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As filed with Securities and Exchange Commission on April 4, 2000
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 its charter)
Delaware 75-2504748
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 17th Avenue, Suite 1100
Denver, Colorado 80203-1264
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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 the 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, 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. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>=
==================================================================================================================
Proposed
Title of each class of Proposed maximum maximum
Securities to be Amount to be offering price per aggregate offering Amount of
registered registered(1) share(2) price(2) registration fee
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<S> <C> <C> <C> <C>
Common Stock,
par value $.01 per
share 103,000 Shares $31.75 $3,270,250 $864
==================================================================================================================
</TABLE>
(1) Pursuant to Rule 416, this registration statement also covers such
indeterminate number of shares of the Registrant's Common Stock as may be issued
as a result of stock dividends, stock splits or similar transactions prior to
the termination of this registration statement.
(2) Estimated solely for the purpose 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 sales prices of the
Registrant's Common Stock on March 31, 2000 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
103,000 SHARES
PATTERSON ENERGY, INC.
COMMON STOCK
This prospectus relates to 103,000 shares of Patterson that may be
offered for sale or otherwise transferred from time to time by three of our
stockholders. See "Selling Stockholders." Of the total 103,000 shares, 53,000
shares are currently outstanding and the remaining 50,000 shares are issuable
upon the exercise of a stock option previously granted by Patterson. We have
agreed to pay all fees and expenses incident to this offering.
The common stock is traded on the Nasdaq National Market under the
symbol "PTEN." On March 31, 2000 the closing sales prices of our common stock
was $31.75 per share.
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Prospective purchasers of the common stock should consider carefully
the matters set forth under "Risk Factors" beginning on page 5.
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The Securities and Exchange Commission and State Securities regulators
have not approved or disapproved these shares, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
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The selling stockholders may offer these shares 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, 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."
April ___, 2000
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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.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Forward Looking Statements....................................2
Incorporation of Certain Documents by Reference...............3
Patterson.....................................................4
Risk Factors..................................................5
Use of Proceeds..............................................10
Dividend Policy..............................................10
Selling Stockholders.........................................10
Description of Capital Stock.................................10
Plan of Distribution.........................................13
Legal Matters................................................13
Experts......................................................13
Where You Can Find More Information..........................14
</TABLE>
FORWARD LOOKING STATEMENTS
Some statements contained in this prospectus, any accompanying
prospectus supplement, and the documents incorporated by reference are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements include, without limitation, statements relating to the drilling and
completion of wells, well operations, utilization rates of drilling rigs, oil
and natural gas prices, reserve estimates (including related future net revenue
and present value estimates), business strategies and other plans and objectives
of our management for future operations and activities and other such matters.
The words "believes," "budgeted," "plan," "plans," "estimates," "expects,"
"intends," "strategy," "project," "will," "could," "may" and similar expressions
identify forward-looking statements. Actual results could differ materially from
those expressed in the forward-looking statements. Factors that could cause such
a difference include:
- Swings in oil and natural gas prices;
- Swings in demand for contract drilling services;
- Shortages of drill pipe and other drilling equipment;
- Shortages of qualified drilling personnel;
- Effects of competition from other drilling contractors;
- Occurrence of operating hazards and uninsured losses; and
- Governmental regulation, among others described under "Risk Factors"
below.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately by us with the SEC. The
information incorporated by reference is considered to be part of this
prospectus, except for any information that is superseded by information that is
included directly in this document.
This prospectus includes by reference the documents listed below that
we have previously filed with the SEC and that are not included in or delivered
with this document. They contain important information about our company and its
financial condition.
(1) Patterson's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, filed with the SEC on March 30, 1999;
(2) The description of Patterson's common stock contained in the
Registration Statement on Form 8-A filed with the SEC on November 2, 1993.
We incorporate by reference additional documents that we may file with
the SEC under Section 13(a), 15(c), 14 or 14(d) of the Securities Exchange Act
of 1934 between the date of this prospectus and the termination of this
offering. These documents include periodic reports, such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document from us without charge, excluding any exhibits to those documents
unless the exhibit is specifically incorporated by reference as an exhibit to
this prospectus. You can obtain documents incorporated by reference in this
prospectus by requesting them in writing or by telephone from us at the
following address:
Jonathan D. (Jody) Nelson
Chief Financial Officer
Patterson Energy, Inc.
4510 Lamesa Highway
P.O. Box 1416
Snyder, Texas 79550
(915) 573-1104
We have not authorized anyone to give any information or make any
representation about us that is different from, or in addition to, that
contained in this prospectus or in any of the materials that we have
incorporated by reference into this document. Therefore, if anyone does give you
information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to sell, or solicitations of offers to purchase, the
Securities offered by this document is unlawful, or if you are a person to whom
it is unlawful to direct these types of activities, then the offer presented in
this document does not extend to you. The information contained in this document
speaks only as of the date of this document, unless the information specifically
indicates that another date applies.
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PATTERSON
Patterson is one of the leading providers of domestic land drilling
services to major and independent oil and natural gas companies. Formed in 1978
and reincorporated in 1993 as a Delaware corporation, Patterson conducts
operations in Texas, New Mexico, Oklahoma, Louisiana and Utah. We currently have
a drilling fleet of 123 rigs, 118 of which are currently operable and have
transactions pending to purchase an additional eight drilling rigs. We are also
engaged in the development, exploration, acquisition and production of oil and
natural gas and provide contract drilling fluid services to other oil and
natural gas operators.
The Company has established a reputation for reliable, high quality
drilling equipment and well-trained crews. We continually seek to modify and
upgrade our equipment to maximize the performance and capabilities of our
drilling rig fleet, which we believe provides us with a competitive advantage.
Additionally, we have the in-house capability to design, manufacture, repair and
modify our drilling rigs. Of our drilling rigs, 67 are capable of drilling to
depths of 12,000 feet and greater, including 25 that are capable of drilling to
15,000 feet and greater. During 1999, we drilled 842 wells for 189
non-affiliated customers maintaining an average utilization rate of 45%.
Our oil and natural gas activities are designed to complement our land
drilling operations and diversify our overall business strategy. These
activities are primarily focused in mature producing regions in the Austin Chalk
Trend, the Permian Basin and South Texas. Oil and natural gas operations
comprised approximately 6% of our consolidated operating revenues for 1999. At
December 31, 1999, our proved developed reserves were approximately 1.9 million
BOE and had a present value (discounted at 10% before income taxes) of estimated
future net revenues of approximately $17.2 million.
Our drilling fluid services are provided to operators of oil and gas
wells located in our areas of operation. Operating revenues derived from these
activities constituted approximately 8% of Patterson's consolidated operating
revenues for 1999. We believe that these services integrate well with our other
core operating activities. The drilling fluid operations were added during 1998
with our acquisition of Lone Star Mud, Inc., during January and Tejas Drilling
Fluids, Inc. in September.
Our headquarters are located at 4510 Lamesa Highway, Snyder, Texas, and
our telephone number at that address is (915) 573-1104. We also have small
offices in Austin, Houston, Midland, San Angelo, LaGrange, Kilgore and Corpus
Christi, Texas and Oklahoma City, Oklahoma and Hobbs, New Mexico and Vernal,
Utah, and 12 yard facilities variously located in our areas of operations.
You can obtain additional information about us in the reports and other
documents incorporated by reference in this prospectus. See "Incorporation of
Certain Documents by Reference" and "Where You Can Find More Information."
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RISK FACTORS
Ownership of shares of Patterson common stock involves certain risks.
In determining whether to purchase shares, you should carefully consider the
following risk factors and other information contained in or incorporated by
reference in this prospectus or in any applicable prospectus supplement.
RISKS RELATED TO PATTERSON'S BUSINESS GENERALLY
PATTERSON IS DEPENDENT ON THE OIL AND NATURAL GAS INDUSTRY AND MARKET PRICES FOR
OIL AND NATURAL GAS. DECLINES IN OIL AND NATURAL GAS PRICES HAVE ADVERSELY
AFFECTED PATTERSON'S OPERATIONS.
Patterson's revenue, profitability and rate of growth are substantially
dependent upon prevailing prices for oil and natural gas. 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 international military, political
and economic conditions and the ability of the Organization of Petroleum
Exporting Countries to set and maintain production and prices. All of these
factors are beyond our control. Low level commodity prices beginning in the
fourth quarter of 1997 and continuing into mid-1999 have materially adversely
affected our operations. We expect oil and natural gas prices to continue to be
volatile and to effect our financial condition and operations and ability to
access sources of capital.
INDUSTRY CONDITIONS FOR CONTRACT DRILLING SERVICES HAVE BEEN POOR FOR MUCH OF
THE TIME SINCE MID-1982.
The contract drilling business experienced increased demand for
drilling services from 1995 through the third quarter of 1997 due to stronger
oil and natural gas prices. However, except for that period and other occasional
upturns, the market for onshore contract drilling services has generally been
depressed since mid-1982. 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 Patterson, ongoing movement of drilling rigs from region to region or
reactivation of onshore drilling rigs or new construction of drilling rigs could
adversely effect utilization rates and pricing, even in an environment of
stronger oil and natural gas prices and increased drilling activity. We cannot
predict either the future level of demand for our contract drilling services or
future conditions in the contract drilling business. Notwithstanding the
significant improvement in oil and natural gas prices since mid-1999, the demand
for contract drilling services, although improving, remains relatively weak.
There can be no assurance that the demand for contract drilling services will
increase proportionally with the current higher prices or of the duration of the
higher commodity prices.
SHORTAGES OF DRILL PIPE AND OTHER DRILLING EQUIPMENT COULD ADVERSELY AFFECT
PATTERSON'S DRILLING OPERATIONS.
The increase in domestic drilling demand from mid-1995 through the
third quarter of 1997 and related increase in contract drilling activity
resulted in a shortage of drill pipe in the industry. This shortage caused the
price of drill pipe to increase significantly and required that orders for new
drill pipe be placed at least one year in advance. The price increase and delay
in delivery of drill pipe caused Patterson to substantially increase capital
expenditures in its contract drilling segment. Notwithstanding the recent
increase in demand for contract drilling services, the Company has not
experienced a drill pipe
5
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shortage, due in part to a long term drill pipe supply contract at a fixed
price. This contract expires in November 2000. Severe problems associated with
drill pipe shortages could reoccur upon the expiration of the supply contract
and/or additional increases in demand for drilling services. Additionally,
further increases in demand for drilling services could cause shortages in other
drilling rig parts. Severe shortages could impair Patterson's ability to obtain
the equipment required for its contract drilling operations.
THE CONTRACT DRILLING INDUSTRY IN WHICH PATTERSON OPERATES IS HIGHLY
COMPETITIVE.
The inability to compete effectively in the contract drilling industry
would adversely impact Patterson's operations. Price is generally the most
important competitive factor. Other competitive factors include the availability
of drilling equipment and experienced personnel at or near the time and place
required by customers, the reputation of the drilling contractor and its
relationship with existing customers. We believe that we compete favorably with
respect to all of these factors. Competition is usually on a regional basis,
although drilling rigs are mobile and can be moved from one region to another in
response to increased demand. An oversupply of drilling rigs in any region may
result. Demand for land drilling equipment is also dependent on the exploration
and development budgets of oil and natural gas companies, which are in turn
influenced primarily by the financial condition of such companies, by general
economic conditions, by prices of oil and natural gas, and from time to time
political considerations and policies. It is not practical to estimate the
number of contract drilling competitors of Patterson, some of which have
substantially greater resources than Patterson. Also, in recent years, many
drilling companies have consolidated or merged with other companies. Although
this consolidation has decreased the total number of competitors, Patterson
believes the competition for drilling services will continue to be intense.
There is also substantial competition for the acquisition of oil and
natural gas leases suitable for exploration and for the hiring of experienced
personnel. Patterson's competitors in the exploration, development and
production segment of its operations include major integrated oil and natural
gas companies, numerous independent oil and natural gas companies, drilling and
production purchase programs and individual producers and operators. Patterson's
ability to increase its holdings of oil and natural gas reserves in the future
is directly dependent upon its ability to select, acquire and develop suitable
prospects in competition with those companies. Many competitors have financial
resources, staff, facilities and other resources significantly greater than
those of Patterson.
LABOR SHORTAGES ARE ADVERSELY AFFECTING PATTERSON'S DRILLING OPERATIONS.
The increase in domestic drilling demand from mid-1995 through the
third quarter of 1997 and related increase in contract drilling activity caused
a shortage of qualified drilling rig personnel in the industry. This increase
adversely impaired our ability to attract and retain sufficient qualified
personnel and to market and operate our drilling rigs. Further, the labor
shortages resulted in wage increases, which impacted our operating margins. The
return to higher demand levels in the contract drilling industry has reinstated
the problems associated with labor shortages. Of particular concern to us is
that these problems are more severe than those previously experienced by
Patterson and were reinstated at a much lower rig utilization rate than
experienced in the past. These labor shortages are adversely effecting
Patterson's operations. They are impeding Patterson's ability to place
additional drilling rigs into operation and are causing delays in the drilling
of new wells for Patterson customers.
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PATTERSON HAS SIGNIFICANT BORROWINGS; FAILURE TO REPAY COULD RESULT IN
FORECLOSURE ON DRILLING RIGS.
Patterson has a $60 million credit facility with an outstanding
principal balance of $59.4 million at March 31, 2000. All of Patterson's
drilling assets are pledged as collateral on the facility. The loan is payable
in monthly payments of interest only until February 2001, at which time the loan
will convert to a term loan with a 60-month principal and interest amortization.
A decline in general economic conditions in the oil and gas industry could
adversely affect Patterson's ability to repay the loan. Failure to repay could,
at the lender's election, result in acceleration of the maturity date of the
loan and foreclosure on the drilling assets. Additionally, the loan agreement
contains a number of covenants, including financial covenants, the failure of
which to satisfy could also cause acceleration of the maturity date and require
immediate repayment.
CONTINUED GROWTH THROUGH RIG ACQUISITIONS IS NOT ASSURED.
Patterson substantially increased its drilling rig fleet over the
four-year period ending in the first quarter of 1998 through strategic
acquisitions. Although the land drilling industry has experienced significant
consolidation over the past couple of years, Patterson believes that significant
acquisition opportunities are still available. However, there can be no
assurance that suitable acquisitions can be found. We are likely to continue to
face intense competition from other companies for available acquisition
opportunities.
There can be no assurance that Patterson will have sufficient capital
resources to complete acquisitions, that acquisitions can be completed on terms
acceptable to us or that any completed acquisition would improve Patterson's
financial condition, results of operation, business or prospects in any material
manner. In fact, Patterson may incur substantial indebtedness to finance future
acquisitions and also may issue equity securities or convertible securities in
connection with any such acquisitions. Additional debt service requirements
could represent a significant burden on our results of operations and financial
condition and the issuance of additional equity or convertible shares could be
dilutive to our existing stockholders. Also, continued growth could strain
Patterson's management, operations, employees and resources.
PATTERSON'S OPERATIONS ARE SUBJECT TO OPERATING HAZARDS AND UNINSURED RISKS.
Contract drilling and oil and natural gas activities are subject to a
number of risks and hazards. These could cause serious injury or death to
persons, suspension of drilling operations, serious damage to equipment or
property of others, and damage to producing formations in surrounding areas. Our
operations could also cause environment damage, particularly through oil spills,
gas leaks, discharges of toxic gases or extensive uncontrolled fires. In
addition, we could become subject to liability for reservoir damages. The
occurrence of a significant event, including pollution or environmental damage,
could materially affect our operations and financial condition.
We believe we are adequately insured or indemnified against normal and
foreseeable risks in our operations in accordance with industry standards.
However, such insurance or indemnification may not be adequate to protect
Patterson against liability from all consequences of well disasters, extensive
fire damage or damage to the environment. There is no assurance that Patterson
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. In
addition to insurance, Patterson generally seeks to obtain indemnity agreements
whenever possible from its customers requiring them to hold Patterson harmless
if production or reservoir damage occurs. However, even when we are successful
in obtaining contractual indemnification, the customer may not maintain adequate
insurance to support such indemnification.
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VIOLATIONS OF ENVIRONMENTAL LAWS AND REGULATIONS COULD MATERIALLY ADVERSELY
AFFECT PATTERSON'S OPERATIONS.
Patterson'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 clean-up 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 to the fault on the part of such person. Such laws and regulations may expose
us to liability for the conduct of, or conditions caused by, others, or for our
acts that were in compliance with all applicable laws at the time such acts were
performed.
Although we generally have been able to obtain some degree of
contractual indemnification from our customers in most of our day rate drilling
contracts against pollution and environmental damages, there is no assurance
that Patterson will be able to enforce the indemnification in all instances,
that the customer will be financially able in all cases to comply with its
indemnity obligations, or that Patterson will be able to obtain such
indemnification agreements in the future. No such indemnification is typically
available for turnkey contracts. While we also maintain insurance coverage
against certain environmental liabilities, including pollution caused by sudden
and accidental oil spills, we cannot assure that we will continue to be able to
secure or carry this insurance or, if Patterson were able to do so, that the
coverage would be adequate to cover the liabilities.
SOME OF PATTERSON'S CONTRACT DRILLING SERVICES ARE DONE UNDER TURNKEY CONTRACTS,
WHICH ARE FINANCIALLY RISKY.
A portion of Patterson's contract drilling is done under turnkey
contracts, which involve substantial risks. Under turnkey drilling contracts,
Patterson contracts to drill a well to a contract depth under specified
conditions for a fixed price. The risks to us under these types of drilling
contracts are substantially greater than on a well drilled on a daywork basis
since we assume most of the risks associated with the drilling operations
generally assumed by the operator of the well in a daywork 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, Patterson could suffer substantial losses associated with
that contract. Generally, the weaker the demand for our drilling services, the
higher the percentage of our turnkey contracts. For each of the years in the
two-year period ended December 31, 1999, the percentage of our contract drilling
revenues attributable to turnkey contracts was 12.0%, and 20.0%, respectively.
ESTIMATES OF PATTERSON'S OIL AND NATURAL GAS RESERVES ARE UNCERTAIN.
Estimates of our 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 Patterson. These estimates are based on several
assumptions that the SEC 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, our 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.
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RISKS RELATED TO PATTERSON'S OPERATIONS
THE LOSS OF SERVICES OF KEY OFFICERS COULD HURT PATTERSON'S OPERATIONS.
Patterson is highly dependent on 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, Chief Executive Officer
and the President, respectively, could have a detrimental affect on Patterson.
Patterson has no employment agreements with any of its executive officers. We
maintain key man life insurance on the lives of Messrs. Talbott and Patterson in
the amount of $3 million each.
ANTI-TAKEOVER MEASURES IN PATTERSON'S CHARTER DOCUMENTS AND UNDER STATE LAW
COULD DISCOURAGE AN ACQUISITION OF PATTERSON AND THEREBY AFFECT THE RELATED
PURCHASE PRICE.
Patterson, as a Delaware corporation, is subject to the Delaware
General Corporation Law, including Section 203, an anti-takeover law enacted in
1988. Patterson has also enacted certain anti-takeover measures, including a
stockholders rights plan. In addition, our Board of Directors has the authority
to issue up to one million shares of preferred stock and to determine the price,
rights (including voting rights), conversion ratios, preferences and privileges
of that stock without further vote or action by the holders of the common stock.
As a result of these measures and others, potential acquirers of Patterson may
find it more difficult or be discouraged from attempting to effect an
acquisition transaction with us, thereby possibly depriving holders of Patterson
securities of certain opportunities to sell or otherwise dispose of such
securities at above-market prices pursuant to their transactions.
PATTERSON HAS PAID NO DIVIDENDS ON ITS COMMON STOCK AND HAS NO PLANS TO PAY
DIVIDENDS IN THE FORESEEABLE FUTURE.
Patterson has not declared or paid cash dividends on its common stock
in the past and does not expect to declare or pay any cash dividends on its
common stock in the foreseeable future. The terms of our existing credit
facility prohibit payment of dividends by Patterson without the prior written
consent of the noteholders
PARTICIPATION BY PATTERSON DIRECTORS AND OFFICERS IN OIL AND NATURAL GAS
PROSPECTS COULD CREATE CONFLICTS OF INTEREST.
Certain of Patterson'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 Patterson
has an interest. Conflicts of interest may arise between such persons and
Patterson as to the advisability of conducting drilling and recompletion
activities on these properties. Of the 155 wells operated by Patterson at
December 31, 1999, Patterson's directors, officers and/or their respective
affiliates were working interest owners in approximately 143 wells.
PATTERSON BOARD MAY ISSUE PREFERRED STOCK WITH RIGHTS AND PREFERENCES ADVERSE TO
COMMON STOCK.
Patterson has a class of authorized preferred stock. Patterson's 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 common stock. Patterson has not issued any shares of preferred
stock. However, as of December 31, 1999, an aggregate of 326,756 shares of
preferred stock had been reserved for issuance upon exercise of the Rights
described under "Description of Capital Stock - Stockholder Rights Plan," below.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of our common stock by
the selling stockholders.
DIVIDEND POLICY
Patterson has not paid cash dividends on our common stock in the past
and does not expect to pay any cash dividends on the common stock in the
foreseeable future. We instead intend to retain our earnings to support the
operations and growth of our businesses. Any future cash dividends would depend
on future earnings, capital requirements, Patterson's financial condition and
other factors deemed relevant by our Board of Directors. In addition, the terms
of an existing credit facility prohibit payment of dividends by Patterson
without the prior written consent of the noteholders.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
selling stockholders and the beneficial ownership of common stock by them before
and after the offering being made hereby. The information was provided to
Patterson by the selling stockholders for inclusion in this prospectus.
<TABLE>
<CAPTION>
Shares Being
Shares Owned Offered in Shares Owned
Name Before Offering the Offering After Offering(1)
---- --------------------- ------------ -------------------
Number Percent Number Percent
------ ------- ------ --------
<S> <C> <C> <C> <C> <C>
Kenneth Reynolds(2) ................... 47,324(2) * 47,324 -0- -0-
Gary Chappell(2) ...................... 5,676(2) * 5,676 -0- -0-
Peter Hoffman(3) ...................... 50,000(3) * 50,000 -0- -0-
------- -------
Totals.................. 103,000 103,000
======= =======
</TABLE>
- ------------------
* Less than 1%.
(1) Assumes all Shares offered hereby are sold.
(2) These shares were issued by Patterson in March 2000 as partial consideration
for the acquisition by us of the outstanding capital stock of WEK Drilling
Company, Inc., a contract drilling company, based in Roswell, New Mexico.
All of WEK's shares were owned by Messrs. Reynolds and Chappell. WEK owned
four fully-operable drilling rigs and related equipment at the time of the
acquisition.
(3) These shares underly an option granted by Patterson to Mr. Hoffman in June
1999 as partial consideration for public relations services being rendered
by him to Patterson. None of these shares will be sold in this offering
unless the option is first exercised and the related exercise price is paid
to Patterson.
DESCRIPTION OF CAPITAL STOCK
We are authorized by our Restated Certificate of Incorporation, as
amended, to issue 50 million shares of common stock and one million shares of
preferred stock. As of December 31, 1999, there were 32,675,678 shares of our
common stock issued and outstanding and no issued and outstanding shares of our
preferred stock.
10
<PAGE> 13
COMMON STOCK
A summary of the terms and provisions of our common stock is set forth
below.
Dividends. The holders of our common stock are entitled to receive
dividends when, as and if declared by our Board out of funds legally available
therefor However, if any shares of our preferred stock are at the time
outstanding, the payment of dividends on our common stock or other distributions
(including Patterson repurchases of our common stock) will be subject to the
declaration and payment of all cumulative dividends on our outstanding shares of
preferred stock.
Liquidation. In the event of the dissolution, liquidation or winding up
of Patterson, holders of common stock will be entitled to share ratably in any
assets remaining after the satisfaction in full of the prior rights of
creditors, including holders of Patterson's indebtedness, and the payment of the
aggregate liquidation preference of the preferred stock.
Voting. Our stockholders are entitled to one vote for each share on all
matters voted on by our stockholders, including election of directors. Shares of
common stock held by Patterson or any entity controlled by Patterson do not have
voting rights and are not counted in determining the presence of a quorum. Our
directors are elected annually. Holders of our common stock have no cumulative
voting rights.
No Other Rights. The holders of our common stock do not have any
conversion, redemption or preemptive rights.
Transfer Agent. The transfer agent for our common stock is Continental
Stock Transfer & Trust Company, New York, New York.
Listing. Shares of Patterson's outstanding common stock are traded on
the Nasdaq National Market.
PREFERRED STOCK
Our 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
Patterson's Restated Certificate of Incorporation, as amended, as our Board
determines. The rights, preferences, limitations and restrictions on 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.
Our Board may authorize the issuance of preferred stock ranking senior
to our common stock with respect to the payment of dividends and the
distribution of assets on liquidation. In addition, our Board 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 our preferred stock are
outstanding. Our Board, without stockholder approval, can issue preferred stock
with voting, conversion and other rights which
11
<PAGE> 14
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 Patterson. Patterson has not issued any shares
of preferred stock. However, as of December 31, 1999, an aggregate of 326,756
shares of preferred stock had been reserved for issuance upon exercise of the
Rights described under "-- Stockholder Rights Plan."
STOCKHOLDER RIGHTS PLAN
In January 1997, our Board adopted a stockholder rights plan under
which stockholders of record as of January 17, 1997, received a dividend in the
form of preferred share purchase rights (the "Rights"). The Rights permit the
holder to purchase one one-hundredth of a share (a unit) of Series A preferred
stock at an initial exercise price of $41.50 per share under certain
circumstances. The purchase price, the number of units of preferred stock and
the type of securities issuable upon exercise of the Rights are subject to
adjustment. The Rights expire on January 2, 2007 unless earlier redeemed or
exchanged. Until a Right is exercised, the holder thereof has no rights as a
stockholder of Patterson, including the right to vote or receive dividends. The
Rights become exercisable on the earlier to occur of (i) the acquisition by a
person or group of affiliated or associated persons of 15% or more of the
outstanding shares of common stock, or (ii) 10 days following the commencement
of or announcement of an intention to acquire 15% or more of the outstanding
shares of common stock through a tender offer or exchange offer.
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. Section 203 of the
DGCL, which applies to Patterson since the common stock is traded 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 combinations" 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,
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
Patterson's common stock.
Patterson's Restated Certificate of Incorporation, as amended, 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, as amended, provides that special meetings of stockholders may be
called only by our Board (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, as amended, 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
12
<PAGE> 15
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 Patterson 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 tenth day following the day on which such notice of the date of
the annual meeting was mailed. The Bylaws also specify certain requirements for
a stockholders 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 "Description of Capital Stock"
for information concerning Patterson's capital stock.
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 their 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 the
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 selling
stockholders' 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 the shares by the selling stockholders.
Patterson 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
Patterson by Baker & Hostetler LLP, Denver, Colorado. A member of that firms
owns 8,200 shares of Patterson's common stock.
EXPERTS
The consolidated financial statements incorporated in this Prospectus
by reference to the Annual Report on Form 10-K for the year ended December 31,
1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The estimated reserve evaluations and related calculations of Mr. Brian
Wallace, P.E., Dallas, Texas, an independent petroleum engineer, incorporated in
this Prospectus by reference from Patterson's
13
<PAGE> 16
Annual Report on Form 10-K for the year ended December 31, 1999, have been so
incorporated in reliance upon the authority of Mr. Wallace as an expert in
petroleum engineering.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC under the Securities Exchange Act of 1934. You
may read and copy this information at the following locations of the SEC:
Judiciary Plaza, Room 10024 Seven World Trade Center
450 Fifth Street, N.W. Suite 1300
Washington, D.C. 20549 New York, New York 10048
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661
You can also obtain copies of this information by mail from the Public
Reference Room of the SEC, 450 Fifth Street, N.W., Room 10024, Washington, D.C.
20549, at prescribed rates. You may obtain information on the operation of the
Public Reference Room by calling the SEC at (800) SEC-0330.
The SEC also maintains an internet world wide web site that contains
reports, proxy statements and other information about issuers, like Patterson,
that file electronically with the SEC. The address of that site is
http://www.sec.gov.
You can also inspect reports, proxy statements and other information
about us at the offices of the National Association of Securities Dealers, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.
We have filed with the SEC a registration statement on Form S-3 that
registers the Securities we are offering. The registration statement, including
the attached exhibits and schedules, contains additional relevant information
about us and our Securities. The rules and regulations of the SEC allow us to
omit certain information included in the registration statement from this
prospectus.
14
<PAGE> 17
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 the Securities registered
hereby, all of which expenses, except for the SEC registration fee and the NASD
filing fee, are estimates:
<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C>
SEC registration fee................................................. $ 864
Accounting fees and expenses......................................... 2,500
Miscellaneous........................................................ 636
Total...................................................... $4,000
======
</TABLE>
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:
[E]liminate 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.
The Board of Directors is empowered to make other indemnification as
authorized under any bylaw, agreement, the Certificate of Incorporation, Bylaws
or corporate resolution so long as the indemnification is consistent with the
DGCL.
II-1
<PAGE> 18
Patterson's Restated Certificate of Incorporation, as amended, provides
that, to the fullest extent permitted by the DGCL, a director of Patterson will
not be liable to Patterson or its stockholders for monetary damages for breach
of fiduciary duty as a director. Patterson's Bylaws provide that to the extent
that a director or officer of Patterson is successful on the merits in the
defense of a suit or proceeding brought against him by reason of the fact that
he is a director or officer of Patterson, he will be indemnified against
expenses (including attorneys' fees) reasonably incurred in connection with such
action. In other circumstances, a director or officer of Patterson 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 interests of
Patterson, 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 Patterson to procure a judgment in its favor, such
person will not be indemnified if he has been adjudged to be liable to Patterson
unless and only to the extent that the Delaware Court of Chancery or the court
in which such actin 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 Patterson's Board of Directors, by
independent legal counsel or by the stockholders of Patterson. Patterson's
Bylaws also provide that Patterson may advance the payment of expenses and that
the indemnification and advancement of expenses provisions of the Bylaws are
nonexclusive. Patterson 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>
Item 601
Exhibit Cross
Number Reference Document as Form S-3 Exhibit
------- --------- ----------------------------
<S> <C> <C>
2.1 2 Agreement and Plan of Merger, dated as of April 12, 1996, among Patterson
Energy, Inc., Patterson Drilling Company and Tucker Drilling Company, Inc. and
amendment thereto, dated May 16, 1996 (1)
4.1 4 Excerpt from Restated Certificate of Incorporation , as amended, of Patterson
Energy, Inc. regarding authorized Common Stock and Preferred Stock(2)
5.1 5 Opinion of Baker & Hostetler LLP regarding the legality of the shares to be
offered
10.1 10 Stock Purchase Agreement, dated March 31, 2000 among Patterson Energy, Inc.,
Patterson Drilling Company LP, LLLP and WEK Drilling Company, Inc.
23.1 23 Consent of PricewaterhouseCoopers LLP
23.2 23 Consent of M. Brian Wallace, independent petroleum engineer
23.3 23 Consent of Baker & Hostetler LLP (included in Exhibit 5.1)
24.1 24 Power of Attorney (included on the signature page hereto)
</TABLE>
II-2
<PAGE> 19
- ---------
(1) Incorporated by reference to Item 7, "Financial Statements and Exhibits" to
Form 8-K dated April 22, 1996, and filed with the SEC on April 30, 1996.
(2) Incorporated by reference to Item 16, "Exhibits" to Form S-3 dated December
18, 1996 and filed with the SEC on December 18, 1996.
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.
II-3
<PAGE> 20
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Patterson
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 4th day of April,
2000.
PATTERSON ENERGY, INC.
By: /s/ A. GLENN PATTERSON
-------------------------
A. Glenn Patterson
President
II-4
<PAGE> 21
Each of the undersigned officers and directors of Patterson Energy,
Inc. hereby appoints Cloyce A. Talbott and A. Glenn Patterson as attorneys and
agents 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 SEC 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 SEC 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 April 4, 2000, 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/ VINCENT A. ROSSI, JR. Director
- -------------------------------
Vincent A. Rossi, Jr.
/s/ SPENCER D. ARMOUR, III Director
- -------------------------------
Spencer D. Armour, III
/s/ JONATHAN D. NELSON Vice President--Finance, Secretary and Treasurer and
- ------------------------------- Chief Financial Officer
Jonathan D. Nelson
Principal Accounting Officer
</TABLE>
II-5
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Item 601
Exhibit Cross
Number Reference Document as Form S-3 Exhibit
------- --------- ----------------------------
<S> <C> <C>
2.1 2 Agreement and Plan of Merger, dated as of April 12, 1996, among Patterson
Energy, Inc., Patterson Drilling Company and Tucker Drilling Company, Inc. and
amendment thereto, dated May 16, 1996 (1)
4.1 4 Excerpt from Restated Certificate of Incorporation , as amended, of Patterson
Energy, Inc. regarding authorized Common Stock and Preferred Stock(2)
5.1 5 Opinion of Baker & Hostetler LLP regarding the legality of the shares to be
offered
10.1 10 Stock Purchase Agreement, dated March 31, 2000 among Patterson Energy, Inc.,
Patterson Drilling Company LP, LLLP and WEK Drilling Company, Inc.
23.1 23 Consent of PricewaterhouseCoopers LLP
23.2 23 Consent of M. Brian Wallace, independent petroleum engineer
23.3 23 Consent of Baker & Hostetler LLP (included in Exhibit 5.1)
24.1 24 Power of Attorney (included on the signature page hereto)
</TABLE>
- ---------
(1) Incorporated by reference to Item 7, "Financial Statements and Exhibits" to
Form 8-K dated April 22, 1996, and filed with the SEC on April 30, 1996.
(2) Incorporated by reference to Item 16, "Exhibits" to Form S-3 dated December
18, 1996 and filed with the SEC on December 18, 1996.
<PAGE> 1
EXHIBIT 5.1
[B&H letterhead]
April 4, 2000
Patterson Energy, Inc.
4510 Lamesa Highway
P.O. Box 1416
Snyder, Texas 79550
Gentlemen:
We have acted as counsel for Patterson Energy, Inc. (the "Company"), in
connection with the registration under the Securities Act of 1933, as amended
(the "1933 Act") on Form S-3 of a total of 103,000 shares (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, as amended,
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 stated in the
Registration Statement as owned by Kenneth Reynolds and Gary Chappell have been
validly issued and are fully paid and nonassessable, and the 50,000 Shares
underlying the stock option stated in the Registration Statement as owned by
Peter Hoffman will be, upon issuance pursuant to the terms of the option,
validly issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as part of the
Registration Statement.
Very truly yours,
BAKER & HOSTETLER LLP
<PAGE> 1
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
AMONG
PATTERSON ENERGY, INC.
PATTERSON DRILLING COMPANY LP, LLLP
AND
KENNETH REYNOLDS
AND
GARY CHAPPELL
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - THE STOCK PURCHASE
SECTION 1.1 The Stock Purchase.......................................................................1
SECTION 1.2 Purchase Consideration...................................................................1
SECTION 1.3 Adjustments for Closing Date Working Capital.............................................2
SECTION 1.4 Closing..................................................................................2
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF PEC AND PDC
SECTION 2.1 Organization, Standing and Power.........................................................3
SECTION 2.2 Authority; Non-Contravention.............................................................3
SECTION 2.3 Capital Structure........................................................................4
SECTION 2.4 SEC Documents............................................................................4
SECTION 2.5 Brokers..................................................................................4
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
SECTION 3.1 Organization, Standing and Power.........................................................5
SECTION 3.2 Capital Structure........................................................................5
SECTION 3.3 Ownership of Company Stock...............................................................5
SECTION 3.4 Authority; Non-Contravention.............................................................6
SECTION 3.5 Financial Statements.....................................................................6
SECTION 3.6 Absence of Material Adverse Change.......................................................7
SECTION 3.7 Taxes....................................................................................7
SECTION 3.8 Real and Personal Property; Title Thereto................................................7
SECTION 3.9 Accounts Receivable......................................................................8
SECTION 3.10 Liabilities..............................................................................8
SECTION 3.11 Insurance................................................................................8
SECTION 3.12 Contracts and Other Agreements...........................................................8
SECTION 3.13 Records..................................................................................8
SECTION 3.14 Transactions with Affiliates.............................................................8
SECTION 3.15 Employee Benefit Plans; Employment Agreements............................................9
SECTION 3.16 Labor Matters............................................................................9
SECTION 3.17 Environmental Matters....................................................................9
SECTION 3.18 Litigation..............................................................................11
SECTION 3.19 Governmental Licenses and Permits; Compliance with Law..................................11
SECTION 3.20 Brokers.................................................................................11
SECTION 3.21 Bank Accounts...........................................................................11
SECTION 3.22 Distributions to Stockholders of the Company............................................12
SECTION 3.23 Workers' Compensation Claims............................................................12
SECTION 3.24 Loans or Advances to Stockholders.......................................................12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV - ADDITIONAL AGREEMENTS
SECTION 4.1 Fees and Expenses.......................................................................12
SECTION 4.2 Reasonable Efforts......................................................................12
SECTION 4.3 Public Announcements....................................................................12
SECTION 4.4 Stockholders Indemnification............................................................13
SECTION 4.5 Repayment of Bank Debt..................................................................13
SECTION 4.6 Repayment of Stockholders Indebtedness to the Company...................................13
SECTION 4.7 Certain Tax Matters.....................................................................13
ARTICLE V - CONDITIONS PRECEDENT TO THE STOCK PURCHASE
SECTION 5.1 Conditions to Each Party's Obligation to Effect the Stock Purchase......................14
SECTION 5.2 Conditions to Obligation of the Stockholders to Effect
the Stock Purchase......................................................................15
SECTION 5.3 Conditions to Obligations of PEC and PDC to Effect the Stock Purchase...................15
ARTICLE VI - POST CLOSING COVENANTS
SECTION 6.1 Sale of Assets to Stockholders..........................................................17
SECTION 6.2 Registration Statement..................................................................18
ARTICLE VII - GENERAL PROVISIONS
SECTION 7.1 Notices.................................................................................18
SECTION 7.2 Interpretation..........................................................................19
SECTION 7.3 Counterparts............................................................................19
SECTION 7.4 Entire Agreement; No Third-Party Beneficiaries..........................................19
SECTION 7.5 Governing Law...........................................................................19
SECTION 7.6 Assignment..............................................................................19
SECTION 7.7 Severability............................................................................20
SECTION 7.8 Enforcement of This Agreement...........................................................20
Annex A Asset Purchase Agreement
Annex B Registration Rights Agreement
Annex C Investment Representation Letter
Annex D-1 Non-Competition Agreement - K Reynolds
Annex D-2 Non-Competition Agreement - G Chappell
Annex E-1 Selling Stockholder Questionnaire - K Reynolds
Annex E-2 Selling Stockholder Questionnaire - G Chappell
</TABLE>
ii
<PAGE> 4
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of March 31, 2000 (this
"Agreement"), among PATTERSON ENERGY, INC., a Delaware corporation ("PEC"),
PATTERSON DRILLING COMPANY LP, LLLP ("PDC"), a Delaware registered limited
liability limited partnership and a wholly-owned indirect subsidiary of PEC,
Kenneth Reynolds ("K Reynolds"), and Gary Chappell ("G Chappell"), each of whom
is an individual residing in the State of Texas (K Reynolds and G Chappell are
collectively referred to herein as the "Stockholders").
WITNESSETH:
WHEREAS, the Stockholders beneficially own all of the outstanding
common stock, no par value ("WEK Stock"), of WEK Drilling Company, Inc., a New
Mexico corporation ("WEK");
WHEREAS, PDC desires to purchase, and the Stockholders desire to sell,
all of the outstanding WEK Stock (the "Stock Purchase") for the consideration
set forth and provided for herein; and
WHEREAS, PEC and PDC, on the one hand, and the Stockholders, 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, PDC shall purchase from the stockholders of WEK, and the
Stockholders shall sell, or cause to be sold, to PDC, all of the outstanding
shares of WEK Stock.
SECTION 1.2 Purchase Consideration. As consideration for all of the
outstanding shares of WEK Stock, PDC agrees to pay or deliver to the
Stockholders at the Closing a combination of cash and shares of common stock of
PEC (the "PEC Shares") to be paid as follows: a total of $5,660,000 cash (the
"Cash Portion") and $1,540,000 in PEC Shares, with the number of such shares to
be equal to the quotient of the average of the closing price of Patterson's
common stock over the five business day period ending on the last business day
next preceding the Closing (as defined below) divided into $1,540,000. For
example, if the average price is $20, the number of PEC Shares would be 150,000
shares, or if the average price is $10, the number of PEC Shares would be
300,000 shares (the "Stock Portion," and collectively with the Cash Portion, the
"Purchase Consideration"). The Purchase Consideration comprised of PEC Shares
shall be issued to the Stockholders at Closing in the following amounts: 47,324
PEC Shares to K Reynolds and 5,676 PEC Shares to G Chappell. The Cash
<PAGE> 5
Portion of the Purchase Consideration shall be paid to the Stockholders at the
Closing in the following amounts: $4,745,000 to K Reynolds and $915,000 to G
Chappell.
SECTION 1.3 Adjustments for Closing Date Working Capital.
(a) Not less than three business days prior to the Closing,
WEK will deliver to PEC an estimate of the components of its working
capital as of the Closing, determined on an accrual basis in accordance
with generally accepted accounting principles (including provisions for
current and deferred income tax) consistently applied ("GAAP") (the
"Estimated Closing Date Working Capital"). To the extent that the
Estimated Closing Date Working Capital is less than $1,150,000, such
difference (the "Estimated Closing Date Working Capital Deficiency")
shall be deducted from the Cash Portion of the Purchase Consideration
to be paid to the Stockholders pursuant to Section 1.2.
(b) As promptly as practicable (but in no event later than 30
business days after the Closing Date), the Stockholders shall deliver
to PDC (i) a balance sheet of WEK dated as of the close of business on
the Closing Date (the "Closing Date Balance Sheet") prepared in
accordance with GAAP, and (ii) an accompanying closing statement (the
"Closing Statement") reasonably detailing the Stockholders'
determination of WEK's aggregate net worth as of the Closing Date (the
"Closing Date Working Capital"). PDC must, within 30 business days
after PDC's receipt of the Closing Date Balance Sheet and the Closing
Statement, give written notice (the "Notice") to Stockholders
specifying in reasonable detail PDC's objections, if any, with respect
thereto, including, without limitation, any objections relating to the
Stockholders' determination of the Closing Date Balance Sheet and the
Closing Date Working Capital. With respect to any disputed amounts, the
parties shall meet in person and negotiate in good faith during the 10
business day period (the "Resolution Period") after the date of the
Stockholders' receipt of the Notice to resolve any such disputes. If
the parties are unable to resolve all such disputes within the
Resolution Period, then within five business days after the expiration
of the Resolution Period, all unresolved disputes shall be submitted to
a mutually agreed upon independent accountant (the "Independent
Accountant") who shall be engaged to provide a final and conclusive
resolution of all unresolved disputes within 15 business days after
such engagement. The determination of the Independent Accountant shall
be final, binding and conclusive on the parties hereto, and the fees
and expenses of the Independent Accountant shall be borne by the party
that the Independent Accountant determines is the non-prevailing party.
(c) To the extent the Closing Date Working Capital is less
than $1,150,000, the Stockholders, jointly and severally, agree to pay
such deficiency (together with interest at the rate of nine percent
(9%) per annum from the Closing Date until paid) to PDC within five
business days after its final determination pursuant to this Section
1.3.
SECTION 1.4 Closing. The closing of the Stock Purchase (the "Closing")
shall take place at 9:00 a.m., local time, on the date of this Agreement at the
offices of WEK in Roswell, New Mexico, or at such other time and place as PDC
and the Stockholders shall agree. The date on which the Closing occurs is
sometimes referred to herein as the "Closing Date."
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<PAGE> 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PEC AND PDC
PDC represents and warrants to the Stockholders as follows:
SECTION 2.1 Organization, Standing and Power. PEC is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and PDC is a registered limited liability limited partnership duly
organized, validly existing and in good standing in the State of Delaware. Each
of PEC and PDC has the requisite corporate or limited partnership (as the case
may be) power and authority to carry on its business as now being conducted, and
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, PDC or WEK, as the case may be, 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, PDC and the subsidiaries of PEC taken as a whole or WEK,
as the case may be.
SECTION 2.2 Authority; Non-Contravention. Each of PEC and PDC has all
requisite power and authority to enter into this Agreement and to consummate the
Stock Purchase. The execution and delivery by each of PEC and PDC of this
Agreement and the consummation by each of PEC and PDC of the Stock Purchase have
been duly authorized by all necessary corporate action on the part of PEC and
PDC, as the case may be. This Agreement has been duly executed and delivered by
PEC and PDC and (assuming the valid authorization, execution and delivery of
this Agreement by WEK) constitutes a valid and binding obligation of PEC and PDC
enforceable against PEC and PDC 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 thereby and compliance with the
provisions hereof and thereof 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 any of the
properties or assets of PEC or PDC under, any provision of (i) the Certificate
of Incorporation or Bylaws of PEC and the Certificate of Limited Partnership or
the Amended and Restated Agreement of Limited Partnership of PDC, (ii) any loan
or credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to PDC or PEC,
or (iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to PEC or any of their respective 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 or PDC, materially impair the ability of PEC or PDC to
perform its obligations hereunder or prevent the consummation of any
3
<PAGE> 7
of the transactions contemplated hereby or thereby. No filing or registration
with, or authorization, consent or approval of, any domestic (federal and
state), foreign or supranational court, commission, governmental body,
regulatory agency, authority or tribunal (a "Governmental Agency") is required
by or with respect to PEC or PDC in connection with the execution and delivery
of this Agreement by PEC or PDC or is necessary for the consummation by PEC or
PDC of the Stock Purchase, except for (i) in connection or in compliance, with
the provisions of the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities Exchange Act of 1934 (the "Exchange Act"), (ii) such consents
and approvals, orders, registrations, authorizations, declarations and filings
as may be required under the "Blue Sky" laws of the State of Texas, and (iii)
such other consents, orders, authorizations, registrations, declarations and
filings, the failure of which to be obtained or made would not, individually or
in the aggregate, have a Material Adverse Effect on either PEC or PDC,
materially impair the ability of PEC or PDC to perform its obligations hereunder
or prevent the consummation of the transaction contemplated hereby.
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
December 31, 1999, (i) 32,675,678 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, 1998 (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,
including PDC) 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 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 or PDC.
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<PAGE> 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
The Stockholders jointly and severally represent and warrant to PEC and
PDC as follows:
SECTION 3.1 Organization, Standing and Power. WEK is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of New Mexico and has the requisite corporate power and authority to carry on
its business as now being conducted. WEK has no subsidiaries. WEK 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.
SECTION 3.2 Capital Structure. The authorized capital stock of WEK
consists of 10,000 shares of WEK Stock, of which 2,500 shares are issued and
outstanding. All outstanding shares of WEK 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 WEK is a party or by which it
is bound obligating WEK to issue, additional shares of capital stock of WEK.
SECTION 3.3 Ownership of WEK Stock. Section 3.3 of the disclosure
schedule of the Stockholders dated as of the date of this Agreement, previously
delivered to PDC (the "Stockholders Disclosure Schedule") sets forth a true and
correct list of the ownership of WEK Stock by the Stockholders. Each of the
Stockholders is the record and beneficial owner of the shares listed as owned by
him in Section 3.3 of the Stockholders Disclosure Schedule and holds such WEK
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. Neither of the stockholders of WEK is
a party to (i) any option, warrant, purchase right, or other contract or
commitment that could require him/her to sell, transfer, or otherwise dispose of
any WEK Stock (other than pursuant to this Agreement) or (ii) any voting trust,
proxy, or other agreement or understanding with respect to WEK 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 Stockholders 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
Stockholders and (assuming the valid authorization, execution and delivery of
this Agreement by PEC and PDC) constitutes a valid and binding obligation of
each of the Stockholders enforceable against him/her 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, 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)
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<PAGE> 9
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 WEK under, any provision of (i) the Articles of
Incorporation or By-laws of WEK (true and complete copies of which as of the
date hereof have been delivered to PDC), (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to WEK or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to WEK or any of
its respective properties or assets, 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 WEK, materially impair the ability of WEK
to perform its obligations hereunder or prevent the consummation of the Stock
Purchase. Except as set forth on Section 3.4 of the Stockholders Disclosure
Schedule, no filing or registration with, or authorization, consent or approval
of, any Governmental Entity is required by or with respect to any of the
Stockholders or WEK in connection with the execution and delivery of this
Agreement by the Stockholders or is necessary for the consummation by the
Stockholders of the Stock Purchase or any other transaction contemplated by this
Agreement. For purposes of this Agreement, "Material Adverse Change" or
"Material Adverse Effect" means any change or effect that is or, as 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 WEK.
SECTION 3.5 Financial Statements. Included in Section 3.5 of the
Stockholders Disclosure Schedule are the following unaudited financial
statements (collectively, the "WEK Financial Statements") of WEK: (i) balance
sheets as of March 31, 1999 and February 29, 2000; and (ii) statements of income
for (x) each of the four years in the period ended March 31, 1999, and (y) the
11-month and one-month periods ended February 29, 2000, respectively.
Except as may be set forth in Section 3.5 of the Stockholders
Disclosure Schedule, the WEK 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 WEK at the dates presented and the results of operations of WEK for
the periods covered. There does not, and there will not be at Closing, exist any
fact, event, condition or claim known to any of the Stockholders which would
cause a Material Adverse Change in the WEK 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 Stockholders Disclosure Schedule, there has not been
any Material Adverse Change with respect to WEK since December 31, 1999.
SECTION 3.7 Taxes. Except as otherwise set forth in Section 3.7 of the
Stockholders Disclosure Schedule: (i) all Tax Returns required to be filed by
WEK 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 WEK's balance sheet or are being timely and properly
contested; (iv) WEK has not waived any statute of limitations in respect of
Taxes of WEK; (v) none of the Tax Returns
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<PAGE> 10
referred to in clause (i) have been examined by the Internal Revenue Service or
the appropriate state taxing authority; (vi) no issues regarding any of the Tax
Returns referred to in clause (i) have been raised in writing by the relevant
taxing authority; (vii) no deficiencies have been asserted or assessments made
with regard to any of the Tax Returns referred to in clause (i) by a taxing
authority; (viii) WEK has made available to PDC correct and complete copies of
all federal and state income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by WEK; (ix) WEK is not currently,
and has not been for at least the past 12 years, an S corporation pursuant to
Section 1362(a) of the Internal Revenue Code of 1986, as amended (the "Code").
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 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 Stockholders Disclosure Schedule is a complete and accurate
schedule of all real and personal property owned or leased by WEK having an
individual fair market value in excess of $10,000, and other than the real and
personal property to be resold to Kenneth Reynolds immediately following the
Closing Date as provided in Section 6.1 of this Agreement. Except as set forth
in Section 3.8 of the Stockholders Disclosure Schedule, WEK 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 WEK under lease are held under valid and
enforceable leases which will continue in full force and effect immediately
after the Closing Date; WEK is not in default with respect to any such lease.
SECTION 3.9 Accounts Receivable. Set forth in Section 3.9 of the
Stockholders Disclosure Schedule is a complete and accurate schedule of the
accounts receivable of WEK as of December 31, 1999, as reflected in the balance
sheet as of that date included in WEK Financial Statements, together with an
accurate aging of those accounts. To the best knowledge of the Stockholders, the
accounts described in Section 3.9 have been collected in full, or are
collectible at their full amounts.
SECTION 3.10 Liabilities. There are no liabilities of WEK of any kind,
whether contingent or fixed, other than (i) liabilities disclosed or provided
for in the balance sheet of WEK as of March 31, 1999 included in the WEK
Financial Statements or disclosed in Section 3.10 of the Stockholders Disclosure
Schedule, or (ii) liabilities incurred in the ordinary course of business since
March 31, 1999, 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 WEK.
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<PAGE> 11
Section 3.11 Insurance. Set forth in Section 3.11 of the Stockholders
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 WEK. WEK is not 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 WEK.
Section 3.12 Contracts and Other Agreements. Except as disclosed on
Section 3.12 of the Stockholders Disclosure Schedule, WEK is not 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
WEK, (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; (iv) credit agreements; (v) guarantee, suretyship, indemnification or
contribution agreement, (vi) drilling contracts or purchase orders, or (vii)
other contracts not made in the ordinary course of business.
Section 3.13 Records. The stock record books and minute books of WEK
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 WEK.
Section 3.14 Transactions with Affiliates. Except as otherwise set
forth in 3.14 of the Stockholders 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 contract
drilling business of WEK 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 WEK. For purposes of this
definition, the officers, directors and stockholders of WEK shall be
deemed Affiliates.
Section 3.15 Employee Benefit Plans; Employment Agreements. WEK has no
employee benefit plans, programs, employment agreements or severance agreements
or other arrangements of any kind for the benefit of any current or former
employee, officer or director of WEK other than a group medical plan ("Group
Plan") under which WEK pays 60% and employees pay 40%. The Group Plan: (i) is
not a multi-employer plan within the meaning of ERISA; (ii) does not promise or
provide retiree medical or life insurance benefits to any person, except as
otherwise required by law; (iii) does not require qualification under Section
401(a) of the Code; (iv) is not subject to Title IV of ERISA; and (v) has been
operated in all respects in accordance with its terms and the requirements of
applicable law.
Section 3.16 Labor Matters. (i) WEK is not 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
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<PAGE> 12
unfair labor practice charge or complaint pending nor, to the knowledge of any
of the Stockholders, threatened, with regard to employees of WEK; (iii) there is
no labor strike, material slowdown, material work stoppage or other material
labor controversy in effect, or, to the knowledge of any of the Stockholders,
threatened against WEK; (iv) as of the date hereof, no representation question
exists, nor to the knowledge of any of the Stockholders are there any campaigns
being conducted to solicit cards from the employees of WEK to authorize
representation by a labor organization; (v) WEK is not party to, or is not
otherwise bound by, any consent decree with any governmental authority relating
to employees or employment practices of WEK; (vi) WEK has not 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
Stockholders Disclosure Schedule, WEK 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 WEK.
Section 3.17 Environmental Matters.
(a) Except with respect to oil and gas wells in which WEK
currently owns an interest (as to which the Stockholders make no
representation or warranty under this Section 3.17), and 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 WEK, to the
actual knowledge of the Stockholders:
(i) WEK holds, and is in compliance with and has been
in compliance with for the last three years, all Environmental
Permits, and is otherwise in substantial compliance and has
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 Effective Time with compliance by WEK 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
WEK of the transactions contemplated hereby or the operation
of the business of WEK on the date of the Closing;
(iii) WEK has not received any Environmental Claim,
nor has any Environmental Claim been threatened against WEK;
(iv) WEK has not entered into, agreed to or is not
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;
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(v) there are no circumstances that are reasonably
likely to give rise to liability under any agreements with any
person pursuant to which WEK 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 WEK
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 WEK 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 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
WEK under any Environmental Law.
"Environmental Permits" means all permits, licenses,
registrations, exemptions and other governmental
authorizations required under Environmental Laws for WEK 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 3.18 Litigation. Except as set forth in Section 3.18 of the
Stockholders Disclosure Schedule, there is no suit, action, investigation or
proceeding pending or, to the knowledge of the Stockholders, threatened against
WEK 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 WEK or, with respect to such matters that are pending
or threatened as of the date hereof, materially impair the ability of WEK to
perform its obligations hereunder or to consummate the Stock Purchase, and there
is no judgment, decree, injunction, rule or order
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of any court, governmental department, commission, board, bureau, agency,
instrumentality or arbitrator to which WEK is subject that would have a Material
Adverse Effect on WEK or, with respect to such items that are outstanding and
applicable as of the date hereof, materially impair the ability of WEK to
perform its obligations hereunder or to consummate the Stock Purchase.
Section 3.19 Governmental Licenses and Permits; Compliance with Law.
WEK has not 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 WEK. The conduct of the business of WEK 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 WEK.
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 contemplated by this Agreement based upon
arrangements made by or on behalf of WEK.
Section 3.21 Bank Accounts. A complete list of each bank account
maintained by WEK, including safe deposit boxes maintained by WEK, 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 Stockholders Disclosure
Schedule.
Section 3.22 Distributions to Stockholders of WEK. WEK, since December
31, 1999, has not 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 WEK
other than regular monthly salaries in amounts consistent with past practice and
a $70,000 bonus in the ordinary course of business.
Section 3.23 Workers' Compensation Claims. Except as set forth in
Section 3.18 of the Stockholders Disclosure Schedule, there are no workers'
compensation claims pending or, to the knowledge of the Stockholders, threatened
against WEK.
Section 3.24 Loans or Advances to Stockholders. There are no
outstanding loans or advances from WEK to any persons, other than $160,000 of
advances to Kenneth Reynolds.
ARTICLE IV
ADDITIONAL AGREEMENTS
Section 4.1 Fees and Expenses. All costs and expenses incurred by PEC
and PDC in connection with this Agreement and the transactions contemplated
hereby shall be paid by PEC and PDC; such costs and expenses (including legal
and accounting fees) incurred by the Stockholders or WEK not to exceed a total
of $30,000 shall be paid by WEK.
Section 4.2 Reasonable Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to
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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 Public Announcements. Before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement, PEC and PDC, on the one hand, and the
Stockholders, on the other, will consult with each other, and will undertake
reasonable efforts to agree upon the terms of such press release, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law or by obligations
pursuant to any listing agreement with the Nasdaq National Market.
Section 4.4 Stockholders Indemnification.
(a) After the Closing Date, the Stockholders shall jointly and
severally indemnify and hold PEC and PDC harmless against and in
respect of all actions, suits, demands, judgments, costs and expenses
(including reasonably attorneys' fees of PEC or PDC), but after giving
effect to insurance recoveries, if any, relating to any
misrepresentation, breach of any representation or warranty or
non-fulfillment of any agreement on the part of the Stockholders under
this Agreement. Any written notice of claim for indemnification shall
be given to K Reynolds, as representative of the Stockholders, by PEC
or PDC within 30 days after it has knowledge of any misrepresentation
or breach of warranty or non-fulfillment of any agreement on the part
of the Stockholders, which may give rise to a claim for
indemnification. This indemnification provided for in this Section
4.4(a) shall terminate and be of no further force and effect two years
from the Closing Date, except (i) as to any representation or warranty
as to which a written notice of claim for indemnification has been
given to K Reynolds, as representative of the Stockholders, prior to
the expiration of such two-year period; and (ii) for a claim for
indemnification for unpaid or undisclosed federal income tax liability
given to K Reynolds, as representative of the Stockholders, prior to
the expiration of the applicable period of limitations.
(b) After the Closing Date, and, in addition to, but separate
from, the indemnification contained in Section 4.4(a), K Reynolds shall
indemnify and hold PEC and PDC harmless against and in respect of all
actions, suits, demands, judgments, costs and expenses (including
reasonable attorneys' fees of PEC and/or PDC), but after giving effect
to insurance recoveries, if any, relating in any way to any of the real
and personal properties to be sold to K Reynolds pursuant to the Asset
Purchase Agreement referred to in Section 6.1.
Section 4.5 Repayment of Bank Debt. Prior to the Closing Date, the
Stockholders shall cause WEK to repay all indebtedness of WEK for borrowed money
including, but not limited to, the loan from Valley Bank of Commerce, and shall
cause WEK to file all UCC-1 Termination Statements relating to any security
interests held by lenders with regard to such indebtedness.
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<PAGE> 16
Section 4.6 Repayment of Stockholders Indebtedness to WEK. On or prior
to the Closing Date, the Stockholders shall pay to WEK all principal
and interest on monies borrowed by, or advanced to, them (total
principal and interest balance of $160,000 as of the date of this
Agreement).
Section 4.7 Certain Tax Matters.
(a) For each taxable period of WEK that ends before the
Closing Date, the Stockholders shall cause, at their expense, to be
timely prepared and filed with the appropriate authorities all tax
returns of WEK and shall cause to be paid by the parties responsible
therefor all taxes when due. PEC shall cause, at its expense, to be
prepared and filed all tax returns for WEK for tax periods not
described in the immediately foregoing sentence, and WEK or PEC shall
pay all taxes required to be paid for such periods.
(b) The Stockholders, WEK, PEC and PDC reasonably and in good
faith shall cooperate with each other in preparing and filing all tax
returns, including maintaining and making available to each other all
records necessary in connection with the preparation and filing of such
tax returns.
(c) The Stockholders shall be responsible at their expense for
causing to be filed any amended tax returns of WEK for taxable periods
ending prior to the Closing Date which are required as a result of an
examination or adjustments made by taxing authorities, and for causing
to be paid by the parties responsible therefor when due any taxes
resulting therefrom. Any such amended returns shall be furnished to PEC
for approval (which approval shall not be unreasonably withheld),
signature and filing at least ten (10) business days prior to the due
date for the filing of such amended returns.
(d) If a claim is made by any taxing authority:
(i) For any taxable period ending on or before the
Closing Date, the Stockholders shall control the proceedings
taken in connection with such claim; and
(ii) For any taxable period ending after the Closing
Date, PEC shall control the proceedings taken in connection
with such claim.
Subject to the immediately foregoing clauses (i) and (ii), the parties
reasonably and in good faith shall cooperate with each other in the
contesting of any tax claim, and shall keep each other fully apprised
of the status of such claims. Notwithstanding any of the foregoing to
the contrary, WEK and PEC shall not without the prior written approval
of the Stockholders (1) agree to an extension of the statute of
limitations with respect to any taxable period of WEK ending before the
Closing Date or (2) amend any tax return of WEK for any taxable period
of WEK ending before the Closing Date.
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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 Closing Date of the following condition:
(a) 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.
(b) Registration Rights Agreement. The Registration Rights
Agreement in the form attached hereto as Annex B shall have been
executed and delivered by the Stockholders and PEC.
Section 5.2 Conditions to Obligation of the Stockholders to Effect the
Stock Purchase. The obligation of the Stockholders to effect the Stock Purchase
shall be subject to the fulfillment at or prior to the Closing Date of the
following additional conditions; provided that the Stockholders may waive any of
such conditions in their sole discretion:
(a) Performance of Obligations; Representations and
Warranties. PEC and PDC 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 Date, each of the representations
and warranties of PEC and PDC contained in this Agreement that is
qualified by materiality shall be true and correct on and as of the
Closing Date and each of the representations and warranties that is not
so qualified shall be true and correct in all material respects on and
as of the Closing Date.
(b) Officers' Certificate. PEC and PDC shall have furnished to
the Stockholders a certificate, dated the Closing Date, signed by the
appropriate officers of PEC and PDC, certifying to the effect that to
the best of the knowledge and belief of PEC and PDC, the conditions set
forth in Section 5.1 and this Section 5.2(a) have been satisfied in
full.
(c) Payment of Purchase Price. PDC shall have made delivery of
the Purchase Consideration as provided in Section 1.2 of this
Agreement.
Section 5.3 Conditions to Obligations of PEC and PDC to Effect the
Stock Purchase. The obligations of PEC and PDC to effect the Stock Purchase
shall be subject to the
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fulfillment at or prior to the Closing Date of the following additional
conditions, provided that PDC may waive any such conditions in its sole
discretion:
(a) Performance of Obligations; Representations and
Warranties. The Stockholders 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 Date, each of the
representations and warranties of the Stockholders contained in this
Agreement that is qualified by materiality shall be true and correct on
and as of the Closing Date and each of the representations and
warranties that is not so qualified shall be true in all material
respects on and as of the Closing Date.
(b) Officers' Certificate. The Stockholders shall have
furnished to PEC and PDC a certificate, dated the Closing Date,
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 this
Section 5.3(a) have been satisfied.
(c) Opinion of J.W. Neal, Esquire. PEC and PDC shall have
received an opinion of counsel from J.W. Neal, Esquire, counsel to WEK
and the Stockholders, dated the Closing Date, substantially to the
effect that:
(i) The incorporation, existence, good standing and
capitalization of WEK are as stated in this Agreement; the
authorized shares of WEK Stock are as stated in this
Agreement; all outstanding shares of WEK 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 stockholders; and, to the knowledge of such counsel, there
is no existing option, warrant, right, call, subscription or
other agreement or commitment obligating WEK to issue or sell,
or to purchase or redeem, any shares of its capital stock
other than as stated in this Agreement.
(ii) This Agreement and the respective
Non-Competition Agreements have been duly authorized, executed
and delivered by each of the Stockholders, and (assuming the
due and valid authorization, execution and delivery by PDC)
constitutes the legal, valid and binding agreements of them
enforceable against them 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) The execution and performance by the
Stockholders of this Agreement will not violate the Articles
of Incorporation or By-laws of WEK and 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 WEK or any of the Stockholders is a party or
to which they or any of their properties or assets may be
bound.
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(iv) To the knowledge of such counsel, there are no
actions, suits or proceedings, pending or threatened against
or affecting WEK or any of the Stockholders by any
Governmental Entity which seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement.
(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 WEK or any of the Stockholders for consummation of
the transactions contemplated by this Agreement.
(vi) Each Non-Competition Agreement between PDC and
each of K Reynolds and G Chappell constitutes the legal, valid
and binding agreement of him 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).
In rendering such opinion, counsel for WEK and the Stockholders may
rely as to matters of fact upon the representations of officers of WEK
and of the Stockholders 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 New Mexico.
(d) Officer and Director Resignation Letters. PDC shall have
received a resignation letter dated the Closing Date from each of the
directors and officers of WEK.
(e) WEK Stock Certificates. PEC shall have received all of the
WEK Stock certificates from the stockholders of WEK duly endorsed to
PEC.
(f) Investment Representation Letter. Each of the Stockholders
shall have executed and delivered the investment representation letter
in the form attached hereto as Annex C.
(g) Non-Competition Agreement. Each of the Stockholders shall
have executed and delivered a Non-Competition in the form attached
hereto as Annex D-1 and Annex D-2, respectively.
(h) Selling Stockholder Questionnaire. Each of the
Stockholders shall have completed, executed and delivered a Selling
Stockholder Questionnaire in the form attached hereto as Annex E-1 and
Annex E-2, respectively.
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ARTICLE VI
POST CLOSING COVENANTS
Section 6.1 Sale of Assets to Stockholders. PEC and PDC and the
Stockholders covenant and agree that, immediately following the Closing Date,
they will cause the execution, delivery and performance of the Asset Purchase
Agreement in the form attached hereto as Annex A to this Agreement.
Section 6.2 Registration Statement. Promptly following the Closing, but
in no event later than two business days following the Closing Date, PEC shall
execute and file a Registration Statement on Form S-3 with the SEC relating to
resale of the PEC Shares.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1 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 or PDC, to
Patterson Energy, Inc.
4510 Lamesa Highway
P.O. Drawer 1416
Snyder, Texas 79549
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
(c) if to the Stockholders, to
Ken Reynolds
13 Hawthorn
Midland, Texas 79705
with copies to:
Ken Reynolds
Box 2055
Roswell, New Mexico 88202
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<PAGE> 21
and
Gary Chappell
4305 Lehigh
Midland, Texas 79707
with copies to:
J.W. Neal, Esq.
214 W. Cain
Hobbs, New Mexico 88241
Section 7.2 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 7.3 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 7.4 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, including the documents and instruments referred to herein, (a)
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 (b) is not intended to confer upon any person other
than the parties any rights or remedies hereunder; provided, however, that legal
counsel for the Stockholders and WEK hereto may rely upon the representations
and warranties of the Stockholders contained herein and in the certificates
delivered pursuant to Sections 5.3(b) and (c).
Section 7.5 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New Mexico, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 7.6 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 7.7 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
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<PAGE> 22
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 7.8 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 District Court in
Chavez or Eddy County, New Mexico.
IN WITNESS WHEREOF, PEC and PDC and each of the Stockholders have
executed this Agreement as of the date first written above.
PEC:
PATTERSON ENERGY, INC.
By: /s/ CLOYCE A. TALBOTT
--------------------------------------
Attest: Cloyce A. Talbott
Chief Executive Officer
/s/ JONATHAN D. NELSON
- ----------------------------------
Jonathan D. Nelson, Secretary
PDC:
PATTERSON DRILLING COMPANY LP,
LLLP
By: /s/ A. GLENN PATTERSON
--------------------------------------
Attest: A. Glenn Patterson
President
/s/ JONATHAN D. NELSON
- ----------------------------------
Jonathan D. Nelson, Secretary
STOCKHOLDERS:
K REYNOLDS
/s/ KENNETH REYNOLDS
-----------------------------------------
Kenneth Reynolds
G CHAPPELL
/s/ GARY CHAPPELL
-----------------------------------------
Gary Chappell
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<PAGE> 23
ANNEX A
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into
this 31st day of March, 2000, by and between Kenneth Reynolds, an individual
residing in the State of Texas ("Buyer"), and WEK Drilling Company, Inc., a New
Mexico corporation ("WEK" or the "Seller").
RECITALS
A. Patterson Drilling Company LP, LLLP, a Delaware registered limited
liability limited partnership ("PDC"), and the former stockholders of Seller are
parties to the Stock Purchase Agreement dated as of March 31, 2000 ("Stock
Purchase Agreement") pursuant to which PDC purchased on this date all of the
outstanding shares of capital stock of Seller.
B. Pursuant to the Stock Purchase Agreement, immediately following the
Stock Purchase, Seller has agreed to sell, and Buyer has agreed to purchase
certain specified assets of Seller which assets were owned by Seller prior to
the Stock Purchase (the "Assets").
C. Buyer desires to purchase and Seller desires to sell the Assets (as
defined herein).
AGREEMENTS
In consideration of the mutual promises and covenants contained herein,
the parties agree as follows:
1. Purchase of Assets. Subject to the terms and conditions of this
Agreement, Seller shall sell, convey, transfer, assign and deliver AS IS to
Buyer, and Buyer shall purchase and accept from Seller, AS IS, the assets set
forth on Schedule I attached hereto (collectively, the "Assets").
2. Assumption of Liabilities. Buyer shall assume all fixed or
contingent liabilities or obligations arising out of or connected in any way
with the Assets.
3. Purchase Price. As consideration for the Assets, Buyer shall pay to
Seller the sum of $1 million ("Purchase Price"), all of which shall be due and
payable at Closing (as defined below). The Purchase Price shall be allocated as
set forth above on Schedule I with such allocation to be used by the parties in
reporting the transaction contemplated hereby for federal, state, county and
local tax purposes.
4. Sales or Transfer Taxes. Buyer agrees that, promptly following
written notice from Seller, he will reimburse WEK for any and all state or local
sales, transfer or use taxes incurred by Seller in connection with the sale of
the Assets pursuant to this Agreement.
AX A-1
<PAGE> 24
5. Real Estate Taxes. Seller and Buyer hereby agree to pro rate all
state and local real estate taxes payable with respect to the sale of the Assets
pursuant to this Agreement with K Reynolds paying three-fourths of all such
taxes and WEK paying the remaining one-fourth.
6. Closing.
(a) Time and Place. The Closing shall take place at 10:00 a.m.
(CST) on March 31, 2000, at the former offices of Seller in Roswell,
New Mexico, or at such other time or location as the parties may
mutually agree.
(b) Seller's Deliveries. At Closing, Seller shall deliver to
Buyer the following:
(1) A Bill of Sale in substantially the form attached
hereto as Exhibit A, duly executed by Seller.
(2) Deeds without Warranty for the real property and
improvements set forth on Schedule I in substantially the form
attached hereto as Exhibit C in the case of the New Mexico
property and Exhibit B in the case of the Texas property, duly
executed by Seller.
(3) Certificates of Title for each of the boats and
trailers and for the motor vehicles listed in Schedule I.
(c) Buyer's Deliveries. At Closing, Buyer shall deliver the
Purchase Price to Seller.
7. Disclaimer of Warranties. SELLER EXPRESSLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH RESPECT TO THE ASSETS, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. Seller transfers to Buyer, and Buyer accepts from Seller,
the Assets AS IS without any warranties or representations thereon.
8. Miscellaneous.
(a) Severability. In the event any provision of this Agreement
is held to be invalid or unenforceable, the remaining provisions of
this Agreement will remain in full force and effect.
(b) Notices. Unless otherwise specified in this Agreement all
notices, including change of address notices, required to be sent
hereunder shall be in writing and shall be deemed to have been given
when mailed as follows:
Buyer: Kenneth Reynolds
Box 2055
Roswell, New Mexico 88202
Telephone: (505) 623-5070
AX A-2
<PAGE> 25
Seller: WEK Drilling Company, Inc.
4510 Lamesa Highway
P.O. Drawer 1416
Synder, Texas 79549
Telephone: (915) 573-1104
(c) Binding Arbitration. Any controversy, dispute, or claim
arising out of, in connection with, or in relation to, the
interpretation, performance, or breach of this Agreement, including,
without limitation, the validity, scope, and enforceability of this
Section, may at the election of Buyer or Seller be solely and finally
settled by binding arbitration conducted in Artesia, New Mexico, or if
arbitration cannot be conducted in such location, then at such other
location as the parties may mutually agree, by and in accordance with
the then existing rules for commercial arbitration of the American
Arbitration Association ("AAA"), or any successor organization.
Judgment upon any award rendered by the arbitrator(s) may be entered by
the State or Federal Court having jurisdiction thereof. Either of the
parties may demand arbitration by written notice to the other and to
the AAA ("Demand for Arbitration"). The arbitrator(s) shall conduct the
arbitration in a manner in accordance with the Federal Arbitration Act
U.S.C. Section 1 et seq. and the rules of the AAA. The parties intend
that this agreement to arbitrate be valid, enforceable, and
irrevocable.
(d) Choice of Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of New Mexico,
without regard to the conflict of laws principles of such State.
(e) Risk of Loss. All risk of loss to the Assets shall be
borne by Buyer, whether prior to or after the Closing.
(f) Waiver. The waiver by either party of any default or
breach of this Agreement will not constitute a waiver of any other or
subsequent default or breach.
(g) Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be
deemed to be an original, but all of which shall constitute but one and
the same instrument.
(h) Entirety. This Agreement embodies the entire understanding
and agreement between the parties relative to its subject matter, and
there are no understandings, agreements, conditions, or
representations, oral or written, express or implied, with reference to
such subject matter that are not merged in or superseded by this
Agreement. This Agreement may be modified only by a writing signed by
both parties.
(i) Headings. The headings to Sections of this Agreement are
for convenience of reference only and do not form a part of this
Agreement, and shall not in any way affect the interpretation of this
Agreement.
AX A-3
<PAGE> 26
(j) No Brokers. Neither party has utilized any brokers in
connection with this transaction.
(k) Further Assurances. Each party shall cooperate fully with
the other and execute such further instruments, documents, and
agreements and give such further written assurances, as may be
reasonably requested by the other to better evidence and reflect the
transactions described herein and contemplated hereby, and to carry
into effect the intents and purposes of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
SELLER:
WEK DRILLING COMPANY, INC.
By:
--------------------------------------
Cloyce A. Talbott, President
BUYER:
-----------------------------------------
Kenneth Reynolds
AX A-4
<PAGE> 27
SCHEDULE I
ALLOCATION
OF
PURCHASE PRICE
<TABLE>
<S> <C>
Account Receivable - K Reynolds $ 160,000
Cash Value - Life Insurance 173,719
Investment in Pecos Air 44,480
Building:
Leasehold Improvements 28,183
Heat Pumps 7,821
Land - Midland 25,000
Carport 10,044
Carport 13,711
Building - Midland 230,000
Building - Artesia:
Building 48,637
Land 7,000
----------
Subtotal $ 752,595
Office Equipment 73,179
Computer Equipment 18,656
----------
Subtotal $ 844,430
Automobiles:
167 1994 Dodge Pickup 2,200
163 1992 Dodge Pickup 10
136 1989 Ford F-350 Pickup (Welder) 10
152 1995 Chevrolet Blazer 14,400
165 1998 Mercedes ML320 30,400
142 1999 Mercedes CLK430 44,700
172 1999 Mercedes CLK320 36,400
124 Boat, Motor and Trailer 10
125 Boat, Motor and Trailer 10
112 Ford Tractor 10
145 1983 Suburban 10
133 1981 Aztec Trailer 10
175 2000 Ford Expedition 27,400
----------
Totals $1,000,000
==========
</TABLE>
SCH-1
<PAGE> 28
EXHIBIT A
BILL OF SALE
Pursuant to that certain Stock Purchase Agreement dated March 31, 2000,
by and between Kenneth Reynolds ("Buyer") and WEK Drilling Company, Inc., a New
Mexico corporation ("Seller"), Seller, for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, does hereby transfer,
convey, sell, assign and deliver AS IS to Buyer, the following assets:
Office Equipment and Computer Equipment
167 1994 Dodge Pickup
163 1992 Dodge Pickup
136 1989 Ford F-350 Pickup (Welder)
152 1995 Chevrolet Blazer
165 1998 Mercedes ML320
142 1999 Mercedes CLK430
172 1999 Mercedes CLK320
124 Boat, Motor and Trailer
125 Boat, Motor and Trailer
112 Ford Tractor
145 1983 Suburban
133 1981 Aztec Trailer
175 2000 Ford Expedition
IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be duly
executed on March 31, 2000.
SELLER
WEK DRILLING COMPANY, INC.
By:
--------------------------------------
Cloyce A. Talbott, President
EXH A-1
<PAGE> 29
EXHIBIT B
DEED WITHOUT WARRANTY
Date: March 31, 2000
Grantor (including address): WEK Drilling Company, Inc.
4510 Lamesa Highway
P.O. Drawer 1416
Snyder, Texas 79549
Grantee (including address): Kenneth Reynolds
Box 2055
Roswell, New Mexico 88202
Consideration: $10 and other consideration
Property: Being Lot Seven (7), Block Eight (8),
Saddle Club Estates, an addition to the
City of Midland, Midland County, Texas,
according to the map or plat thereof of
record in Plat Cabinet C/44, Plat Records
of Midland County, Texas
Reservations From and Exceptions to Conveyance:
This deed is without any warranties, express or implied, and is subject
to any and all matters of record, including, without limitation, any
and all parties in possession, restrictions, covenants, and/or
outstanding mineral reservations, rights and/or royalties, and any and
all zoning laws, regulations, or ordinances of any municipal and/or
other governmental authority, if any.
Grantor, for the consideration and subject to the reservations from and
exceptions to conveyance, conveys to Grantee the property, together with all and
singular the rights and appurtenances thereto in any wise belonging, to have and
to hold it to Grantee, Grantee's heirs, successors or assigns forever, without
express or implied warranty; and all warranties that might arise by common law
and the warranties in Section 5.023 of the Texas Property Code (or its
successor) are excluded.
When the context requires, singular nouns and pronouns include the
plural.
EXH B-1
<PAGE> 30
IN WITNESS WHEREOF Grantor has executed this deed on the date set forth
above.
WEK DRILLING COMPANY, INC.
By:
--------------------------------------
Cloyce A. Talbott, President
STATE OF NEW MEXICO
COUNTY OF EDDY
This instrument was acknowledged before me on the ______ day of March,
2000, by Cloyce A. Talbott, President of WEK Drilling Company, Inc., a New
Mexico corporation, on behalf of said corporation.
-----------------------------------------
Notary Public, State of New Mexico
Notary's commission expires:
-------------
AFTER RECORDING RETURN TO:
Kenneth Reynolds
Box 2055
Roswell, New Mexico 88202
EXH B-2
<PAGE> 31
EXHIBIT C
DEED WITHOUT WARRANTY
Date: March 31, 2000
Grantor (including address): WEK Drilling Company, Inc.
4510 Lamesa Highway
P.O. Drawer 1416
Snyder, Texas 79549
Grantee (including address): Kenneth Reynolds
Box 2055
Roswell, New Mexico 88202
Consideration: $10 and other consideration
Property: Lots 6, 7 and 8 of Artesia View
Subdivision of part of the SE1/4 of
Section 17, Township 17 South, Range
27 East, N.M.P.M., as the same
appear on the official plat on file
in the County Clerks office, Eddy
County, New Mexico, EXCEPTING all
oil, gas and other mineral in and
under said land.
Reservations From and Exceptions to Conveyance:
This deed is without any warranties, express or implied, and is subject
to any and all matters of record, including, without limitation, any
and all parties in possession, restrictions, covenants, and/or
outstanding mineral reservations, rights and/or royalties, and any and
all zoning laws, regulations, or ordinances of any municipal and/or
other governmental authority, if any.
Grantor, for the consideration and subject to the reservations from and
exceptions to conveyance, conveys to Grantee the property, together with all and
singular the rights and appurtenances thereto in any wise belonging, to have and
to hold it to Grantee, Grantee's heirs, successors or assigns forever, without
express or implied warranty; and all warranties that might arise by common law
are excluded.
When the context requires, singular nouns and pronouns include the
plural.
EXH C-1
<PAGE> 32
IN WITNESS WHEREOF Grantor has executed this deed on the date set forth
above.
WEK DRILLING COMPANY, INC.
By:
--------------------------------------
Cloyce A. Talbott, President
STATE OF NEW MEXICO
COUNTY OF EDDY
This instrument was acknowledged before me on the ______ day of March,
2000, by Cloyce A. Talbott, President of WEK Drilling Company, Inc., a New
Mexico corporation, on behalf of said corporation.
-----------------------------------------
Notary Public, State of New Mexico
Notary's commission expires:
-------------
AFTER RECORDING RETURN TO:
Kenneth Reynolds
Box 2055
Roswell, New Mexico 88202
EXH C-2
<PAGE> 33
ANNEX B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made and entered
into this 31st day of March, 2000, by and among PATTERSON ENERGY, INC., a
Delaware corporation ("PEC"), and KENNETH REYNOLDS and GARY CHAPPELL
(collectively, the "Stockholders").
A. Pursuant to that certain Stock Purchase Agreement dated of even date
herewith ("Purchase Agreement") by and among PEC, Patterson Drilling Company LP,
LLLP, a Delaware registered limited liability limited partnership and a
wholly-owned indirect subsidiary of PEC ("PDC"), and the Stockholders, PEC has
agreed to issue a total of __________ shares ("Restricted Shares") of PEC's
Common Stock, $0.01 par value (the "Common Stock") as partial consideration for
the purchase by PDC of the outstanding capital stock of WEK Drilling Company,
Inc., all of which stock is owned by the Stockholders.
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.
"Holders" shall mean the Stockholders.
"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 fees and
disbursements of counsel for PEC and all independent certified public
accountants, underwriters (excluding discounts and commissions) and
other persons 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
AX B-1
<PAGE> 34
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 the
respective Stockholders from PEC for investment for their 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 the
Stockholders acknowledges that the Restricted Shares are "restricted securities"
within the meaning of the Securities Act.
3. Restricted Shares - Registration Under Securities Act, etc.
3.1 Registration.
(a) Filing. Promptly following the execution of this Agreement
and the contemporaneous closing of the transaction contemplated by the Purchase
Agreement, but in no event later than two business days following the date of
this Agreement, PEC shall file 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.
(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 the Stockholders, or (ii) the expiration of twelve (12) months
after such effective date and furnish to each of the Stockholders 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 either
of the Stockholders shall have reasonably objected on the grounds that such
amendment or
AX B-2
<PAGE> 35
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 the Stockholders 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 either
or both of the Stockholders 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 Stockholders
may reasonably request; such documents, if any, incorporated by reference in the
Form S-3 or prospectus; and such other documents as either or both of the
Stockholders 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 either or both of the Stockholders
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 the Stockholders 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 the Stockholders 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 or Form S-3 to comply with law, and at the request of
the Stockholders, prepare and furnish to the Stockholders 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;
(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.
AX B-3
<PAGE> 36
4. Indemnification.
4.1 Indemnification by PEC. PEC will, and hereby does,
indemnify and hold harmless each of the Stockholders 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 the
respective Stockholders may 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 such securities 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
the respective Stockholders for any legal 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 information furnished to PEC by either or both of the
Stockholders for use in preparation thereof. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Stockholders and shall survive the transfer of such securities by either or both
of the Stockholders. PEC will make provision for contribution in lieu of any
such indemnity that may be disallowed as shall be reasonably requested by either
or both of the Stockholders.
4.2 Indemnification by the Stockholders. In the event of any
registration of any securities of PEC under the Securities Act (pursuant to
which either or both of the Stockholders sells Restricted Shares covered by such
registration statement), the Stockholders will, and each of them hereby does,
severally indemnify and hold harmless PEC, each director of PEC, each officer of
PEC who shall sign such registration statement 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
information furnished to PEC 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 the Stockholders.
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 either
or both of the Stockholders.
4.3 Notice of Claims, etc. In case any proceeding (including
any governmental investigation) shall be instituted involving any person in
respect of which
AX B-4
<PAGE> 37
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.
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 the respective Stockholders
under this Section 4.4 shall be limited to the net proceeds received by each
such Stockholder.
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
AX B-5
<PAGE> 38
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.
5. 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 the holder or holders of at least 51%
or more of the Restricted Shares.
6. 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:
6.1 if to the respective Stockholders, at the address shown on
stock transfer books of PEC or such other address as either of the Stockholders
has advised PEC in writing, and
6.2 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 the Stockholders.
7. Miscellaneous. This Agreement embodies the entire agreement and
understanding between PEC and the respective Stockholders 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.
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:
--------------------------------------
Cloyce A. Talbott
Chief Executive Officer
STOCKHOLDERS:
-----------------------------------------
Kenneth Reynolds
-----------------------------------------
Gary Chappell
AX B-6
<PAGE> 39
ANNEX C
INVESTMENT REPRESENTATION LETTER
March 31, 2000
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 PEC's closing of the transaction
contemplated by the Stock Purchase Agreement among PEC, Patterson Drilling
Company LP, LLLP ("PDC") and Kenneth Reynolds and Gary Chappell (collectively,
the "Stockholders"). Capitalized terms not defined herein shall have the meaning
given them in the Memorandum (as defined below).
1. Representations and Warranties.
Each of the undersigned hereby represents and warrants to PEC that the
following statements are true:
a. Each of the undersigned has been furnished a copy of the
Memorandum, dated March 29, 2000 (the "Memorandum") containing a copy of PEC's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999, and all
other reports filed by PEC with the Securities and Exchange Commission since
January 1, 2000 (collectively, the "Reports") and has carefully reviewed the
Memorandum and the Reports, including, but not limited to, (i) the statements in
the Memorandum relating to taxation of the Stock Purchase and lack of free
transferability of the PEC Common Stock to be issued by PEC as consideration for
the Stock Purchase, and (ii) the section entitled "Disclosure Concerning
Forward-Looking Statements," setting forth certain Cautionary Statements or risk
factors relating to PEC and its businesses and operations.
b. Each of the undersigned has such knowledge and experience
in financial and business matters that it 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.
c. Each of the undersigned has had an opportunity to ask
questions of PEC and its management concerning PEC and PDC, the businesses of
PEC and PDC and the PEC Common Stock and, if asked, all such questions have been
answered to the full satisfaction of the undersigned.
d. Each of 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. Each of the undersigned therefore acknowledges that in
AX C-1
<PAGE> 40
no event may it sell or otherwise transfer the PEC Common Stock without
registration under the Act (see paragraph (g) below).
e. Each of 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.
f. Each of 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.
g. Each of 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.
h. Each of the undersigned acknowledges that, except as
provided in the Registration Rights Agreement attached as Annex B 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.
i. If other than a natural person, each of the undersigned was
not organized for the specific purpose of acquiring the PEC Common Stock.
j. Each of 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.
k. Each of the undersigned has an individual net worth, or
joint net worth with the undersigned's spouse in excess of $1 million.
2. Indemnification.
Each of the undersigned agrees to indemnify and hold harmless PEC and
PDC, or either of them, the officers, directors and affiliates of either of them
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 each of the undersigned herein.
AX C-2
<PAGE> 41
3. Survival.
All representations, warranties and covenants contained in this letter
shall survive the closing of the Stock Purchase.
Very truly yours,
-----------------------------------------
Kenneth Reynolds
-----------------------------------------
Gary Chappell
AX C-3
<PAGE> 42
ANNEX D-1
PATTERSON DRILLING COMPANY LP, LLLP
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT is made and entered into this 31st day
of March, 2000 (this "Agreement"), by and between PATTERSON DRILLING COMPANY LP,
LLLP, a Delaware registered limited liability limited partnership ("PDC"), and
Kenneth Reynolds, an individual residing in Roswell, New Mexico ("K Reynolds").
RECITALS:
A. Simultaneously with the execution of this Agreement, PDC has entered
into that certain Stock Purchase Agreement (the "Stock Purchase Agreement"),
among PEC, PDC, Gary Chappell and K Reynolds, providing for, among other things,
the purchase by PDC of all of the outstanding shares of capital stock of WEK
Drilling Company, Inc., a New Mexico corporation.
B. 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.
The period of this Agreement shall commence on the date hereof
and remain in effect through March 31, 2005, unless sooner terminated as the
result of the death of K Reynolds (the "Non-Compete Period").
2. Covenant Not to Compete.
(a) K Reynolds covenants and agrees that during the
Non-Compete Period, K Reynolds shall not, without the prior written consent of
PDC, 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 contract oil and gas well
drilling business within the Permian Basin of West Texas and Southeastern New
Mexico (the "Competitive Business"); provided, however, that K Reynolds may
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
AX D-1-1
<PAGE> 43
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 PDC or any affiliate of PDC 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 K Reynolds is
prohibited from engaging in certain activities by this Section shall be extended
by the length of time during which K Reynolds is in breach of the terms of this
section.
(b) It is understood by and between the parties hereto that
the foregoing covenant by K Reynolds not to enter into competition with PDC as
set forth in Section 3(a) hereof is an essential element of this Agreement and
the Stock Purchase Agreement and that, but for the agreement of K Reynolds to
comply with such covenant, PDC would not have agreed to enter into this
Agreement or the Stock Purchase Agreement. PDC and K Reynolds have independently
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 PDC and its affiliates. K
Reynolds 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 K Reynolds.
(c) Notwithstanding the terms and provisions of Section 2(a)
above, it is expressly understood that K Reynolds shall be free to participate,
own, manage and operate an existing drilling company known as "Rod Ric Corp".
Such company is presently operating in Texas and New Mexico with five drilling
rigs capable of drilling shallow oil and gas wells to a depth of 7,500 feet and
occasionally to a depth of 9,000 feet. The participation by K Reynolds shall not
be a violation of this agreement and PDC specially consents to such association
by K Reynolds with such drilling company.
3. Restrictions on Soliciting Business of PDC.
K Reynolds further covenants and agrees that during the
Non-Compete Period, K Reynolds 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 PDC:
(a) Solicit or hire any of the employees of PDC or solicit or
take away any of PDC'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 3
hereof; or
(c) Engage in any act which would interfere with or harm any
business relationship PDC has with any customer, lessor, employee, principal or
supplier.
AX D-1-2
<PAGE> 44
4. Specific Performance.
Without intending to limit the remedies available to PDC, K
Reynolds acknowledges that PDC will have no adequate remedies at law if K
Reynolds violates the terms of Section 3 or 4, hereof. In such event, K Reynolds
agrees that PDC 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 PDC
from pursuing any other remedies available to PDC (whether at law or in equity)
for such breach or threatened breach, including, without limitation, the
recovery of monetary damages from K Reynolds. The provisions of this Section 5
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.
6. Representations and Warranties of PDC and K Reynolds.
(a) Representations and Warranties of PDC. PDC hereby
represents and warrants to K Reynolds that: (i) it has all requisite power to
enter into and perform its obligations under this Agreement; (ii) this Agreement
has been duly and validly authorized by all necessary corporate action on the
part of PDC; (iii) the execution of this Agreement by PDC and performance of
PDC's obligations hereunder do not require the consent or approval of any other
party; and (iv) this Agreement is a valid and binding obligation of PDC.
(b) Representations and Warranties of K Reynolds. K Reynolds
hereby represents and warrants to PDC that: (i) K Reynolds has the capacity and
power to enter into and perform obligations of K Reynolds under this Agreement;
(ii) K Reynolds has duly and validly executed this Agreement; (iii) the
execution of this Agreement and performance of obligations of K Reynolds
hereunder do not require the consent or approval of any other party; and (iv)
this Agreement constitutes a valid and binding obligation of K Reynolds.
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 New Mexico
without reference to its conflict-of-laws principles. This Agreement's final
form resulted from review and negotiations
AX D-1-3
<PAGE> 45
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 the
District Court in Eddy or Chavez County, New Mexico, 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.
(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 PDC may assign this Agreement to a subsidiary
or affiliate without the prior written consent of K Reynolds, and provided
further that a transfer by PDC as a result of a merger or sale of all or
substantially all of the assets of PDC with or to a third party that assumes
PDC's obligations hereunder by operation of law or otherwise shall not
constitute a prohibited assignment under this Section 7(e).
(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
AX D-1-4
<PAGE> 46
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 PDC:
Patterson Drilling Company LP, LLLP
4510 Lamesa Highway
P.O. Drawer 1410
Snyder, Texas 79550
Facsimile: (915) 573-0281
Attention: Cloyce A. Talbott
Chairman and Chief Executive Officer
To K Reynolds:
Box 2055
Roswell, New Mexico 88202
Facsimile:
---------------
with copies to:
J. W. Neal, Esq.
Box 278
Hobbs, New Mexico 88241
Facsimile: (505) 397-7405
(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.
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.
PATTERSON DRILLING COMPANY LP,
LLLP
By:
--------------------------------------
Cloyce A. Talbott
Chief Executive Officer
K REYNOLDS
-----------------------------------------
Kenneth Reynolds
AX D-1-5
<PAGE> 47
ANNEX D-2
PATTERSON DRILLING COMPANY LP, LLLP
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT is made and entered into this 31st day
of March, 2000 (this "Agreement"), by and between PATTERSON DRILLING COMPANY LP,
LLLP, a Delaware registered limited liability limited partnership ("PDC"), and
Gary Chappell, an individual residing in Midland, Texas ("G Chappell").
RECITALS:
A. Simultaneously with the execution of this Agreement, PDC has entered
into that certain Stock Purchase Agreement (the "Stock Purchase Agreement"),
among PEC, PDC, Kenneth Reynolds and G Chappell, providing for, among other
things, the purchase by PDC of all of the outstanding shares of capital stock of
WEK Drilling Company, Inc., a New Mexico corporation.
B. 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.
The period of this Agreement shall commence on the date hereof
and remain in effect through March 31, 2005, unless sooner terminated as the
result of the death of G Chappell (the "Non-Compete Period").
2. Covenant Not to Compete.
(a) G Chappell covenants and agrees that during the
Non-Compete Period, G Chappell shall not, without the prior written consent of
PDC, 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 contract oil and gas well
drilling business within the Permian Basin of West Texas and Southeastern New
Mexico (the "Competitive Business"); provided, however, that G Chappell may
invest in stock, bonds, or other securities of any Competitive Business (but
without otherwise participating in the Competitive Business) if:
AX D-2-1
<PAGE> 48
(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 PDC or any affiliate of PDC 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 G
Chappell is prohibited from engaging in certain activities by this Section shall
be extended by the length of time during which G Chappell is in breach of the
terms of this section.
(b) It is understood by and between the parties hereto that
the foregoing covenant by G Chappell not to enter into competition with PDC as
set forth in Section 3(a) hereof is an essential element of this Agreement and
the Stock Purchase Agreement and that, but for the agreement of G Chappell to
comply with such covenant, PDC would not have agreed to enter into this
Agreement or the Stock Purchase Agreement. PDC and G Chappell have independently
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 PDC and its affiliates. G
Chappell 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 G Chappell.
(c) Notwithstanding the terms and provisions of Section 2(a)
above, it is expressly understood that G Chappell shall be free to participate,
own, manage and operate an existing drilling company known as "Rod Ric Corp".
Such company is presently operating in Texas and New Mexico with five drilling
rigs capable of drilling shallow oil and gas wells to a depth of 7,500 feet and
occasionally to a depth of 9,000 feet. The participation by G Chappell shall not
be a violation of this agreement and PDC specially consents to such association
by G Chappell with such drilling company.
3. Restrictions on Soliciting Business of PDC.
G Chappell further covenants and agrees that during the
Non-Compete Period, G Chappell 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 PDC:
(a) Solicit or hire any of the employees of PDC or solicit or
take away any of PDC'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 3
hereof; or
(c) Engage in any act which would interfere with or harm any
business relationship PDC has with any customer, lessor, employee, principal or
supplier.
AX D-2-2
<PAGE> 49
4. Specific Performance.
Without intending to limit the remedies available to PDC, G
Chappell acknowledges that PDC will have no adequate remedies at law if G
Chappell violates the terms of Section 3 or 4, hereof. In such event, G Chappell
agrees that PDC 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 PDC
from pursuing any other remedies available to PDC (whether at law or in equity)
for such breach or threatened breach, including, without limitation, the
recovery of monetary damages from G Chappell. The provisions of this Section 5
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.
6. Representations and Warranties of PDC and G Chappell.
(a) Representations and Warranties of PDC. PDC hereby
represents and warrants to G Chappell that: (i) it has all requisite power to
enter into and perform its obligations under this Agreement; (ii) this Agreement
has been duly and validly authorized by all necessary corporate action on the
part of PDC; (iii) the execution of this Agreement by PDC and performance of
PDC's obligations hereunder do not require the consent or approval of any other
party; and (iv) this Agreement is a valid and binding obligation of PDC.
(b) Representations and Warranties of G Chappell. G Chappell
hereby represents and warrants to PDC that: (i) G Chappell has the capacity and
power to enter into and perform obligations of G Chappell under this Agreement;
(ii) G Chappell has duly and validly executed this Agreement; (iii) the
execution of this Agreement and performance of obligations of G Chappell
hereunder do not require the consent or approval of any other party; and (iv)
this Agreement constitutes a valid and binding obligation of G Chappell.
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 New Mexico
without reference to its conflict-of-laws principles. This Agreement's final
form resulted from review and negotiations
AX D-2-3
<PAGE> 50
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 the
District Court in Eddy or Chavez County, New Mexico, 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.
(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 PDC may assign this Agreement to a subsidiary
or affiliate without the prior written consent of G Chappell, and provided
further that a transfer by PDC as a result of a merger or sale of all or
substantially all of the assets of PDC with or to a third party that assumes
PDC's obligations hereunder by operation of law or otherwise shall not
constitute a prohibited assignment under this Section 7(e).
(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
AX D-2-4
<PAGE> 51
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 PDC:
Patterson Drilling Company LP, LLLP
4510 Lamesa Highway
P.O. Drawer 1410
Snyder, Texas 79550
Facsimile: (915) 573-0281
Attention: Cloyce A. Talbott
Chairman and Chief Executive Officer
To G Chappell:
4305 Lehigh
Midland, Texas 79707
Facsimile:
---------------
with copies to:
J. W. Neal, Esq.
Box 278
Hobbs, New Mexico 88241
Facsimile: (505) 397-7405
(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.
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.
PATTERSON DRILLING COMPANY LP,
LLLP
By:
--------------------------------------
Cloyce A. Talbott
Chief Executive Officer
G CHAPPELL
-----------------------------------------
Gary Chappell
AX D-2-5
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-3 of our report dated February 24, 2000
relating to the financial statements, which appears in Patterson Energy Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1999. We also consent
to the reference to our firm under the heading "Experts."
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
April 4, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
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, 1999, which information is contained in my summary reserve report
dated February 22, 2000, relating to the oil and natural gas reserves and
revenues as of December 31, 1997, 1998 and 1999 of certain properties owned by
Patterson Energy, Inc. as of December 31, 1999.
M. BRIAN WALLACE, P.E.
Dallas, Texas
April 4, 2000
