5's were required for those persons, the Company believes that, during
the fiscal year ended December 31, 1998, its officers, directors, and greater
than 10% beneficial owners other than Vincent A. Rossi, Jr., complied with all
applicable filing requirements. During fiscal 1998, two entities in which
Vincent A. Rossi, Jr. owns a direct interest (See Note 7 to the table in the
section, "Beneficial Ownership of the Company's Common Stock," above.) variously
purchased a total of 479,900 shares of the Company's Common Stock in eleven
separate transactions occurring during the period March 3, 1998 to March 23,
1998. No Form 4's were filed by Mr. Rossi during 1998 with respect to those
transactions nor has a Form 5 been filed with respect thereto in 1999.
RATIFICATION OF AUDITORS
(PROPOSAL 2 ON PROXY CARD)
The Board of Directors voted to engage PricewaterhouseCoopers LLP as
independent accountants to audit the financial statements of the Company for the
fiscal year ending December 31, 1999, and directed that such engagement be
submitted to the stockholders of the Company for ratification. In recommending
ratification by the stockholders of such engagement, the Board of Directors is
acting upon the recommendation of the Audit Committee, which has satisfied
itself as to the firm's professional competence and standing. Although
ratification by stockholders of the engagement of PricewaterhouseCoopers LLP is
not required by Delaware corporate law or the Company's Restated Certificate of
Incorporation or Bylaws, management feels a decision of this nature should be
made with the consideration of the Company's stockholders. If stockholder
approval is not received, management will reconsider the engagement.
It is expected that one or more representatives of PricewaterhouseCoopers
LLP will be present at the Meeting and will be given the opportunity to make a
statement if they so desire. It also is expected that the representatives will
be available to respond to appropriate questions from the stockholders.
Ratification of the selection of PricewaterhouseCoopers LLP requires the
affirmative vote of the holders of a majority of the Common Stock present, or
represented, and entitled to vote at the Meeting assuming the presence of a
quorum.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
AUDITORS. PROXIES RECEIVED WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
OTHERWISE IN THE PROXY.
11
<PAGE> 14
COST AND METHOD OF PROXY SOLICITATION
The accompanying Proxy is being solicited on behalf of the Board of
Directors of the Company. All expenses for soliciting Proxies, including the
expense of preparing, printing and mailing the form of Proxy and the material
used in the solicitation thereof, will be borne by the Company. In addition to
the use of the mail, Proxies may be solicited by personal interview, telephone
and telegram by directors and regular officers and employees of the Company.
Such persons will receive no additional compensation for such services.
Arrangements may also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of stock held of record by such persons, and the Company may
reimburse them for reasonable out-of-pocket expenses incurred by them in
connection therewith.
ANNUAL REPORTS AND CONSOLIDATED FINANCIAL STATEMENTS
You are referred to the Company's annual report, including consolidated
financial statements, for the year ended December 31, 1998, enclosed herewith
for your information. The annual report is not incorporated in this Proxy
Statement and is not to be considered part of the soliciting material.
DEADLINE FOR RECEIPT OF STOCKHOLDER
PROPOSALS FOR 2000 ANNUAL MEETING
Any proposals that stockholders of the Company desire to have presented at
the 2000 Annual Meeting of Stockholders must be received by the Company at its
principal executive offices no later than December 31, 1999.
Snyder, Texas
May 20, 1999
12
<PAGE> 15
PATTERSON ENERGY, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held on July 1, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Patterson Energy, Inc. (the "Company")
hereby constitutes and appoints Cloyce A. Talbott and A. Glenn Patterson, or
either of them, each with the power of substitution as attorneys and proxies to
vote all of the shares which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Embassy Suites Hotel,
3880 West Northwest Highway, Dallas, Texas, on July 1, 1999, at 10:00 A.M.,
local time, and at any and all adjournments thereof, with the same force and
effect as if the undersigned were personally present, and the undersigned
hereby instructs the above-named Attorneys and Proxies to vote as follows:
1. ELECTION OF DIRECTORS. The following five persons have been nominated to
serve on the Company's Board of Directors: Cloyce A. Talbott; A. Glenn
Patterson; Robert C. Gist; Vincent A. Rossi, Jr. and Spencer D. Armour,
III.
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to vote
for all nominees listed
above
(INSTRUCTION: To withhold authority to vote for any one or more individual
nominees, write the name of each such nominee in the space provided below.)
2. Proposal to ratify the selection of PricewaterhouseCoopers LLP, independent
accountants, as the independent auditors of the Company for the fiscal year
ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournment or
adjournments thereof.
(OVER)
<PAGE> 16
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSAL 1 AND FOR PROPOSAL 2.
Dated: , 1999
-------------------------
-------------------------------------
(Signature)
-------------------------------------
(Signature)
NOTE: Please sign exactly as name or
names appear on this card. Joint owners
should each sign personally. When
signing as attorney, executor,
administrator, personal representative,
trustee or guardian, please give your
full title as such. For a corporation or
a partnership, please sign in the full
corporate name by the President or other
authorized officer or the full
partnership name by an authorized
person, as the case may be. (Please
mark, sign, date, and return this proxy
in the enclosed envelope.)
