-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C4cFAnR6FEPirGHz9+c7cI3RvYUHlsD+XbYDEs2Igr7a7rHToEAk2eEHM6ezG1bZ LWNzfSFNfAvj+fjdCClhUw== 0000950134-97-009547.txt : 19971229 0000950134-97-009547.hdr.sgml : 19971229 ACCESSION NUMBER: 0000950134-97-009547 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971114 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971224 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATTERSON ENERGY INC CENTRAL INDEX KEY: 0000889900 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 752504748 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-22664 FILM NUMBER: 97743968 BUSINESS ADDRESS: STREET 1: 4510 LAMESA HWY STREET 2: P O DRAWER 1416 CITY: SNYDER STATE: TX ZIP: 79550 BUSINESS PHONE: 9155731104 MAIL ADDRESS: STREET 1: P O DRAWER 1416 CITY: SNYDER STATE: TX ZIP: 79550 8-K 1 FORM 8-K 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) November 14, 1997 PATTERSON ENERGY, INC. (Exact name of registrant as specified in its charter) DELAWARE 0-22664 75-2504748 (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) P.O. BOX 1416, 4510 LAMESA HIGHWAY, SNYDER, TEXAS 79550 (Address of principal executive offices) (Zip Code) (915) 573-1104 Registrant's telephone number, including area code No Change (Former name or former address, if changed since last report.) - -------------------------------------------------------------------------------- 2 ITEM 5. OTHER EVENTS. On December 23, 1997, the Registrant issued the following press release: PATTERSON ENERGY, INC. ADDS NINE RIGS TO ITS CONTRACT DRILLING FLEET AND RENEGOTIATES ITS LINE OF CREDIT SNYDER, TEXAS, December 23, 1997-PATTERSON ENERGY, INC. (NASDAQ:PTEN) announced that the Company had successfully completed the acquisition of the contract drilling assets of two separate, non-affiliated entities. On November 14, 1997, the Company completed the previously announced purchase of the contract drilling operations of V&B Drilling Company ("V&B") for $13.0 million cash. The assets acquired included eight drilling rigs (five of which are fully-operable), other related drilling equipment, four yards and a shop located in Odessa, Texas. The drilling rigs purchased from V&B will be placed into the Company's west Texas drilling operations. The rigs have drilling depth capabilities of 6,000 to 12,000 feet. On November 20, 1997 for a purchase price of $1.46 million, the Company acquired one fully-operable drilling rig and other related drilling equipment from Circle R Drilling, Ltd. 1981-A, a Louisiana limited partnership ("Circle R"). The Circle R drilling rig has a drilling depth capacity of 14,000 feet and will be operating in southeast Texas. The completion of the two acquisitions increases the Company's drilling fleet to 99 land based drilling rigs (92 of which are fully-operable) making Patterson the third largest provider of onshore contract drilling services in the United States. On December 9, 1997, the Company entered into a credit agreement with Norwest Bank Texas, N.A. (the "Bank") providing for an advancing, non-revolving credit facility of $60.0 million until May 31, 1998, at which time the outstanding principal balance will be converted to a term loan with a maturity date of January 1, 2001, and a seven-year amortization period. Until May 31, 1998, interest only (at the one-month LIBOR rate plus 2.375%) is payable on the outstanding credit balance. The new credit facility replaces the Company's existing $30.0 million line of credit with the Bank, which, at the time the credit facility was executed, had an outstanding balance of $23.25 million. The credit facility is secured by the accounts receivable, drilling rigs and other related drilling equipment of Patterson Drilling Company, the wholly owned subsidiary of the Company that owns and operates the drilling rigs. Proceeds provided by the credit facility may be used for future acquisitions, capital expenditures and working capital purposes. Patterson Energy, Inc. a Snyder, Texas based energy company, is one of the leading providers of domestic land drilling services to major and independent oil and natural gas companies and, to a lesser extent, is engaged in the development, exploration, acquisition and production of oil and natural gas. Patterson has 99 land-based drilling rigs (92 of which are currently operable) and focuses its operations primarily in Texas and southeast New Mexico. For further information, contact: Patterson Energy, Inc. Cloyce A. Talbott, Chairman and Chief Executive Officer James C. Brown, Vice President and Chief Financial Officer 915-573-1104 Shimmerlik Corporate Communications, Inc. Warren M. Shimmerlik 212-247-5200 4510 LAMES HIGHWAY SNYDER, TEXAS 79549 915-573-1104 2 3 ITEM 5. OTHER EVENTS (CONTINUED). On December 9, 1997, Patterson Energy, Inc. (the "Company"), Patterson Drilling Company, Patterson Petroleum, Inc. and Patterson Petroleum Trading Company, Inc. entered into a credit agreement with Norwest Bank Texas, N.A. (the "Bank") providing for a credit facility (the "Loan") of $60.0 million. The credit facility in effect replaces the Company's existing $30.0 million line of credit with the Bank which, at the time the credit facility was executed, had an outstanding balance of $23.25 million. The Loan is an advancing, non-revolving line of credit until May 31, 1998, at which time the outstanding principal balance will be converted to a term loan with a maturity date of January 1, 2001, and a seven-year amortization period. Monthly payments of interest only (at the LIBOR rate plus 2.375%) are payable on the outstanding credit balance until May 31, 1998. Commencing on July 1, 1998, monthly payments equal to 1/84 of the principal amount outstanding under the Loan on May 31, 1998 are payable with all remaining outstanding principal plus accrued interest due at maturity on January 1, 2001. The Loan is secured by the accounts receivable, drilling rigs and other related drilling equipment of Patterson Drilling Company. In addition to corporate guaranties of Patterson Drilling Company, Patterson Petroleum, Inc. and Patterson Petroleum Trading Company, Inc. (collectively referred to as the "Guarantors") for the obligations of the Company to the Bank, the Loan is further secured by the accounts receivable, drilling rigs and other related drilling equipment owned by Patterson Drilling Company or later acquired using proceeds provided by the Loan. The Loan requires a commitment fee of 0.25 percent of any portion of the credit facility which was not advanced at May 31, 1998. The Loan contains a number of representations, warranties and covenants, the breach of which, at the election of the Bank would accelerate the maturity of the Loan. The covenants of the Loan include, but are not limited to, maintenance on a quarterly basis of: (i) a consolidated cash flow ratio of 2.0 to 1.0, (ii) a debt to tangible net worth not to exceed 1.20 to 1.0, (iii) a current ratio of not less than 1.25 to 1.0 and (iv) a positive net income. In addition, the Company or any of the Guarantors may not incur any other indebtedness, allow to exist any liens on any property owned by the Company or the Guarantors or enter into a letter of credit. The Loan is secured by the accounts receivable, drilling rigs and other related drilling equipment of Patterson Drilling Company, the wholly owned subsidiary of the Company that owns and operates the drilling rigs. Proceeds provided by the credit facility may be used for future acquisitions, capital expenditures and working capital purposes. 3 4 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (C) EXHIBITS. 10.1 Credit Agreement dated December 9, 1997 among Patterson Energy, Inc., Patterson Drilling Company, Patterson Petroleum, Inc., Patterson Trading Company, Inc. and Norwest Bank Texas, N.A. 10.2 Promissory Note dated December 9, 1997 among Patterson Energy, Inc. and Norwest Bank Texas, N. A. 10.3 Security Agreement dated December 9, 1997 between Patterson Drilling Company and Norwest Bank Texas, N.A. 10.4 Corporate Guarantees of Patterson Drilling Company, Patterson Petroleum, Inc. and Patterson Petroleum Trading Company, Inc. 99.1 Asset Purchase Agreement dated November 14, 1997 among Patterson Energy, Inc., Patterson Drilling Company and V & B Drilling Company. 99.2 Asset Purchase Agreement dated November 20, 1997 among Patterson Drilling Company and Circle R Drilling, Ltd. 1981-A. 4 5 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PATTERSON ENERGY, INC. Date: December 24, 1997 /s/James C. Brown ---------------------- James C. Brown Vice President-Finance 5 6 EXHIBIT INDEX EXHIBIT EXHIBIT NO. DESCRIPTION 10.1 Credit Agreement dated December 9, 1997 among Patterson Energy, Inc., Patterson Drilling Company, Patterson Petroleum, Inc., Patterson Trading Company, Inc. and Norwest Bank Texas, N.A. 10.2 Promissory Note dated December 9, 1997 among Patterson Energy, Inc. and Norwest Bank Texas, N. A. 10.3 Security Agreement dated December 9, 1997 between Patterson Drilling Company and Norwest Bank Texas, N.A. 10.4 Corporate Guarantees of Patterson Drilling Company, Patterson Petroleum, Inc. and Patterson Petroleum Trading Company, Inc. 99.1 Asset Purchase Agreement dated November 14, 1997 among Patterson Energy, Inc., Patterson Drilling Company and V & B Drilling Company. 99.2 Asset Purchase Agreement dated November 20, 1997 among Patterson Drilling Company and Circle R Drilling, Ltd. 1981-A. 6 EX-10.1 2 CREDIT AGREEMENT DATED DECEMBER 9, 1997 1 EXHIBIT 10.1 CREDIT AGREEMENT AMONG NORWEST BANK TEXAS, NATIONAL ASSOCIATION, AS LENDER AND PATTERSON ENERGY, INC., AS BORROWER AND PATTERSON DRILLING COMPANY, PATTERSON PETROLEUM, INC., AND PATTERSON PETROLEUM TRADING COMPANY, INC., AS GUARANTORS 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 CERTAIN DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 OTHER DEFINITIONAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE II CREDIT FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.1 SHORT-TERM CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.2 MINIMUM AMOUNT OF EACH ADVANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.3 COMMITMENT FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.4 BORROWING NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.5 LONG-TERM CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.6 INTEREST RATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.7 INTEREST PAYMENT DATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.8 INTEREST BASIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.9 DEFAULT RATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.10 METHOD OF PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.11 PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE III CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.1 INITIAL ADVANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.2 EACH ADVANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE IV SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.1 SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.2 GUARANTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.3 SECURITY AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.1 CORPORATE EXISTENCE AND STANDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.2 AUTHORIZATION AND VALIDITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.3 NO CONFLICT; GOVERNMENT CONSENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.4 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.5 MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.6 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.7 LITIGATION AND CONTINGENT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.9 ACCURACY OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.10 REGULATION U . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.11 MATERIAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.12 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.13 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.14 LICENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.15 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
i 3 ARTICLE VI COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.1 FINANCIAL REPORTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.2 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.3 NOTICE OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.4 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.5 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.6 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.7 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.8 MAINTENANCE OF PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.9 INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.10 MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.11 ACCOUNT PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.12 DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.13 INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.14 SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.15 SALE AND LEASEBACK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.16 GUARANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.17 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.18 LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.19 CASH FLOW COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.20 DEBT TO TANGIBLE NET WORTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.21 CURRENT RATIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.22 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.23 PRIMARY DEPOSITORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.24 PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE VII DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS, REMEDIES, AND SETOFF . . . . . . . . . . . . . . . . . . . . . . . . . . 21 8.1 ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 8.2 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 8.3 PRESERVATION OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 8.4 SETOFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.1 SURVIVAL OF REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.2 GOVERNMENTAL REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.3 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.4 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.5 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.6 BENEFITS OF THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.7 EXPENSES; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.8 ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.9 SEVERABILITY OF PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.10 NONLIABILITY OF LENDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9.11 CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ii 4 9.12 CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 9.13. WAIVER OF JURY TRIAL24 9.14 MAXIMUM INTEREST RATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 9.15 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 9.16 INDEMNIFICATION REGARDING ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 25 9.17 SURVIVAL OF REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 9.18 GOVERNMENTAL REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 9.19 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 9.20 PERMITTED PARTICIPANTS: EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.21 DISSEMINATION OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.22 BUSINESS DAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.23 FINAL AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.24 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
iii 5 LIST OF EXHIBITS EXHIBIT "A" GUARANTY EXHIBIT "B" NOTE EXHIBIT "C" SECURITY AGREEMENT EXHIBIT "D" FORM OF OPINION OF COUNSEL EXHIBIT "E" COMPLIANCE CERTIFICATE iv 6 CREDIT AGREEMENT THIS CREDIT AGREEMENT is dated as of December 9, 1997, and is by and among PATTERSON ENERGY, INC., A DELAWARE CORPORATION (THE "BORROWER"); PATTERSON DRILLING COMPANY, A DELAWARE CORPORATION ("PDC"); PATTERSON PETROLEUM, INC., A TEXAS CORPORATION ("PPI"); AND PATTERSON PETROLEUM TRADING COMPANY, INC., A TEXAS CORPORATION ("PPTC"); and NORWEST BANK TEXAS, NATIONAL ASSOCIATION, a national banking association (THE "BANK"). RECITALS: WHEREAS, the Borrower has requested the Bank to extend an advancing, non-revolving credit to it in an amount not to exceed $60,000,000 until May 31, 1998, when all amounts due to the Bank will become payable on a seven-year, level-principal amortization schedule with a final maturity on January 1, 2001 (the "Credit"); and WHEREAS, the Bank is willing to make the Credit available to the Borrower subject to the provisions of this Credit Agreement; WHEREAS, the Credit is in substitution of, and certain proceeds of which will retire amounts due under, the Existing Agreement on the Closing Date (as defined in Section 1.1 hereof). NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.1 CERTAIN DEFINED TERMS. In addition to terms defined in the above recitals, as used herein: "ADVANCE" means any disbursement to or on behalf of the Borrower under this Agreement, including, without limitation, all amounts advanced under the Note. "AGREEMENT" means this Credit Agreement and all amendments and supplements to it which become effective hereafter in accordance with its terms. "ARTICLE" means an article of this Agreement unless another document is specifically referenced. 1 7 "AUTHORIZED OFFICER" means any of the Chairman of the Board and Chief Executive Officer, the President and Chief Operating Officer, or the Vice President - Finance, Chief Financial Officer, Treasurer, and Secretary of the Borrower, acting singly. "BORROWED MONEY" means funds obtained by incurring contractual indebtedness and shall not include trade accounts payable or money borrowed from the Bank. "BORROWING DATE" means a date on which an Advance is made hereunder. "BORROWING NOTICE" is defined in Article II. "BUSINESS DAY" means every day (other than Saturday and Sunday) on which the Bank is open to the public generally for the transaction of business in Wichita Falls, Texas. "CAPITALIZED LEASE" of a Person means any lease of Property by the Person as lessee which would be capitalized on a balance sheet of the Person prepared in accordance with GAAP. "CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the obligations of the Person under Capitalized Leases which would be shown as a liability on a balance sheet of the Person prepared in accordance with GAAP. "CASH FLOW" means, for any 12-month period ending on the last day of any quarterly fiscal period of the Borrower, the aggregate amount of the following items properly shown on its income statement, determined in accordance with GAAP: net income after taxes plus (i) amortization, depreciation, and depletion expenses; less (ii) dividends, extraordinary income, and noncash charges against income, which the Bank determines, in its sole discretion, to be appropriate. "CHANGE" is defined in Article II. "CLOSING DATE" means the date of this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended, reformed, or otherwise modified from time to time. "COMMITMENT" means the obligation of the Bank to make Advances not exceeding $60,000,000. "COMMITMENT TERMINATION DATE" means May 31, 1998. "CONDEMNATION" is defined in Article VII. 2 8 "CONTROLLED GROUP" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, with the Borrower or any of its Subsidiaries, are or were treated as a single employer under Section 414 of the Code. "CURRENT ASSETS" means the aggregate amount of the Borrower's assets on a consolidated basis properly shown as current assets on its balance sheet, determined in accordance with GAAP, less (i) receivables, loans, and other amounts due from any shareholder, director, officer, or employee of the Borrower; and (ii) receivables, loans, and other amounts due from any other related or affiliated person, corporation, partnership, trust, or other entity of the Borrower. "CURRENT LIABILITIES" means the aggregate amount of the Borrower's liabilities on a consolidated basis properly shown as current liabilities on its balance sheet, determined in accordance with GAAP. "CURRENT MATURITIES OF LONG-TERM DEBT" means that portion of the Borrower's Long-Term Debt that matures or is scheduled to be paid during the next four fiscal quarters. "DEBT" means the aggregate amount of all of the Borrower's liabilities on a consolidated basis properly shown as liabilities on its balance sheet, determined in accordance with GAAP. "DEFAULT" means an event described in Article VII. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ENVIRONMENTAL LAWS" is defined in Article V. "ENVIRONMENTAL MATTERS" is defined in Article V. "EXISTING AGREEMENT" means that certain Credit Agreement dated as of June 3, 1997, among the Borrower, the Bank, the Guarantors, and Patterson Drilling Programs, Inc. "FINAL MATURITY DATE" means January 1, 2001. "GAAP" means generally accepted accounting principles as in effect from time to time, applied in a manner consistent with those used in preparing the financial statements referred to in Section 5.4 hereof. "GUARANTORS" means PDC, PPI, and PPTC. "GUARANTY" means that guaranty dated as of this Agreement in the form attached hereto as Exhibit "A" and executed and delivered to the Bank by the Guarantors on the Closing Date. 3 9 "INDEBTEDNESS" means as to the Borrower or any Subsidiary all items of indebtedness, obligations, or liabilities, whether matured or unmatured, liquidated or unliquidated, direct or contingent, joint or several, all as determined in accordance with GAAP. "LENDING INSTITUTION" means any office, branch, subsidiary, or affiliate of the Bank. "LETTER OF CREDIT" of a Person means a letter of credit or similar instrument which is issued upon the application of the Person or upon which the Person is an account party or for which the Person is in any way liable. "LIBOR RATE" shall mean, for any one-month period commencing on a Payment Date, an interest rate per annum equal to the one-month LIBOR rate as published in the "Money Rates" section of The Wall Street Journal on the second business day preceding the first day of such Payment Date. "LIEN" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, or preference, priority, or other security agreement or preferential arrangement (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease, or other title retention agreement). "LOAN DOCUMENTS" means this Agreement, the Note, the Security Agreement, the Guaranty, and other agreements, documents, certificates, letters, and instruments delivered or executed by the Borrowers and the Guarantors pursuant to, or in connection with, this Agreement, as any of them may hereafter be amended, supplemented, or restated, and all future renewals and extensions or restatements of, or amendments or supplements to, any of the foregoing. "LONG-TERM CREDIT" is defined in Article II. "LONG-TERM DEBT" shall mean the aggregate amount of the Borrower's liabilities on a consolidated basis properly shown as non-current liabilities on its balance sheet, determined in accordance with GAAP, as of the last day of any quarter. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the business, Property, or financial condition, or results of operations, of the Borrower and the Subsidiaries taken as a whole; or (ii) the ability of the Borrower to perform its obligations under the Loan Documents. "MATURITY DATE" means January 1, 2001. "MAXIMUM RATE" is defined in Article IX. "MULTI-EMPLOYER PLAN" means a Plan maintained pursuant to a collective bargaining agreement to which the Borrower or any member of the Controlled Group is a party and to which more than one employer is or was obligated to make contributions. 4 10 "NET WORTH" means the aggregate amount of the Borrower's consolidated assets on its balance sheet minus the aggregate amount of the Borrower's consolidated liabilities on its balance sheet, determined in accordance with GAAP. "NOTE" means a promissory note in substantially the form of Exhibit "B" hereto, duly executed and delivered by the Borrower and payable to the order of the Bank in the amount of its Commitment, including any amendment, modification, renewal, or replacement of the promissory note. "OBLIGATION" means all unpaid principal of and accrued and unpaid interest on the Note, all accrued and unpaid fees, and all expenses, reimbursements, indemnities, and other obligations of the Borrower to the Bank or any indemnified party hereunder arising under the Loan Documents. "PARTICIPANTS" is defined in Article IX. "PAYMENT DATE" means the first day of each calendar month. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "PERSON" means any natural person, corporation, firm, joint venture, partnership, association, enterprise, trust, or other entity or organization, or any governmental or political subdivision, or any agency, department, or instrumentality thereof. "PLAN" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. "PROPERTY" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of the Person, or other assets owned, leased, or operated by the Person. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of the Board of Governors relating to extension of credit by banks to purchase or carry margin stocks applicable to member banks of the Federal Reserve System. "REPORTABLE EVENT" means a reportable event as defined in Section 4043 or 4063(a) of ERISA and the regulations issued under it with respect to a Plan, excluding, however, events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the event, but a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of any waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. 5 11 "SECTION" means a numbered section of this Agreement, unless another document is specifically referenced. "SECURITY AGREEMENT" means that security agreement dated as of the date of this Agreement in the form attached hereto as Exhibit "C" and executed and delivered to the Bank by PDC on the Closing Date. "SHORT-TERM CREDIT" is defined in Article II. "SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower and/or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group, and any Multi-employer Plan covering any employees of the Borrower and/or the Controlled Group. "SUBSIDIARY" of a Person means (i) any corporation more than 50 percent of the outstanding securities having ordinary voting power of which is at the time owned or controlled, directly or indirectly, by the Person or by one or more of its Subsidiaries, or by the Person and one or more of its Subsidiaries; or (ii) any partnership, association, joint venture, or similar business organization more than 50 percent of the ownership interests having ordinary voting power of which is at the time so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "SUBSTANTIAL PORTION" means, with respect to the Property of the Borrower and the Subsidiaries, Property which (i) represents more than 10 percent of the consolidated assets of the Borrower and the Subsidiaries as shown in the consolidated financial statements of the Borrower and the Subsidiaries prepared in accordance with GAAP as of the end of the most recent fiscal quarter before the date of determination; or (ii) produces more than 10 percent of the consolidated net sales or the consolidated net income of the Borrower and the Subsidiaries as reflected in the financial statements referred to in clause (i) above. "TANGIBLE NET WORTH" means Net Worth minus the aggregate amount of the Borrower's items on a consolidated basis properly shown as the following types of assets on its balance sheet, determined in accordance with GAAP: (i) goodwill, patents, copyrights, mailing lists, trade names, trademarks, servicing rights, organizational and franchise costs, bond underwriting costs, and similar assets properly classified as intangible; (ii) leasehold improvements; (iii) receivables, loans, and other amounts due from any shareholder, director, officer, or employee of the Borrower, and receivables, loans, and other amounts due from any other related or affiliated person, corporation, partnership, trust, or other entity of the Borrower (other than those created in the normal course of business); and (iv) investments or interests in non-public companies, cooperatives, or partnerships. "TRANSFEREE" is defined in Article IX. "UNFUNDED LIABILITIES" means the accumulated funding deficiency as that term is defined in Code Section 412(a), for each Single Employer Plan or Multi-employer Plan covering any 6 12 employees of the Borrower and/or any member of the Controlled Group, determined as of the end of the most recent plan year for each Plan. "UNMATURED DEFAULT" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in this Agreement shall have the above-described meanings when used in any other Loan Documents or in any certificate, report, or other document made or delivered pursuant to this Agreement, unless the context otherwise expressly requires. (b) Terms used herein in the singular shall import the plural and vice versa. (c) The words "hereof," "herein," "hereinafter," "hereinabove," "hereto," "hereunder," and similar terms in this Agreement shall refer to this Agreement as a whole and not to any particular provisions. (d) In this Agreement, in computing periods of time from a specified date to a later specified date, the word "from" means "from and including," and the words "to" and "until" each mean "to but excluding." (e) All accounting terms not specifically defined herein shall be construed in accordance with GAAP. ARTICLE II CREDIT FACILITIES 2.1 SHORT-TERM CREDIT. From and including the date of this Agreement and to and including the Commitment Termination Date, the Bank agrees, on the terms and conditions of this Agreement, to make Advances from time to time in amounts not to exceed the Commitment (the "Short-Term Credit"). Interest only is payable on the Short-Term Credit. The Bank is hereby authorized to record the principal amount of each of its Advances on the schedule attached to the Note. 2.2 MINIMUM AMOUNT OF EACH ADVANCE. Each Advance shall be in the minimum amount of $100,000. 2.3 COMMITMENT FEE. The Borrower agrees to pay the Bank on the Commitment Termination Date a fee of 0.25 percent of any portion of the Commitment which was not advanced to the Borrower. 7 13 2.4 BORROWING NOTICE. The Borrower shall give the Bank irrevocable notice (the "Borrowing Notice") not later than 10:00 A.M. (Wichita Falls, Texas, time) at least two Business Days before the Borrowing Date for each Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, of the Advance, and (ii) the amount of the Advance. The Bank will make the funds comprising each Advance available to the Borrower no later than noon (Wichita Falls, Texas, time) on each Borrowing Date. 2.5 LONG-TERM CREDIT. On the Commitment Termination Date, the Bank agrees, on the terms and conditions of this Agreement, to convert all the outstanding Advances comprising the Short-Term Credit into a long-term credit (the "Long-Term Credit"). The Long-Term Credit will mature on the Maturity Date and is payable in monthly installments commencing on July 1, 1998, each equal to 1/84 of the principal amount outstanding under the Note on May 31, 1998. A final payment of all remaining outstanding principal plus accrued interest shall be due and payable on the Maturity Date. 2.6 INTEREST RATE. Interest on the unpaid principal amount of the Note shall be calculated at an annual rate equal to the LIBOR Rate plus 2.375 percent, which rate will change on each Payment Date. If for any reason the Bank determines that adequate and reasonable means do not exist for ascertaining the LIBOR Rate, the Bank shall establish in good faith an alternative interest rate index which will result in an overall interest rate which approximates as closely as possible the interest rate that would have been determined under this Section. 2.7 INTEREST PAYMENT DATES. Interest accrued on each Advance under the Short-Term Credit shall be payable on each Payment Date, commencing with the first Payment Date after the date hereof, on any date on which the Short-Term Credit is prepaid, whether by acceleration or otherwise, and on May 31, 1998. Interest accrued on the Long-Term Credit shall be payable on each Payment Date commencing after June 30, 1998, on any date on which the Long-Term Credit is prepaid, whether by acceleration or otherwise, and on the Maturity Date. If any payment of principal of or interest on the Credit becomes due on a day which is not a Business Day, the payment shall be made on the next Business Day, and, in the case of a principal payment, the extension of time shall be included in computing interest for the payment. 2.8 INTEREST BASIS. Interest shall be calculated for actual days elapsed on the basis of a 365-day year. 2.9 DEFAULT RATE. If any portion of the Note is not paid when due and payable, whether by acceleration or otherwise, it shall bear interest until paid in full at a rate per annum equal to the interest rate provided in Section 2.6 hereof on the Note plus 2 percent per annum. 8 14 2.10 METHOD OF PAYMENT. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Bank at the Bank's address specified in Article IX, by noon (Wichita Falls, Texas, time) on the date when due. The Bank shall send the Borrower statements of all amounts due under this Agreement, which shall be conclusively binding on the Borrower, unless the Borrower notifies the Bank to the contrary within 15 days of the receipt of such a statement that the Borrower deems to be incorrect. 2.11 PREPAYMENT. Upon at least 30 days prior written notice, all or a portion of the Credit may be prepaid without premium or penalty. ARTICLE III CONDITIONS PRECEDENT 3.1 INITIAL ADVANCE. The Bank shall not be required to make the initial Advance hereunder unless the Borrower has furnished to the Bank: (i) Copies of the articles of incorporation of the Borrower and each of the Guarantors, together with all amendments thereto, and certificates of good standing, all of which are certified by the appropriate governmental officer in their jurisdictions of incorporation. (ii) Copies, certified by the Secretary or Assistant Secretary of the Borrower and each of the Guarantors, of their bylaws and of their Boards of Directors' resolutions authorizing the execution of the Loan Documents. (iii) Incumbency certificates, executed by the Secretary or Assistant Secretary of the Borrower and each of the Guarantors, which identify by name and title and bear the signature of the officers of the Borrower and each of the Guarantors authorized to sign the Loan Documents and to make borrowings hereunder, upon which certificate the Bank shall be entitled to rely until informed of any change in writing by the Borrower. (iv) Evidence, in form and substance satisfactory to the Bank, that the Borrower and each of the Guarantors have obtained all governmental approvals necessary for them to enter into the Loan Documents. (v) A written opinion of the Borrower's counsel, addressed to the Bank, in substantially the same form attached hereto as Exhibit "D" and satisfactory to counsel to the Bank. (vi) Executed Note payable to the order of the Bank. 9 15 (vii) Written money transfer instructions addressed to the Bank and signed by an Authorized Officer, with any other money transfer authorizations the Bank has reasonably requested. (viii) Evidence, in form and substance satisfactory to the Bank, of the termination of the Existing Agreement and the repayment in full of all outstanding obligations of the Borrower thereunder, including the return to the Borrower of the original promissory note evidencing the obligations created by the Existing Agreement marked paid in full and cancelled. (ix) Executed Guaranty. (x) Executed Security Agreement. (xi) Financing Statement to be filed with the Secretary of State of Texas. (xii) Financing Statement to be filed with the Secretary of State of New Mexico. (xiii) Financing Statement to be filed with the Oklahoma County Clerk in Oklahoma City. (xiv) The consolidated and consolidating financial statements of the Borrower and the Subsidiaries for the nine-month period ending September 30, 1997. (xv) Any other documents the Bank or its counsel has reasonably requested. 3.2 EACH ADVANCE. The Bank shall not be required to make any Advance, unless on the applicable Borrowing Date: (i) There exists no Default or Unmatured Default. (ii) The representations and warranties in Article V are true and correct as of the Borrowing Date. (iii) All legal matters incident to making the Advance are satisfactory to the Bank and its counsel. Each Borrowing Notice for each Advance shall constitute a representation and warranty by the Borrower that the conditions in Sections 3.2(i) and (ii) have been satisfied. 10 16 ARTICLE IV SECURITY 4.1 SECURITY INTEREST. The Note shall be an unsecured obligation of the Borrower. 4.2 GUARANTY. The Borrower shall cause to be executed and delivered to the Bank the Guaranty from each of the Guarantors, whereby each Guarantor shall guaranty the obligations of the Borrower to the Bank. 4.3 SECURITY AGREEMENT. The Borrower shall cause to be executed and delivered to the Bank from PDC the Security Agreement, whereby PDC will secure its Obligations to the Bank under the Guaranty. ARTICLE V REPRESENTATIONS AND WARRANTIES The Borrower and the Guarantors hereby, each Guarantor for itself and not one for the other, represent and warrant to the Bank as follows and acknowledge that the Bank is relying on these representations and warranties in connection with the transactions contemplated by this Agreement: 5.1 CORPORATE EXISTENCE AND STANDING. Each of the Borrower and the Guarantors is a corporation duly incorporated, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 5.2 AUTHORIZATION AND VALIDITY. Each of the Borrower and the Guarantors has the corporate power and authority and legal right to execute and deliver the Loan Documents and to perform its obligations thereunder. The execution and delivery of the Borrower and the Guarantors of the Loan Documents and the performance of their obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents constitute legal, valid, and binding obligations of the Borrower and the Guarantors enforceable against each of them in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, or similar laws affecting the enforcement of creditors' rights generally. 5.3 NO CONFLICT; GOVERNMENT CONSENT. Neither the execution and delivery by each of the Borrower and the Guarantors of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree, or award binding on the Borrower or any of the Guarantors or the Borrower's or any Guarantor's articles or certificate of incorporation or bylaws or any indenture, instrument, or agreement to which the Borrower or any of the Guarantors is a party or is subject, or by which they are, or their Property is, bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien in, of, or on the Property of 11 17 the Borrower or a Guarantor pursuant to any such indenture, instrument, or agreement, other than the Lien created by the Loan Documents and other than any such violations, conflicts, or defaults that would not reasonably be expected to have a Material Adverse Effect. No order, consent, approval, license, authorization, or validation of, or filing, recording, or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery, and performance of, or the legality, validity, binding effect, or enforceability of, any of the Loan Documents, except for (a) the filing of financing statements and the Security Agreement, (b) in connection, or in compliance, with the provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and (c) such other orders, consents, approvals, licenses, authorizations, validations, filings, recordings, registrations, and exemptions the failure of which to be obtained or made would not reasonably be expected to have a Material Adverse Effect. 5.4 FINANCIAL STATEMENTS. The audited consolidated financial statements of the Borrower and the Guarantors for the 12-month period ending December 31, 1996, and the consolidated and consolidating financial statements of the Borrower and the Guarantors for the nine-month period ending September 30, 1997, heretofore delivered to the Bank, were prepared in accordance with GAAP in effect when the statements were prepared and fairly present the consolidated and consolidating (for the period ending September 30, 1997) financial condition and operations of the Borrower and the Guarantors at those dates and the consolidated results of their operations for the periods then ended. 5.5 MATERIAL ADVERSE CHANGE. Since September 30, 1997, there has been no change in the business, Property, condition (financial or otherwise), or results of operations of the Borrower and the Guarantors which could reasonably be expected to have a Material Adverse Effect. 5.6 TAXES. The Borrower and the Guarantors have filed all United States federal tax returns and all other tax returns due before the date hereof and have paid all taxes due pursuant to these returns or pursuant to any assessment received by the Borrower or any of the Guarantors, except any taxes being contested in good faith and as to which adequate reserves have been provided. No tax liens have been filed, and no claims are being asserted for any such taxes. The charges, accruals, and reserves on the books of the Borrower and the Guarantors for any taxes or other governmental charges are adequate. 5.7 LITIGATION AND CONTINGENT OBLIGATIONS. There is no litigation, arbitration, governmental investigation, proceeding, or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Borrower or any of the Guarantors which would reasonably be expected to have a Material Adverse Effect. Other than any liability incident to such litigation, arbitration, or proceedings, the Borrower has no material contingent obligations not provided for or disclosed in the financial statements referred to in Section 5.4. 12 18 5.8 ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $1,000,000. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither the Borrower nor any other members of the Controlled Group have withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize, terminate, or freeze any Plan except for the Sledge Cattle Company, Inc., Profit Sharing Plan. Neither the Borrower nor any other member of the Controlled Group has been a party to any Multi-employer Plan. 5.9 ACCURACY OF INFORMATION. No information, exhibit, or report furnished by the Borrower or any of the Guarantors to the Bank in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements therein not misleading. 5.10 REGULATION U. Margin stock (as defined in Regulation U) constitutes less than 25 percent of the assets of the Borrower and the Guarantors which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.11 MATERIAL AGREEMENTS. Neither the Borrower nor any Guarantor is in default in the performance, observance, or fulfillment of any obligations, covenants, or conditions in any agreement to which it is a party (other than any agreement or instrument evidencing or governing Indebtedness), which default could reasonably be expected to have a Material Adverse Effect. 5.12 COMPLIANCE WITH LAWS. The Borrower and the Guarantors have complied in all material respects with all applicable statutes, rules, regulations, orders, and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property. Neither the Borrower nor any Guarantor has received any notice that its operations are not in material compliance with any applicable federal, state, and local environmental, health, and safety statutes and regulations or the subject of any federal or state investigation evaluating whether remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.13 LIENS. The Property of the Borrower and each Guarantor is not subject to any Lien except: (a) Liens for taxes, assessments, or governmental charges or levies if they are not then delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings; (b) Liens imposed by law, such as carriers', warehousemen's, and mechanics' liens and other similar liens arising in the ordinary course of business, which secure payment of 13 19 obligations not more than 60 days past due, or are being contested in good faith and by appropriate proceedings; (c) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation; (d) Utility easements, building restrictions, and any other encumbrances or charges against real property which generally exist for properties of a similar character and which do not in any material way affect their marketability or interfere with their use in the business of the Borrower or the Guarantors; (e) Liens existing on the date hereof and listed in the Borrower's consolidated financial statements described in Section 5.4 of this Agreement; (f) Liens of the Bank or any of its predecessors-in-interest; (g) Liens of The CIT Group/Equipment Financing, Inc. securing obligations that have been paid in full and for which a termination statement has been executed and forwarded to the Office of the Secretary of State of Texas for filing; (h) Liens of Snyder National Bank securing obligations that have been paid in full and for which a termination statement has been executed and forwarded to the Office of the Secretary of State of Texas for filing; and (i) Liens created under operating agreements with respect to oil or gas wells. 5.14 LICENSES. The Borrower and each Guarantor possess adequate licenses, permits, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, to conduct their businesses substantially as now conducted and as presently proposed to be conducted. 5.15 ENVIRONMENTAL MATTERS. To their knowledge, the Borrower and each Guarantor have obtained all material permits, licenses, and other authorizations which are required under federal, state, and/or local laws ("Environmental Laws") relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, and hazardous or toxic materials or wastes into ambient air, surface water, groundwater, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or hazardous or toxic materials or wastes ("Environmental Matters"). To their knowledge, the Borrower and each Guarantor are in compliance in all material respects with all terms and conditions of the required permits, licenses, and authorizations and are also in full compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables in the Environmental Laws or in any plan, order, decree, judgment, or notice. To their knowledge, 14 20 no events, conditions, circumstances, activities, practices, incidents, actions, or plans have occurred on the Borrower's or any Guarantor's Property which may interfere with or prevent continued compliance or which may give rise to any liability under any Environmental Laws or the common law. The Borrower and the Guarantors have received no summons, citation, directive, letter, or other communication, written or oral, from any agency or department of any state, federal, or local government relating to any Environmental Matters or any alleged Environmental Matters. No investigation, administrative order, consent order and agreement, litigation, or settlement with respect to any Environmental Matters or any alleged Environmental Matters has been received by the Borrower or any Guarantor or, to the best of their knowledge, is proposed, threatened, anticipated, or in existence with respect to the Borrower or the Guarantors. ARTICLE VI COVENANTS During the term of this Agreement, unless the Bank otherwise consents in writing: 6.1 FINANCIAL REPORTING. The Borrower will maintain, for itself and each Guarantor, a system of accounting established and administered in accordance with GAAP and furnish to the Bank: (i) Within 95 days after the close of each of its fiscal years, an unqualified (except for qualifications relating to changes in accounting principles or practices reflecting changes in GAAP and required or approved by the Borrower's independent certified public accountants) audit report certified by nationally recognized independent certified public accountants, prepared in accordance with GAAP on a consolidated basis for itself and the Subsidiaries. (ii) Within 50 days after the close of the first three quarterly periods of each of its fiscal years, for itself and the Subsidiaries, consolidated reviewed balance sheets at the close of each such period and consolidated profit and loss and a statement of cash flows from the beginning of the fiscal year to the end of the quarter, all certified by an Authorized Officer. (iii) Simultaneously with the submission of the financial information required by Section 6.1(i) and (ii) hereof, a Compliance Certificate in substantially the form of Exhibit "E" hereto executed by the Chief Financial Officer of the Borrower. (iv) As soon as possible and in any event within 10 days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by an Authorized Officer, describing the Reportable Event and the action which the Borrower proposes to take with respect thereto. (v) As soon as possible and in any event within 10 days after receipt by the Borrower, a copy of (a) any notice or claim that the Borrower or any of the Subsidiaries is 15 21 or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment; and (b) any notice alleging any violation of any federal, state, or local environmental, health, or safety law or regulation by the Borrower or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (vi) Promptly after the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports, and proxy statements so furnished. (vii) Promptly after the filing thereof, copies of all registration statements and annual, quarterly, monthly, or other regular reports which the Borrower or any of the Subsidiaries files with the Securities and Exchange Commission. (viii) Any other information (including non-financial information) the Bank reasonably requests. 6.2 USE OF PROCEEDS. The Borrower and its Subsidiaries will use the proceeds of the Advances to acquire or make improvements to drilling rigs, rolling stock, and related drilling equipment, to pay all amounts due under the Existing Agreement, and to acquire other drilling companies or the assets related to their drilling operations. The Borrower will not use the proceeds of the Advances for general corporate purposes without prior written permission of the Bank. The Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances to purchase or carry any "margin stock" (as defined in Regulation U). 6.3 NOTICE OF DEFAULT. The Borrower will, and will cause each Subsidiary to, give notice in writing to the Bank within five Business Days of the occurrence of any Default or Unmatured Default. The Borrower and the Subsidiaries shall not be required to make separate disclosure under this Section 6.3 of occurrences or developments which have previously been disclosed to the Bank in any financial statements or other information delivered to the Bank pursuant to Section 6.1. 6.4 CONDUCT OF BUSINESS. The Borrower will, and will cause each Guarantor to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as presently conducted and do all things necessary to remain duly incorporated, validly existing, and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 6.5 TAXES. The Borrower will, and will cause each Subsidiary to, pay when due all taxes, assessments, and governmental charges and levies upon it or its income, profits, or Property, except those contested in good faith by appropriate proceedings and for which adequate reserves have been set aside. 16 22 6.6 INSURANCE. The Borrower will, and will cause each Subsidiary to, adequately insure its and their Properties of an insurable nature by reputable and solvent insurance companies against loss or damages customarily insured against by Persons operating similar properties and similarly situated, and carry other insurance as usually carried by Persons engaged in the same or similar business and similarly situated, and the Borrower will furnish to the Bank upon request full information as to the insurance carried. 6.7 COMPLIANCE WITH LAWS. The Borrower will, and will cause each Subsidiary to, comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees, or awards to which it may be subject. 6.8 MAINTENANCE OF PROPERTIES. The Borrower will, and will cause each Subsidiary to, do all things necessary to maintain, preserve, protect, and keep its Property in good repair, working order, and condition, normal wear and tear excepted. 6.9 INSPECTION. The Borrower will, and will cause each Subsidiary to, permit the Bank, by its representatives and agents, to inspect any of the Property, corporate books, and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Subsidiary, and to discuss the affairs, finances, and accounts of the Borrower and each Subsidiary at reasonable times and intervals. 6.10 MERGER. The Borrower will not, nor will it permit any Guarantor to, merge or consolidate with or into any other Person, unless, as long as both immediately before and after giving effect to the merger or consolidation, no Default or Unmatured Default has occurred and is continuing; but (i) any Guarantor may merge with the Borrower or another Guarantor, (ii) the Borrower or any Guarantor may merge or consolidate with any other Person as long as the Borrower or the Guarantor is the surviving entity, and (iii) any Guarantor may merge or consolidate with any other Person as long as the surviving entity of the merger or consolidation is a Subsidiary. 6.11 ACCOUNT PAYABLE. The Borrower will, and will cause each Guarantor to, pay all of its accounts payable within 120 days, except for any accounts payable being disputed in good faith and for which, if requested by the Bank, adequate reserves have been made. 6.12 DIVIDENDS. The Borrower will not, nor will it permit any Guarantor to, declare or pay any dividends on its capital stock (other than dividends payable in its own capital stock) or redeem, repurchase, or otherwise acquire or retire any of its capital stock at any time outstanding, but any Guarantor may declare and pay dividends to the Borrower. 6.13 INDEBTEDNESS. The Borrower will not, nor will it permit any Guarantor to, create, incur, or suffer to exist any indebtedness for Borrowed Money or Capitalized Lease Obligations, except: (a) the Advances. 17 23 (b) Indebtedness existing on the date hereof and listed in the Borrower's consolidated financial statements described in Section 5.4 of this Agreement. 6.14 SALE OF ASSETS. The Borrower will not, nor will it permit any Guarantor to, lease, sell, or otherwise dispose of all, or a substantial portion, of its property, assets, or business to any other Person except for sales of inventory in the ordinary course of business. The Borrower will not, nor will it permit any Guarantor to, sell or otherwise dispose of any note receivable or accounts receivable, with or without recourse, except to the Borrower, PPI, or PDC. 6.15 SALE AND LEASEBACK. The Borrower will not, nor will it permit any Guarantor to, sell or transfer any property in order to concurrently or subsequently lease as lessee such or similar property. 6.16 GUARANTIES. The Borrower will not, nor will it permit any Guarantor to, make or suffer to exist any guaranty (including, without limitation, any guaranty of the obligations of a Guarantor), except by endorsement of instruments for deposit or collection in the ordinary course of business and except for the Obligations. 6.17 LIENS. The Borrower will not, nor will it permit any Guarantor to, create, incur, or suffer to exist any Lien in, of, or on the Property of the Borrower or any Guarantor, except: (a) Liens for taxes, assessments, or governmental charges or levies if they are not then delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings; (b) Liens imposed by law, such as carriers', warehousemen's, and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or are being contested in good faith and by appropriate proceedings; (c) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation; (d) Utility easements, building restrictions, and any other encumbrances or charges against real property which generally exist for properties of a similar character and which do not in any material way affect the marketability of the properties or interfere with their use in the business of the Borrower or the Guarantors; (e) Liens existing on the date hereof and listed in the Borrower's consolidated financial statements described in Section 5.4 of this Agreement; (f) Liens of the Bank or any of its predecessors-in-interest; 18 24 (g) Liens of The CIT Group/Equipment Financing, Inc. securing obligations that have been paid in full and for which a termination statement has been executed and forwarded to the Office of the Secretary of State of Texas for filing; (h) Liens of Snyder National Bank securing obligations that have been paid in full and for which a termination statement has been executed and forwarded to the Office of the Secretary of State of Texas for filing; and (i) Liens created under operating agreements with respect to oil or gas wells. 6.18 LETTERS OF CREDIT. The Borrower will not, nor will it permit any Guarantor to, apply for or become liable upon any Letter of Credit. 6.19 CASH FLOW COVERAGE. The Borrow will maintain the Borrower's ratio of (i) Cash Flow to (ii) Current Maturities of Long-Term Debt plus current Capital Lease Obligations, on a consolidated basis measured on the last day of each quarterly fiscal period of the Borrower for the 12-month period ending on that day, at not less than 2.0 to 1.0. 6.20 DEBT TO TANGIBLE NET WORTH. The Borrower will maintain the Borrower's ratio of Debt to Tangible Net Worth, on a consolidated basis, measured on the last day of each quarterly fiscal period of the Borrower, at not more than 1.20 to 1.0. 6.21 CURRENT RATIO. The Borrower will maintain the Borrower's ratio of Current Assets to Current Liabilities, on a consolidated basis, measured on the last day of each quarterly fiscal period of the Borrower, at not less than 1.25 to 1.0. 6.22 NET INCOME. The Borrower will maintain a positive net income on a consolidated basis measured on the last day of each quarterly fiscal period of the Borrower for the 12-month period ending on that day. 6.23 PRIMARY DEPOSITORY. The Borrower will maintain the Borrower's and each Guarantor's primary operating accounts with the Bank. 6.24 PARTICIPATIONS. The Borrower shall cooperate with the participation efforts of the Bank by providing information reasonably requested by the Bank. This information may be distributed on a confidential basis to selected financial institutions. In addition, representatives of the Borrower's management shall be available for one or more bankers' meetings and to answer questions during the participation process. 19 25 ARTICLE VII DEFAULT The occurrence of any of the following events shall constitute a Default: 7.1 Any representation or warranty made by or on behalf of the Borrower or any Guarantor to the Bank under or in connection with this Agreement, any Advance, or any certificate or information delivered in connection with this Agreement or any other Loan Document is materially false on the date as of which made. 7.2 Nonpayment of principal of the Note within five days after it becomes due or nonpayment of interest upon the Note or of any other Obligations within five days after it becomes due. 7.3 The breach by the Borrower of any terms or provisions of Section 6.2 or 6.10. 7.4 The breach by the Borrower (other than a breach which constitutes a Default under Section 7.1, 7.2, or 7.3) of any of the terms or provisions of this Agreement which is not remedied within 30 days after written notice from the Bank. 7.5 Failure of the Borrower and/or any Guarantor to pay indebtedness for Borrowed Money in an aggregate principal amount exceeding $100,000 when due; or the default by the Borrower and/or any Guarantor in the performance of any term, provision, or condition in any agreement under which indebtedness for Borrowed Money in an aggregate principal amount exceeding $100,000 is outstanding, or any other event or condition, the effect of which is to cause, or to permit the holder or holders of the aggregate indebtedness for Borrowed Money to cause, the aggregate indebtedness for Borrowed Money in excess of $100,000 to become due before its stated maturity; or the Borrower or any Guarantor does not pay, or admits in writing its inability to pay, its debts generally as they become due. 7.6 The Borrower or any Guarantor (i) has an order for relief entered for it under the federal bankruptcy laws as now or hereafter in effect; (ii) makes an assignment for the benefit of creditors; (iii) applies for, seeks, consents to, or acquiesces in the appointment of a receiver, custodian, trustee, examiner, liquidator, or similar official for it or any Substantial Portion of its Property; (iv) institutes any proceeding seeking an order for relief under the federal bankruptcy laws as now or hereafter in effect, or seeking to adjudicate it a bankrupt or an insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment, or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization, or relief of debtors, or fails to file an answer or other pleading denying the material allegations of any such proceeding filed against it; (v) takes any corporate action to authorize or effect any of the foregoing actions; or (vi) fails to contest in good faith any appointment or proceeding described in Section 7.7. 20 26 7.7 Without the application, approval, or consent of the Borrower or any Guarantor, a receiver, trustee, examiner, liquidator, or similar official is appointed for the Borrower or any Guarantor for any Substantial Portion of the Property of the Borrower and the Guarantors, or a proceeding described in Section 7.6(iv) is instituted against the Borrower or any Guarantor, and the appointment continues undischarged or the proceeding continues undismissed or unstayed for 60 consecutive days. 7.8 Any court, government, or governmental agency condemns, seizes, or otherwise appropriates or takes custody or control of (each a "Condemnation") all or any portion of the Property of the Borrower or any Guarantors which, when taken together with all other Property of the Borrower and the Guarantors so condemned, seized, appropriated, or taken custody or control of, during the 12-month period ending with the month in which the Condemnation occurs, constitutes a Substantial Portion of the Property of the Borrowers and the Guarantors. 7.9 The Borrower or any Guarantor fails within 30 days to pay, bond, or otherwise discharge any judgment or order for the payment of money in excess of $500,000 which is not stayed on appeal or is otherwise appropriately contested in good faith. 7.10 The Unfunded Liabilities of all Single Employer Plans exceed in the aggregate $1,000,000; any Reportable Event occurs in connection with any Plan; or the Borrower or any other member of the Controlled Group becomes party to any Multi-employer Plan. 7.11 The Borrower or any Guarantor is the subject of any proceeding pertaining to the release by the Borrower or any Guarantor, or any other Person, of any toxic or hazardous waste or substance into the environment, or any violation of any federal, state, or local environmental, health, or safety law or regulation, which could reasonably be expected to have a Material Adverse Effect unless it is being contested in good faith and by appropriate proceedings. ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS, REMEDIES, AND SETOFF 8.1 ACCELERATION. If any Default described in Section 7.6 or 7.7 occurs with respect to the Borrower, the obligations of the Bank to make Advances hereunder shall automatically terminate, and the Obligations shall immediately become due and payable without election or action on the part of the Bank. If any other Default occurs, the Bank may terminate or suspend its obligations to make Advances hereunder, or declare the Obligations to be due and payable, or both; if the Bank declares the Obligations due and payable after a Default occurs, then the Obligations shall become immediately due and payable, without presentment, demand, protest, or notice of any kind, all of which the Borrower hereby expressly waives. If, within 30 days after acceleration of the maturity of the Obligations or termination of the obligation of the Bank to make Advances hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or 21 27 decree for the payment of the Obligations due has been obtained or entered, the Bank, by notice to the Borrower, may rescind and annul the acceleration and/or termination. 8.2 AMENDMENTS. The Bank, the Borrower, and the Guarantors may enter into agreements supplemental hereto to add or modify any provisions of the Loan Documents or to change in any manner the rights of the Bank, the Borrower, or the Guarantors or waive any Default hereunder. 8.3 PRESERVATION OF RIGHTS. No delay or omission of the Bank to exercise any right under the Loan Documents shall impair the right or be construed as a waiver of any Default or an acquiescence therein, and the making of an Advance notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to the Advance shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment, or other variation of the terms, conditions, or provisions of the Loan Documents shall be valid unless in writing signed by the Bank, and then only to the extent specifically stated. All remedies in the Loan Documents or afforded by law shall be cumulative, and all shall be available to the Bank until the Obligations have been paid in full. 8.4 SETOFF. In addition to, and without limitation of, any rights of the Bank under applicable law, if the Borrower fails to pay any Obligations when due hereunder, any deposits (including all account balances, whether provisional or final, and whether or not canceled or available) at any time held or owing by the Bank to or for the account of the Borrower or any Guarantor in the Borrower's and the Guarantor's operating accounts may be offset and applied toward the payment of the Obligations owing to the Bank; but the Bank waives (and shall not have) any right of setoff against accounts numbers 5140244244 and 5140259697 maintained by PPI with the Bank. ARTICLE IX GENERAL PROVISIONS 9.1 SURVIVAL OF REPRESENTATIONS. All representations and warranties of the Borrower in this Agreement shall survive delivery of the Note and the making of the Advances herein contemplated. 9.2 GOVERNMENTAL REGULATION. Anything in this Agreement to the contrary notwithstanding, the Bank shall not be obligated to extend credit to the Borrower in violation of any limitation or prohibition in any applicable statute or regulation. 9.3 TAXES. Any taxes (excluding federal income taxes on the overall net income of the Bank) or other similar assessments or charges payable or ruled payable by any governmental authority in respect of the Loan Documents shall be paid by the Borrower, with any interest and penalties. 22 28 9.4 HEADINGS. Section headings in the Loan Documents are for convenience of reference only and shall not govern the interpretation of any of their provisions. 9.5 ENTIRE AGREEMENT. The Loan Documents embody the entire agreement and understanding among the Borrower, the Guarantors, and the Bank and supersede all prior agreements and understandings among the Borrower, the Guarantors, and the Bank as to the subject matter thereof. 9.6 BENEFITS OF THIS AGREEMENT. This Agreement shall not be construed to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 9.7 EXPENSES; INDEMNIFICATION. The Borrower shall reimburse the Bank for all reasonable costs and out-of- pocket expenses (including reasonable attorneys' fees and reasonable time charges of attorneys for the Bank, who may be employees of the Bank) paid or incurred by the Bank for the preparation, negotiation, execution, delivery, review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees to reimburse the Bank for all reasonable costs and out-of-pocket expenses (including reasonable attorneys' fees and reasonable time charges of attorneys for the Bank, who may be employees of the Bank) paid or incurred by the Bank for the collection and enforcement of the Loan Documents. The Borrower further agrees to indemnify the Bank, its directors, officers, and employees against all other losses, claims, damages, penalties, judgments, liabilities, and reasonable expenses (including, without limitation, all reasonable expenses of litigation or preparation therefor) which any of them pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby, or the direct or indirect application or proposed application of the proceeds of any Advance hereunder, except to the extent that any of the foregoing arises out of the gross negligence or willful misconduct of the Bank. The obligations of the Borrower under this Section shall survive the termination of this Agreement. 9.8 ACCOUNTING. Except as provided to the contrary herein, all accounting terms herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP. 9.9 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.10 NONLIABILITY OF LENDERS. The relationship between the Borrower and the Bank shall be solely that of borrower and lender. The Bank shall have no fiduciary responsibilities to the Borrower. The Bank undertakes no responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or corporation. 23 29 9.11 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 9.12 CONSENT TO JURISDICTION. EACH OF THE BORROWER AND THE BANK HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR TEXAS STATE COURT SITTING IN LUBBOCK, TEXAS, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT, AND EACH OF THE BORROWER AND THE BANK HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION, OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT THE COURT IS AN INCONVENIENT FORUM. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE BANK OR ANY AFFILIATE OF THE BANK OR BY THE BANK AGAINST THE BORROWER OR ANY AFFILIATE OF THE BORROWER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN LUBBOCK, TEXAS. 9.13. WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE BANK HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 9.14 MAXIMUM INTEREST RATE. No provision of the Loan Documents shall require the payment or permit the collection of interest in excess of the maximum permitted by applicable law ("Maximum Rate"). If any interest in excess of the Maximum Rate is provided for or is adjudicated to be provided for in the Note or otherwise in connection with this Agreement, this Section 9.14 shall govern and prevail, and neither the Borrower nor the sureties, guarantors, successors, or assigns of the Borrower shall be obligated to pay the excess amount of the interest or any other excess sum for the use, forbearance, or detention of sums loaned. If the Bank ever receives, collects, or applies as interest any amount in excess of the Maximum Rate, the amount by which it exceeds the Maximum Rate shall be applied as a payment to the principal amount of indebtedness evidenced by the Note, and, if the principal amount of the Note has been paid in full, any remaining excess shall forthwith be paid to the Borrower. 9.15 NOTICES. Any notices or consents required or permitted by this Agreement shall be in writing and shall be deemed delivered in person or if sent by certified mail, postage prepaid, return 24 30 receipt requested, or by telegraph, as follows, unless the address is changed by written notice hereunder: A. If to the Borrower: Patterson Energy, Inc. 4510 Lamesa Highway Snyder, Texas 79549 Attention: Chief Financial Officer B. If to the Bank: Norwest Bank Texas, National Association 2301 Kell Boulevard Wichita Falls, Texas 76308 Attention: Business Banking Manager C. If to the Guarantors: Patterson Drilling Company 4510 Lamesa Highway Snyder, Texas 79549 Attention: Chief Financial Officer Patterson Petroleum, Inc. 4510 Lamesa Highway Snyder, Texas 79549 Attention: Chief Financial Officer Patterson Petroleum Trading Company, Inc. 4510 Lamesa Highway Snyder, Texas 79549 Attention: Chief Financial Officer 9.16 INDEMNIFICATION REGARDING ENVIRONMENTAL MATTERS. The Borrower agrees to indemnify the Bank and hold the Bank harmless from and against any and all claims, demands, losses, damages, liabilities, causes of action, judgments, penalties, costs, and expenses (including attorney's fees and court costs), known or unknown, fixed or contingent, imposed on, asserted against, or incurred by the Bank at any time and from time to time because of, in connection with, or arising out of (a) the breach of any representation or warranty stated herein regarding the applicable environmental laws, (b) the failure to perform any obligation herein required to be performed regarding the applicable environmental laws, (c) any violation of any applicable environmental laws in effect on or before the Closing Date, (d) the removal of hazardous substances or solid wastes from the Property of the Borrower or any Guarantor and/or (e) any act, omission, 25 31 event, or circumstance relating to compliance by the Borrower and its Subsidiaries with applicable environmental laws existing or occurring on or before the full and final payment of the Credit. The foregoing indemnification shall apply also to the directors, officers, employees, and agents of the Bank, and to claims, demands, losses, damages, liabilities, causes of action, judgments, penalties, costs, and expenses (including attorney's fees and court costs) which in whole or in part are caused by or arise out of the negligence (but not the gross negligence or willful misconduct) of each indemnified party. If any claim or demand is asserted against the Bank for which the Bank may be entitled to indemnification under this Section 9.16, the Borrower shall have the right, by notifying the Bank within 10 days of its receipt of notice of claim or demand, to assume the entire control (subject to the right of the Bank to participate, at its expense and with counsel of its choice) of the defense, compromise, or settlement of the matter, including, at the Borrower's expense, employment of counsel of the Borrower's choice. Written notice of any such claim or demand must be given by the Bank to the Borrower within 30 days after receipt by the Bank of notice of the claim or demand. Selection of counsel by the Borrower shall be subject to the approval of the Bank, which approval shall not be unreasonably withheld. If the Borrower formally notifies the Bank that it will assume control of the defense, compromise, or settlement of the matter, the Borrower will be deemed to have waived all defenses to the claims for indemnification by the Bank for the matter. If the Borrower has assumed control of the defense, compromise, or settlement as provided in this paragraph and a judgment is entered against the Bank, the Bank shall be entitled to an indemnification payment from the Borrower when the judgment creditor is entitled to execute on the judgment. The Borrower may prosecute one or more appeals from the judgment only as long as execution on the judgment is stayed. The cost of any bond or proceeding to stay execution shall be borne by the Borrower. 9.17 SURVIVAL OF REPRESENTATIONS. All representations and warranties of the Borrower in this Agreement shall survive delivery of the Note and the making of the Advances herein contemplated. 9.18 GOVERNMENTAL REGULATION. Anything in this Agreement to the contrary notwithstanding, the Bank shall not be obligated to extend credit to the Borrower in violation of any limitation or prohibition in any applicable statute or regulation. 9.19 SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, but the Borrower may not assign its rights or obligations under the Loan Documents. The Bank may at any time, without the consent of the Borrower, assign all or any portion of its rights under this Agreement and the Note to a Federal Reserve Bank; but no such assignment shall release the Bank from its obligations hereunder. Any assignee or transferee of the Note agrees by acceptance thereof to be bound by all terms and provisions of the Loan Documents. Any request, authority, or consent of any Person, who at the time of making the request, authority, or consent is the holder of the Note, shall be conclusive and binding on any subsequent holder, transferee, or assignee of the Note or of any note or notes issued in exchange therefor. 26 32 9.20 PERMITTED PARTICIPANTS: EFFECT. The Bank may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities (the "Participants") participating interests in the Advances owing to the Bank, the Note held by the Bank, any Commitment of the Bank, or any other interest of the Bank under the Loan Documents. 9.21 DISSEMINATION OF INFORMATION. The Borrower authorizes the Bank to disclose to any Participant or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in the Bank's possession concerning the creditworthiness of the Borrower and the Guarantors. 9.22 BUSINESS DAY. Whenever any installment of the principal or interest on the Note becomes due and payable on a day which is not a Business Day, the maturity or due date thereof shall be extended to the next Business Day, and, in the case of principal of the Note, interest shall be payable thereon at the rate per annum specified in the Note during the extension. 9.23 FINAL AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES. 9.24 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any counterpart. This Agreement shall be effective when it has been executed by the Borrower. IN WITNESS WHEREOF, the Borrower, the Guarantors, and the Bank have executed this Agreement as of the date first above written. NORWEST BANK TEXAS, PATTERSON ENERGY, INC. NATIONAL ASSOCIATION AS BORROWER AS LENDER BY: /s/ JAMES B. FRANK BY: /s/ JAMES C. BROWN ------------------------------------- --------------------------------- NAME: JAMES B. FRANK TITLE: SENIOR VICE PRESIDENT NAME: JAMES C. BROWN ------------------------------- TITLE: C.F.O. ------------------------------ 27 33 PATTERSON DRILLING COMPANY AS GUARANTOR BY: /s/ JAMES C. BROWN -------------------------------- NAME: James C. Brown ------------------------------ TITLE: C.F.O. ----------------------------- PATTERSON PETROLEUM, INC. AS GUARANTOR BY: /s/ JAMES C. BROWN -------------------------------- NAME: James C. Brown ------------------------------ TITLE: C.F.O. ----------------------------- PATTERSON PETROLEUM TRADING COMPANY, INC. AS GUARANTOR BY: /s/ JAMES C. BROWN -------------------------------- NAME: James C. Brown ------------------------------ TITLE: C.F.O. ----------------------------- 28 EX-10.2 3 PROMISSORY NOTE DATED DECEMBER 9, 1997 1 EXHIBIT 10.2 NOTE $60,000,000 DECEMBER 9, 1997 PATTERSON ENERGY, INC., a Delaware corporation (the "Borrower"), promises to pay to the order of NORWEST BANK TEXAS, NATIONAL ASSOCIATION (the "Bank"), the lesser of the principal sum of SIXTY MILLION DOLLARS ($60,000,000) or the aggregate unpaid principal amount of all Advances made by the Bank to the Borrower pursuant to Article II of the Credit Agreement dated as of December 9, 1997, among the Borrower, the Bank, and the Guarantors (as it may be amended or modified, the "Agreement"), in immediately available funds at the main office of the Bank in Wichita Falls, Texas, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Bank shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Advance. This Note is issued pursuant to, and is entitled to the benefits of, the Agreement, to which reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. Notwithstanding anything to the contrary in this Note, no provision of this Note shall require the payment or permit the collection of interest in excess of the maximum permitted by applicable law ("Maximum Rate"). If any interest in excess of the Maximum Rate is provided for or is adjudicated to be provided in this Note or otherwise in connection with the loan transaction, this paragraph shall govern, and neither the Borrower nor the sureties, guarantors, successors, or assigns of the Borrower shall be obligated to pay the excess amount of the interest or any other excess sum paid for the use, forbearance, or detention of sums loaned. If for any reason interest in excess of the Maximum Rate is deemed charged, required, or permitted by any court of competent jurisdiction, the excess shall be applied as a payment and reduction of the principal of indebtedness evidenced by this Note, and, if the principal amount has been paid in full, any remaining excess shall forthwith be paid to the Borrower. This Note shall be construed in accordance with the laws (and not the law of conflicts) of Texas, but giving effect to federal laws applicable to national banks. PATTERSON ENERGY, INC. By: /s/ JAMES C. BROWN ------------------------------- Name: James C. Brown ----------------------------- Title: C.F.O. ---------------------------- 1 2 SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO NOTE OF PATTERSON ENERGY, INC. DATED DECEMBER 9, 1997
Principal Amount of Date Advance Unpaid Balance - ---- ------------------- --------------
2 EX-10.3 4 SECURITY AGREEMENT DATED DECEMBER 9, 1997 1 EXHIBIT 10.3 SECURITY AGREEMENT DATED AS OF DECEMBER 9, 1997 BETWEEN PATTERSON DRILLING COMPANY AND NORWEST BANK TEXAS, NATIONAL ASSOCIATION 2 TABLE OF CONTENTS ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . 1 Section 1.02. Terms Defined in Credit Agreement . . . . . . . . . . . 2 ARTICLE 2 - SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 2.01. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 A. The Rigs . . . . . . . . . . . . . . . . . . . . . . . 2 B. The Accounts . . . . . . . . . . . . . . . . . . . . . 2 C. Collateral . . . . . . . . . . . . . . . . . . . . . . 2 Section 2.02. Continued Priority of Security Interest. . . . . . . . 2 Section 2.03. Maintenance of Status of Security Interest . . . . . . 3 Section 2.04. Evidence of Status of Security Interest . . . . . . . . 3 Section 2.05. Authorized Action . . . . . . . . . . . . . . . . . . . 3 Section 2.06. Grantors Each Remain Obligated; the Bank Not Obligated. 3 ARTICLE 3 - MAINTENANCE, USE AND OPERATION, INSPECTION, IDENTIFICATION MARKS . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.01. Maintenance . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.02. Use and Operation . . . . . . . . . . . . . . . . . . . 4 Section 3.03. Inspection . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.04. Identification Marks . . . . . . . . . . . . . . . . . 4 ARTICLE 4 - REPLACEMENT OF PARTS; ALTERATIONS, MODIFICATIONS, AND ADDITIONS . . . . . . . . . . . . . . . . . . 4 Section 4.01. Replacement of Parts . . . . . . . . . . . . . . . . . 4 Section 4.02. Alterations, Modifications, and Additions . . . . . . . 5 ARTICLE 5 - INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 5.01. Insurance Against Loss or Damage to Rigs . . . . . . . 5 Section 5.02. Insurance Against Public Liability and Property Damage 5 Section 5.03. Delivery of Policies . . . . . . . . . . . . . . . . . 6 Section 5.04. Notice of Cancellation . . . . . . . . . . . . . . . . 6 Section 5.05. No Act Impairing Insurance . . . . . . . . . . . . . . 6 Section 5.06. Proof of Loss . . . . . . . . . . . . . . . . . . . . . 6 Section 5.07. Insurance . . . . . . . . . . . . . . . . . . . . . . . 6 Section 5.08. Payment to Bank. . . . . . . . . . . . . . . . . . . . 7 Section 5.09. Application of Proceeds . . . . . . . . . . . . . . . . 7
i 3 ARTICLE 6 - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6.01. Default . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6.02. Application of Proceeds . . . . . . . . . . . . . . . . 7 Section 6.03. Remedies . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6.04. Power of Sale . . . . . . . . . . . . . . . . . . . . . 9 Section 6.05. Power of Attorney - Sale . . . . . . . . . . . . . . . 9 Section 6.06. Bank to Discharge Liens . . . . . . . . . . . . . . . . 9 Section 6.07. Payment of Expenses . . . . . . . . . . . . . . . . . . 10 Section 6.08. Remedies Cumulative. . . . . . . . . . . . . . . . . . 10 Section 6.09. Cure of Defaults . . . . . . . . . . . . . . . . . . . 10 Section 6.10. Discontinuance of Proceedings . . . . . . . . . . . . . 10 ARTICLE 7 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 7.01. Contracts . . . . . . . . . . . . . . . . . . . . . . . 11 Section 7.02. Power of Attorney . . . . . . . . . . . . . . . . . . . 11 Section 7.03. Irrevocable Nature of Power . . . . . . . . . . . . . . 11 Section 7.04. Further Documents . . . . . . . . . . . . . . . . . . . 11 Section 7.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 7.06 Notice of Acquisition or Substitution . . . . . . . . . 11 Section 7.07. Choice of Law . . . . . . . . . . . . . . . . . . . . . 12 Section 7.08. Severability of Provisions . . . . . . . . . . . . . . 12 Section 7.09 Release of Lien . . . . . . . . . . . . . . . . . . . . 12
ii 4 SECURITY AGREEMENT SECURITY AGREEMENT, dated December 9, 1997, is between PATTERSON DRILLING COMPANY, A DELAWARE CORPORATION ("PDC"), and NORWEST BANK TEXAS, NATIONAL ASSOCIATION, with its successors and assigns (THE "BANK"). WHEREAS, the Bank has agreed to lend Patterson Energy, Inc., a Delaware corporation, (the "Borrower"), up to $60,000,000 (the "Loan") to permit the Borrower and its subsidiaries to acquire or make improvements to drilling rigs, rolling stock, and related drilling equipment, to pay all amounts due under the Existing Agreement, and to acquire other drilling companies or the assets related to their drilling operations pursuant to the Credit Agreement dated the date hereof (the "Agreement") among the Borrower, PDC, Patterson Petroleum, Inc. ("PPI"), Patterson Petroleum Trading Company, Inc., a Texas corporation ("PPTC"), and the Bank; and WHEREAS, PDC, PPI, and PPTC jointly and severally have guaranteed the Obligations arising under the Agreement; and WHEREAS, Bank requires, as a condition to the Loan, that PDC execute and deliver this Security Agreement to Bank as security for its obligations under the Guaranty. NOW, THEREFORE, in consideration of the premises herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree and covenant as follows: ARTICLE 1 - DEFINITIONS Section 1.01. Certain Defined Terms. For purposes of this Security Agreement: (a) "Insurance" shall mean: (i) all insurance for the Rigs, whether now or hereafter in effect, owned by PDC and all renewals of or replacements for them; (ii) all claims and other moneys and claims for moneys due and to become due under the insurance; and (iii) all other rights of PDC under or for the insurance. (b) "Rigs" shall mean the 99 land drilling rigs owned by PDC as more particularly described in Schedule 1 attached hereto; (ii) all land drilling rigs and drilling equipment acquired with the proceeds of the Loan in the name of PDC; and (iii) all metal products, machinery, equipment, materials, or other goods of any description used or acquired for use by PDC or any other party using or operating the Rigs, and all pumps, drilling equipment, drill pipe, machinery, equipment, supplies, parts, and other goods of any description installed in or affixed to or to be used in connection with any Rig (except the rig hauling trucks owned by PDC, or others) or acquired for installation on, affixation to, or use in connection with any Rig (except the rig hauling trucks owned by PDC or others). 5 Section 1.02. Terms Defined in Credit Agreement. All capitalized terms used in this Security Agreement and not otherwise defined herein are used with the meanings attributed to them in the Agreement. ARTICLE 2 - SECURITY Section 2.01. A. The Rigs: In consideration of the Loan made pursuant to the Agreement and evidenced by the Note and by way of security for payment of all amounts due under its Guaranty, PDC does hereby sell, assign, transfer, and set over unto, and grant a security interest in favor of, the Bank and the Bank's successors and assigns for the Bank's own proper use and benefit, as security for all amounts due and owing under its Guaranty, all of PDC's right, title, and interest in and to the Rigs, whether now owned or hereafter acquired and wherever located, and including, without limitation, all parts, additions, alterations, or modifications thereto or replacements of any part thereof, whenever made or performed or acquired, and all removed parts until replaced, and any proceeds and products of the foregoing with all attachments, accessions, tools, parts, supplies, increases, and additions to and replacements of and substitutions for the Rigs or any portion thereof. B. The Accounts: PDC grants a security interest in favor of the Bank and the Bank's successors and assigns for the Bank's own proper use and benefit, as security for all amounts due and owing under the Guaranty in all accounts now or hereafter owned by PDC. The term "accounts" shall have the meaning attributed to them in Section 9.106 of the Texas Business and Commerce Code. C. Collateral: The rights, equipment, and accounts referred to in this Section 2.01 are collectively referred to herein as the "Collateral." Section 2.02. Continued Priority of Security Interest. PDC agrees that it will not, without the prior written consent of the Bank, create or suffer to exist any lien or security interest upon or in the Collateral or any part thereof other than (a) the lien and security interest created hereby (b) any other Liens of the Bank (or any of its predecessors-in-interest), and (C) Liens of The CIT Group/Equipment Financing, Inc., securing obligations that have been paid in full and for which a termination statement has been executed and forwarded to the Office of Secretary of State of Texas for filing. 2 6 Section 2.03. Maintenance of Status of Security Interest. PDC agrees that it shall take all action that may be necessary or desirable, or that the Bank reasonably requests, so as at all times (a) to grant and perfect the security interest in the Collateral intended to be granted hereby and to maintain the validity, enforceability, perfection, and priority of the security interest in the Collateral; (b) to protect or preserve the security interest created by this Security Agreement; and (C) to protect, preserve, exercise, or enforce the rights of the Bank therein and hereunder and of the Bank under the Guaranty, including but not limited to (1) immediately discharging all Liens on the Collateral other than the security interest and any lien created or permitted hereby; (2) executing and delivering financing statements under the Uniform Commercial Code of Texas (the "UCC"), continuation statements, notices, instructions, and assignments in each case in form and substance reasonably satisfactory to the Bank and not inconsistent with the terms hereof. PDC agrees to mark its books and records as necessary or appropriate to evidence, protect, and perfect the security interest in the Collateral and cause their financial statements to reflect the security interest. Section 2.04. Evidence of Status of Security Interest. PDC shall upon the reasonable request of the Bank promptly deliver to the Bank any file-search reports from the UCC and other filing and recording offices applicable from time to time as the Bank reasonably designates to establish that the perfection and priority of the interest granted hereby are maintained. Section 2.05. Authorized Action. The Bank is hereby authorized to file one or more financing or continuation statements (including statements of assignment and renewals thereof) or amendments thereto reflecting the Liens created hereby without the signature of, or in the name of, PDC. A carbon, photographic, or other reproduction of this Security Agreement shall be sufficient as a financing statement. Section 2.06. Grantors Each Remain Obligated; the Bank Not Obligated. The grant by PDC to the Bank of the security interest granted hereby shall not relieve it from the performance of any term, covenant, condition, or agreement on its part to be performed or observed, or from any liability to any person, under or in respect of any Collateral or impose any obligation on the Bank to perform or observe any term, covenant, condition, or agreement on the part of PDC to be so performed or observed or impose any liability on the Bank for any act or omission on the part of PDC relating thereto. 3 7 ARTICLE 3 - MAINTENANCE, USE AND OPERATION, INSPECTION, IDENTIFICATION MARKS Section 3.01. Maintenance. PDC shall, at its sole cost and expense (whether or not applicable insurance proceeds are adequate for the purpose), (I) maintain and refurbish the Rigs and to keep them in good operating condition, order, and repair, normal wear and tear excepted; and (ii) keep the Rigs in compliance with all applicable laws, regulations, and orders of any governmental authority having jurisdiction with respect thereto. Section 3.02. Use and Operation. As long as no Default occurs and is continuing, PDC shall have the full use of the Rigs, but it covenants that it will not permit the Rigs to be incorporated or installed in or attached to any building or real property so that they become part of or subject to any Liens on the building or real property and cannot be removed without material injury to the Rigs (it is the parties' intention that the Rigs are, and remain, personal property throughout the term of the Agreement); and, further, the Rigs shall not be used or operated contrary to any applicable law, treaty, or convention, or any rule or regulation issued thereunder. Section 3.03. Inspection. PDC shall permit representatives of the Bank at any reasonable time, on reasonable notice, to inspect the Rigs, but the inspection may not materially interfere with their normal operations. Section 3.04. Identification Marks. PDC will cause each Rig to be kept numbered with its identifying number as shown in Schedule 1 hereto as appropriate. PDC will not change the identifying number of any Rig except in accordance with a statement of the new identifying number, which statement previously has been filed with the Bank. ARTICLE 4 - REPLACEMENT OF PARTS; ALTERATIONS, MODIFICATIONS, AND ADDITIONS Section 4.01. Replacement of Parts. (a) PDC shall, at its sole cost and expense, as necessary, promptly replace all parts on the Rigs which become worn out, lost, destroyed, seized, damaged beyond repair, or permanently rendered unfit for any reason. All parts removed from the Rigs shall remain subject to the security interest granted herein until the parts are replaced by parts which meet the requirements for replacement parts specified below. All replacement parts incorporated or installed in or attached to any Rig as provided by this Section 4.01 shall, without necessity of further act, become part of the Rig for all purposes hereof and subject to the security interest granted herein. (b) All replacement parts shall be free and clear of all Liens (other than Liens created or permitted by the Agreement) and shall be in as good operating condition as, and shall have a value and utility at least equal to, the parts replaced, assuming the replaced part is maintained in accordance with this Security Agreement. 4 8 Section 4.02. Alterations, Modifications, and Additions. PDC shall, at its sole expense, make any alterations and modifications in and additions to the Rigs as required by any relevant governmental authority or as deemed necessary by PDC, whether upon the recommendation of any manufacturer or otherwise, for the safe operation of the Rigs (any alteration, modification, or addition required or deemed necessary is herein called a "Required Modification"). In addition, PDC shall, at its sole expense, make other alterations and modifications in and additions to the Rigs as it deems necessary or prudent to properly conduct its business (any alteration, modification, or addition deemed desirable is herein called an "Optional Modification"); but (I) any Required Modification shall be expeditiously completed in a good and workmanlike manner, in compliance with all applicable legal requirements; and (ii) no Optional Modification shall diminish the value or utility of any Rig or impair its operating condition below its value, utility, and operating condition immediately before the Optional Modification, assuming that the Rig was then of the value or utility and in the operating condition required under this Security Agreement. All parts incorporated or installed in or attached to any Rig as a result of any alteration, modification, or addition which are not readily removable without damage to the Rig shall, without necessity of further act, become part of the Rig for all purposes hereof and subject to the security interest granted herein. ARTICLE 5 - INSURANCE Section 5.01. Insurance Against Loss or Damage to Rigs. PDC covenants that it will, without cost to the Bank, maintain or cause to be maintained in effect for the Rigs throughout the term of this Security Agreement adequate insurance by reputable and solvent insurance companies against loss or damages customarily insured against by Persons operating similar properties and similarly situated, and carry other insurance as usually carried by Persons engaged in the same or similar business and similarly situated (when the policies are issued) in accordance with applicable law, an all-risk physical damage insurance policy insuring the Rigs against, among other things, loss, damage, or destruction from fire, explosion, windstorm, theft, breakage, and other risks as it deems necessary or desirable in an amount in U.S. dollars equal to, except as otherwise approved or required in writing by the Bank, the outstanding balance of the Loan. Each policy of insurance for the Rigs shall name the owner thereof as the insured and shall, subject to Section 5.08 hereof, provide that the Bank shall be a sole loss payee without liability for the payment of premiums. All insurance maintained under this Article 5 shall be primary insurance without right of contribution against any other insurance maintained by the Bank and shall contain provisions waiving underwriters' rights of subrogation thereunder against the Bank and any insured named in the policy and any assignee of the Bank. Section 5.02. Insurance Against Public Liability and Property Damage. PDC covenants that it will, without cost to the Bank, maintain or cause to be maintained in effect for the Rigs throughout the term of this Security Agreement commercial general liability and pollution liability insurance policies with reputable and solvent insurance companies, insuring against liabilities for any injury to the person of others and any damage to the property of others arising from those risks, with reasonable deductibles (not in excess of $100,000 including any self-insurance) and in 5 9 amounts affording coverage for personal injuries of $1,000,000 per occurrence, $3,000,000 in the aggregate, and $20,000,000 excess coverage. Each policy shall also include effective waivers by the insurer of all claims for insurance premiums against the Bank. Section 5.03. Delivery of Policies. PDC agrees that it will deliver to the Bank original cover notes and true and correct copies of all policies, binders, endorsements, and riders amending them, evidencing insurance required by this Section 5.01 hereof. The Bank shall not be responsible for any representations or warranties made to the underwriters by the insured in connection with any policy of insurance referred to herein. Section 5.04. Notice of Cancellation. At its expense, PDC agrees that it will cause the relevant insurance brokers to agree to, and it hereby covenants that it will, advise the Bank of any expiration, termination, non-renewal, alteration, or cancellation of any policy required under Section 5.01 hereof; of any default in the payment of any premium; and of any other act or omission on the part of the insured of which it has knowledge and which might invalidate or render unenforceable, in whole or in part, any insurance on the Rigs. All policies required under Section 5.01 hereof shall provide for not less than 30 days prior written notice to be received by the Bank of the termination or cancellation of the insurance evidenced thereby, unless the termination or cancellation is a result of non-payment of premiums, in which case 10 days prior written notice shall be given to the Bank. Section 5.05. No Act Impairing Insurance. PDC agrees that it will not do or omit any act, or voluntarily suffer or permit any act to be done or omitted, whereby the insurance required hereunder shall or may be suspended, impaired, or canceled, and will not use or operate the Rigs, or permit the Rigs to be used or operated, for purposes more hazardous than allowed by the insurance policies carried by them pursuant to this Article 5, without having previously notified the Bank in writing and insured the Rigs by additional coverage to extend to those uses, operations, or risks. Section 5.06. Proof of Loss. PDC agrees that it will, at its own expense, make, or cause to be made, all proofs of loss and take, or cause to be taken, all other action necessary or appropriate to collect from the underwriters of insurance required by this Article 5 in case of a loss affecting the Rigs. Section 5.07. Insurance. It is expressly agreed that anything herein to the contrary notwithstanding, PDC shall remain liable under the insurance referred to in Sections 5.01 and 5.02 above to perform all obligations assumed by it thereunder, and the Bank shall have no obligation or liability under such insurance because of or rising out of this Security Agreement, nor shall the Bank be required to perform or fulfill any obligations of either under or pursuant to the insurance or to make any payment or any inquiry about the nature or sufficiency of any payment received by it or to present or file any claim, or to take any other action to collect or enforce the payment of any amounts which may have been assigned to it or to which it may be entitled hereunder at any time. 6 10 Section 5.08. Payment to Bank. Unless the Bank otherwise agrees, all amounts payable under any policies required under Section 5.01 hereof must be payable to the Bank for distribution first to itself under this Security Agreement and thereafter to the insured or others as their interests appear. Nevertheless, until a Default has occurred and is continuing, amounts payable under any insurance for the Rigs involving damage to the Rigs not constituting an actual or constructive total loss may be paid by underwriters directly to PDC for the repair, salvage, or other charges involved or, if PDC has first fully repaired the damage or paid all salvage or other charges, paid to the insured as reimbursement therefor. Section 5.09. Application of Proceeds. All amounts paid to the Bank from insurance on the Rigs shall be disposed of as follows (after deducting the reasonable expenses of the Bank in collecting the amounts): (i) any amount which might have been paid at the time, in accordance with Sections 5.01 and 5.02 above, directly to the owner of a Rig or others shall be paid by the Bank to, or as directed by, PDC to be applied toward the repair or replacement of the damaged Rig; and (ii) all amounts paid to the Bank for an actual or constructive total loss of a Rig shall be applied by the Bank to the payment of amounts due under the Agreement pursuant to its terms. ARTICLE 6 - DEFAULT Section 6.01. Default. Default hereunder shall have the meaning given in Article VII of the Agreement. Section 6.02. Application of Proceeds. Any sums recovered hereunder after a Default has occurred and is continuing shall be applied as follows: First: To the payment of all reasonable expenses and charges, including the expenses of any sale or retaking, reasonable attorney's fees, court costs, and any other expenses or advances made or incurred by the Bank to protect its rights or to pursue its remedies hereunder; Second: To the payment of the amounts outstanding under the Agreement, the Note, and this Security Agreement, whether due or not, including interest thereon to the date of the payment and, if applicable, compensatory interest to the date of the payment; and Third: To the payment of any surplus thereafter remaining to the owner of the Collateral or whoever is entitled thereto. Section 6.03. Remedies. Upon the occurrence and during the continuance of a Default, the security interest created by this Security Agreement shall become immediately enforceable, and, without limitation, the enforcement remedies specified can be exercised irrespective of 7 11 whether the Bank has exercised the right of acceleration under the Agreement, and the Bank shall have the following rights: (i) Upon the declaration by the Bank that all the then unpaid Obligations of Borrower are due and payable immediately, they shall become immediately due and payable. (ii) The Bank may demand, sue for, collect, or receive any money or property at any time payable or receivable because of or in exchange for, or make any compromise or settlement deemed desirable for, any Collateral, but the Bank has no obligation so to do, or the Bank may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, or release any Collateral, without hereby incurring responsibility to, or discharging or otherwise affecting any liability of PDC. Except for the exercise of reasonable care, the Bank has no duty to protect, secure, perfect, or insure the Collateral. (iii) The Bank may require that all policies, contracts, certificates of entry, and other records relating to the insurance provided for in Article 5 hereof (the "Insurance") (including details of and correspondence concerning outstanding claims) be forthwith delivered to or to the order of the Bank. (iv) The Bank may collect, recover, compromise, and give a good discharge for any and all moneys and claims for moneys then outstanding or thereafter arising under the Insurance and permit any brokers through whom collection or recovery is effected to charge their usual brokerage fee. (v) The Bank may require PDC to assemble the Collateral owned by it and all books and record relating thereto and to make them available to the Bank at a location designated by the Bank. (vi) The Bank shall have the rights and remedies with respect to the Collateral of a secured party under the UCC, whether or not the UCC is in effect in the jurisdiction where the rights and remedies are then asserted, and any other rights granted pursuant to the applicable law. In addition, the Bank is hereby granted the right to sell or cause to be sold in Wichita Falls, Texas, or elsewhere, in one or more sales or parcels, at any price or prices it deems best and for cash or on credit or for future delivery, without assumption of any credit risks, all or any of the Collateral, at any broker's board or at public or private sale, without demand of performance or notice of its intention to sell, or of time or place of sale (except for 10 Business Days' prior written notice to PDC at its address in the Agreement, and PDC waives all other notice of the sale), and the Bank may purchase any or all Collateral so sold and thereafter hold it absolutely free from any claim or right, including any right or equity or redemption of the owner thereof, any such demand, notice, right, or equity being hereby expressly waived and released (to the extent permitted by applicable statute). PDC shall pay to the Bank all expenses (including reasonable fees and disbursements of counsel) of, or incidental to, the enforcement of any provisions hereof or of any obligations of PDC of any actual or attempted sale, or any exchange, enforcement, collection, 8 12 compromise, or settlement of any Collateral or receipt of the proceeds thereof and for the care or preservation of the Collateral before any sale of the Collateral, including expenses of insurance; and all such expenses shall be obligations of PDC owning the Collateral within the terms of this Security Agreement and the Agreement. All proceeds from the sale or other disposition of the Collateral shall be held and applied by the Bank as provided in Section 6.02 hereof. PDC agrees that any sale in accordance with this Section 6.03 shall be deemed made in a commercially reasonable manner insofar as it is concerned. (vii) If a Default has occurred and is continuing hereunder, PDC hereby appoints the Bank its true and lawful attorney-in-fact, with full power of substitution, to enforce their rights under any drilling contracts or leases concerning the Rigs, and to take any action the Bank deems necessary or appropriate to protect and preserve the security interest in the Collateral granted herein. Section 6.04. Power of Sale. Any sale of the Collateral made pursuant to this Security Agreement, whether under the power of sale hereby granted or any judicial proceedings, shall divest all right, title, and interest of PDC therein and thereto, and shall bar PDC and all persons claiming by, through, or under PDC. No purchaser shall be bound to inquire whether notice has been given, or whether any default has occurred, or as to the propriety of the sale, or as to the application of the proceeds thereof. In case of any such sale, the Bank, if it is the purchaser, shall be entitled to make settlement or payment for the property purchased, and to use and apply it to the Obligations under the Agreement, so that there may be credited against the amount remaining due and unpaid thereon the sums payable out of the net proceeds of the sale to the Bank after allowing for the costs of sale and other charges. At any such sale, the Bank may bid for and purchase the property and, upon compliance with the terms of sale, may hold, retain, and dispose of the Collateral without further accountability therefor. Section 6.05. Power of Attorney - Sale. The Bank is hereby irrevocably appointed attorney-in-fact of PDC upon the happening and during the continuance of a Default to execute and deliver to any purchaser aforesaid, and is hereby vested with full power and authority to make, in the name and on behalf of PDC, a good conveyance of the title to the Collateral so sold. Any person dealing with the Bank or its attorney-in-fact need not inquire whether the power of attorney herein has become exercisable. In the event of any sale of any Collateral under any power herein, PDC will, if required by the Bank, execute any form of conveyance of the Collateral as the Bank directs or approves. Section 6.06. Bank to Discharge Liens. If a Default has occurred, PDC authorizes and empowers the Bank or its appointees or any of them to appear in their names in any court of any country where a suit is pending against any Collateral because of any alleged Lien against any Collateral from which the Collateral has not been released and to take reasonable steps towards the defense of the suit and the purchase or discharge of the Lien. All reasonable expenditures made or incurred by them in the defense or purchase or discharge shall be a debt due to the Bank from 9 13 PDC on whose account the Bank appeared and shall be secured by the lien of this Security Agreement in like manner and extent as if the amount and description thereof were written herein. Section 6.07. Payment of Expenses. PDC covenants that upon the happening and during the continuance of a Default, then, upon written demand of the Bank, PDC will pay to the Bank the whole amount due and payable for the Obligations of the Borrower under the Agreement; and if the Borrower fails to pay them forthwith upon demand, the Bank shall be entitled to recover judgment for the whole amount so due and unpaid, together with any further amounts sufficient to cover the reasonable compensation to the Bank or its agents and counsel and any necessary advances, expenses, and liabilities made or incurred by them hereunder. All moneys collected by the Bank under this Section 6.07 shall be applied according to Section 6.02 above. Section 6.08. Remedies Cumulative. Each and every power and remedy herein given to the Bank shall be cumulative and shall be in addition to every other power and remedy herein given or now or hereafter existing at law, in equity, or by statute, and each and every power and remedy whether herein given or otherwise existing may be exercised whenever deemed expedient by the Bank, and the exercise or the beginning of the exercise of any power or remedy shall not be construed as a waiver of the right to exercise at the same time or thereafter any other power or remedy. The Bank shall not be required or bound to enforce any other rights under any other agreement or instrument securing the Obligations before enforcing its rights under this Security Agreement. No delay or omission by the Bank in exercising any right or power, or in pursuing any remedy accruing upon a Default, shall impair the right, power, or remedy or be construed as a waiver of the Default or an acquiescence therein; nor shall the Bank's acceptance of any security or payment of or on account of the Obligations of the Borrower under the Agreement maturing after a Default or of any payment for any past default be construed as a waiver of any right to exercise any remedies for any future Default or any past Default not completely cured thereby. No consent, waiver, or approval of the Bank shall be deemed effective unless it is in writing and duly signed by the Bank; any waiver by the Bank of any terms of this Security Agreement or any consent given under this Security Agreement shall be effective only for the purpose and on the terms for which it is given and shall be without prejudice to the right to give or withhold consent for future matters. Section 6.09. Cure of Defaults. If, at any time after a Default occurs and before the actual sale of any Collateral by the Bank or before any enforcement or foreclosure proceedings, the Borrower or PDC offer to cure completely all Defaults and to pay all expenses, advances, and damages to the Bank for the Default, with interest at the rate stated in the Agreement (but subject to the limitations in the Agreement), then the Bank may (but need not) accept the offer and payment and restore the Borrower and PDC to its and their former position, but this action, if taken, shall not affect any subsequent Default or impair any rights consequent thereon. Section 6.10. Discontinuance of Proceedings. If the Bank has enforced any right, power, or remedy under this Security Agreement by foreclosure, entry, or otherwise, and the proceedings have been discontinued or abandoned or determined adversely to the Bank, then PDC and the Bank 10 14 shall be restored to their former positions and rights hereunder with respect to the property subject or intended to be subject to this Security Agreement, and all rights, remedies, and powers of the Bank shall continue as if no proceedings had been taken. ARTICLE 7 - MISCELLANEOUS Section 7.01. Contracts. It is expressly agreed that anything herein to the contrary notwithstanding, the Bank shall have no obligation or liability under any drilling contract, lease, or other contract concerning the use or operation of the Rigs because of or arising out of this Security Agreement, nor shall the Bank be required to perform or fulfill any obligations of PDC under or pursuant to any drilling contract, lease, or other contract concerning the use or operation of the Rigs or to make any payment or inquiry as to the nature or sufficiency of any payment received by it or to present or file any claim, or to take other action to collect or enforce the payment of any amounts which may have been assigned to it or to which it may be entitled hereunder at any time. Section 7.02. Power of Attorney. PDC hereby constitutes the Bank, its successors, and assigns, as its true and lawful attorney, irrevocably, with full power (in the name of PDC or otherwise), if a Default has occurred and is continuing, to ask, require, demand, receive, compound, and give acquittance for any moneys, claims, property, and rights hereby assigned, and claims for moneys due and to become due under or arising out of the Collateral hereby assigned, to endorse any checks or other instruments or orders in connection therewith, and to file any claims or take any action or institute any proceedings which the Bank reasonably deems necessary or advisable in the premises. Section 7.03. Irrevocable Nature of Power. The powers and authority granted to the Bank herein have been given for a valuable consideration and are hereby declared irrevocable. Section 7.04. Further Documents. PDC agrees that upon the written request of the Bank, it will promptly and duly execute and deliver any further instruments and documents the Bank reasonably deems desirable in obtaining the full benefits of this Security Agreement and of the rights and powers herein granted. Section 7.05. Notices. All notices or other communications required it be made hereunder to PDC shall be made in the manner and to the address for it in the Agreement and if to the Bank in the manner and to the address for the Bank in the Agreement. Section 7.06. Notice of Acquisition or Substitution: Within ten days of the acquisition of a new rig or the substitution of a new rig for an old, PDC covenants that it will notify the Bank of the acquisition or substitution and will provide a description of the new or substituted Rig as the Bank requires. 11 15 Section 7.07. Choice of Law. This Security Agreement shall be governed by the laws of Texas and may not be amended or changed except by an instrument in writing signed by all parties hereto. Section 7.08. Severability of Provisions. Any provision of this Security Agreement that is prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of the prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of the provision in any other jurisdiction. To the extent permitted by applicable law, PDC hereby waives any law that renders any provision hereof prohibited or unenforceable in any respect. Section 7.09. Release of Lien. Upon the payment in full of all Obligations, the Bank shall release PDC of all of its obligations under this Security Agreement and file all appropriate statements pursuant to the UCC. IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be executed by their duly authorized officers all as of the date noted above. PATTERSON DRILLING COMPANY By: /s/ JAMES C. BROWN ------------------------------- Name: James C. Brown ------------------------------- Title: C.F.O. ------------------------------- NORWEST BANK TEXAS, NATIONAL ASSOCIATION By: /s/ JAMES B. FRANK ------------------------------- Name: James B. Frank Title: Senior Vice President EX-10.4 5 CORPORATE GUARANTEES OF PATTERSON DRILLING COMPANY 1 EXHIBIT 10.4 GUARANTY FOR VALUABLE CONSIDERATION, and to induce NORWEST BANK TEXAS, NATIONAL ASSOCIATION, a national banking association (the "Bank"), to enter into that certain Credit Agreement dated December 9, 1997 (the "Credit Agreement"),with PATTERSON ENERGY, INC., a Delaware corporation (the "Borrower"), PATTERSON DRILLING COMPANY, a Delaware corporation, PATTERSON PETROLEUM, INC., a Texas corporation, and PATTERSON PETROLEUM TRADING COMPANY, INC., a Texas corporation (each a "Guarantor" and collectively the "Guarantors"), jointly and severally give this guaranty (the "Guaranty") and jointly and severally, absolutely, and unconditionally guarantee to the Bank the full and prompt payment of any and all indebtedness of every kind and nature whatsoever which the Borrower may now or at any time hereafter owe the Bank, including but not limited to each and every Obligation (as defined in the Credit Agreement) arising under the Credit Agreement, (collectively the "Indebtedness"). This Guaranty is an absolute, unconditional, and continuing guaranty of payment of the Indebtedness and shall continue to be binding upon the Guarantors until the Indebtedness is paid in full. The liability of the Guarantors under this Guaranty shall include accrued interest and all reasonable attorneys' fees, collection costs, and enforcement expenses incurred by the Bank in collecting on and enforcing its rights under the Indebtedness, and all such costs and expenses incurred by the Bank in connection with the protection, defense, or enforcement of this Guaranty in any litigation or bankruptcy proceedings. The Bank may apply in reduction of the Indebtedness any sums received by or available to the Bank on account of the Indebtedness from the Borrower or any other person, or from the Borrower's or other such persons' properties or any collateral security or other source of payment, and such application of proceeds or receipts shall not reduce or impair the liability of the Guarantors under this Guaranty. The Indebtedness may be created and continued in any amount without reducing or impairing the liability of the Guarantors under this Guaranty. Any payment made by the Guarantors under this Guaranty shall be effective to reduce or discharge the Guarantors' liability only if accompanied by a written transmittal document, received by the Bank and advising it that payment is made under this Guaranty for that purpose. Each Guarantor further acknowledges and agrees with the Bank that: 1. No act or event need occur to establish the liability of any Guarantor under this Guaranty, and no act or event, except full payment and discharge of all Indebtedness, shall exonerate and discharge the liability of the Guarantors under this Guaranty. 2. If any Guarantor is dissolved or changes its legal form of organization without the prior written consent of the Bank or becomes insolvent (however defined), then the Bank may declare immediately due and payable the obligations of that Guarantor under this Guaranty, and that Guarantor shall immediately pay to the Bank the full amount of all Indebtedness, whether due 1 2 and payable or unmatured. If any Guarantor voluntarily commences or there is commenced involuntarily against any Guarantor a case under the United States Bankruptcy Code, and any receiver, trustee, examiner, liquidator, or similar official is appointed for any Guarantor in connection therewith and the appointment continues undischarged or the proceeding continues undismissed or unstayed for 60 consecutive days, the obligations of any Guarantor under this Guaranty shall immediately be due and payable without the necessity of demand or notice. 3. No Guarantor will exercise or enforce any right of contribution, reimbursement, recourse, or subrogation available to the Guarantor against the Borrower or any person liable for payment of the Indebtedness, or as to any collateral securing the Indebtedness, unless all Indebtedness has first been fully paid and discharged. 4. The Bank may in its discretion enter into transactions resulting in the creation or continuance of Indebtedness, without notice to or the consent or approval of any Guarantor, regardless of whether any existing relationship between the Borrower and the Guarantor has been revoked and regardless of whether this Guaranty has been revoked. 5. The liability of any Guarantor shall not be reduced or impaired by any of the following acts or events (which the Bank is expressly authorized to do, omit, or suffer from time to time, both before and after revocation of this Guaranty, without notice to or the consent or approval of any Guarantor): (I) any acceptance of collateral security, guarantors, accommodation parties, or sureties for any or all of the Indebtedness; (ii) any one or more extensions or renewals of Indebtedness (including a period longer than the original period) or any modification of the interest rate, maturity, or other contractual terms applicable to all or part of the Indebtedness; (iii) any waiver or indulgence granted to the Borrower, any delay or lack of diligence in the enforcement of the Indebtedness, or any failure to institute proceedings, file a claim, give required notices, or otherwise protect any of the Indebtedness; (iv) any full or partial release of, settlement with, or agreement not to sue the Borrower or any other Guarantor or other person liable for any of the Indebtedness; (v) any discharge of any evidence of Indebtedness or the acceptance of any instrument renewing or refinancing the Indebtedness; (vi) any failure to obtain collateral security (including rights of setoff) for the Indebtedness, or to assure its proper or sufficient creation, perfection, or priority, or to protect, insure, or enforce any collateral security, or any modification, substitution, discharge, impairment, or loss of the collateral security; (vii) any foreclosure or enforcement of any collateral security by the Bank or any other creditor of the Borrower with a security interest in the collateral security; (viii) any assignment or transfer of any Indebtedness or documentation evidencing the Indebtedness; (ix) any order of application of any payments or credits upon the Indebtedness from the Borrower, the Guarantors, or any other person; and (x) any election by the Bank under Section 1111(b)(2) of the United States Bankruptcy Code. 6. Each Guarantor waives any and all defenses, claims, and discharges of the Borrower, or any other obligor, pertaining to the Indebtedness, except the defense of discharge by payment in full. Without limiting the generality of the preceding sentence, no Guarantor will assert, plead, or enforce against the Bank any defense of waiver, release, discharge in bankruptcy, 2 3 statute of limitations, res judicata, statute of frauds, anti-deficiency statute, misrepresentation, fraud, incapacity, minority, usury, illegality, or unenforceability which may be available to the Borrower or any other party liable for payment of any of the Indebtedness, or any setoff available against the Bank to the Borrower or any other person, whether or not on account of a related transaction. Each Guarantor shall be liable for any deficiency remaining after foreclosure of any mortgage, deed of trust, or security interest securing the Indebtedness, whether or not the liability of the Borrower or any other obligor for such deficiency is discharged pursuant to statute or judicial decision. 7. The Bank may in its sole discretion demand that any Guarantor discharge its obligations under this Guaranty at any time, either at the scheduled or accelerated maturity of the Indebtedness or at any earlier or later time, and regardless of whether there has been a default with respect to the Indebtedness. The Bank shall not be required to first resort for payment of the Indebtedness to the Borrower or to any other person or their properties, or first to enforce, realize upon, or exhaust any collateral security given to secure the Indebtedness before enforcing this Guaranty. Each Guarantor waives presentment, demand for payment, notice of dishonor or nonpayment, and protest of any instrument evidencing part or all of the Indebtedness. 8. If any payment applied by the Bank to the Indebtedness is later set aside, recovered, rescinded, or returned for any reason (including, without limitation, the bankruptcy, insolvency, or reorganization of the Borrower or any other obligor), the Indebtedness to which the payment was applied shall under this Guaranty be deemed to have continued in existence, notwithstanding that application, and this Guaranty shall be enforceable for the Indebtedness as fully as if the application had never been made. 9. The liability of each Guarantor under this Guaranty is in addition to and cumulative with all other liabilities of each Guarantor to the Bank as a guarantor or otherwise, without limitation as to amount, unless the instrument or agreement evidencing or creating the other liability specifically provides to the contrary. 10. This Guaranty shall be enforceable regardless of the failure of other persons to sign other guaranties of the Indebtedness. This Guaranty shall be effective upon delivery to the Bank, without further act, condition, or acceptance by the Bank, and shall be binding upon each Guarantor and the representatives, successors, and assigns of each Guarantor for the benefit of the Bank and its participants, successors, and assigns. Any invalidity or unenforceability of any provision or application shall not affect other lawful provisions and applications of this Guaranty, which is severable. Before the payment in full of the Indebtedness, this Guaranty may not be waived, modified, amended, terminated, released, or otherwise changed except by a writing signed by each Guarantor and the Bank. This Guaranty is issued in and shall be governed by the laws of Texas. 11. Each Guarantor represents and warrants to the Bank that (I) it is a corporation duly organized and existing in good standing and has full power and authority to make and deliver this 3 4 Guaranty; (ii) its execution, delivery, and performance of this Guaranty has been duly authorized by all necessary action of its directors and shareholders and does not and will not violate the provisions of, or constitute a default under, any presently applicable law or its certificate or articles of incorporation or bylaws or any agreement presently binding on it; (iii) this Guaranty has been duly executed and delivered by its authorized officers and constitutes its lawful, binding, and legally enforceable obligation (subject to the United States Bankruptcy Code and other similar laws generally affecting the enforcement of creditors' rights); and (iv) the authorization, execution, delivery, and performance of this Guaranty do not require notification to, registration with, or consent or approval by any federal, state, or local regulatory body or administrative agency. IN WITNESS WHEREOF, this Guaranty has been duly executed on December 9,1997, by the Guarantors. PATTERSON DRILLING COMPANY --------------------------------- By: /s/ JAMES C. BROWN ---------------------------- Its: C.F.O. ---------------------------- PATTERSON PETROLEUM, INC. --------------------------------- By: /s/ JAMES C. BROWN ---------------------------- Its: C.F.O. ---------------------------- PATTERSON PETROLEUM TRADING COMPANY, INC. --------------------------------- By: /s/ JAMES C. BROWN ---------------------------- Its: C.F.O. ---------------------------- 4 EX-99.1 6 ASSET PURCHASE AGREEMENT DATED NOVEMBER 14, 1997 1 EXHIBIT 99.1 ASSET PURCHASE AGREEMENT BETWEEN PATTERSON DRILLING COMPANY AND V&B DRILLING, INC. 2 TABLE OF CONTENTS
Page ---- ARTICLE I THE ASSET PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.1 The Asset Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II REPRESENTATIONS AND WARRANTIES OF PDC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 2.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 2.2 Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III REPRESENTATIONS AND WARRANTIES OF V&B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 3.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 3.2 Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 3.3 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Environmental Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Environmental Permits" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Environmental Laws" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Hazardous Materials" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Material Adverse Effect" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 3.4 Contract Drilling Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 3.5 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 3.6 Drilling Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 3.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 3.8 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 3.9 Normal Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 3.10 V&B Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE IV ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 4.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 4.2 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 4.3 V&B, V Byrd and R Vaught Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 4.4 PDC Assumption of Drilling Contracts; V&B Invoicing of Direct Costs . . . . . . . . . . . . . . 6
i 3 SECTION 4.5 PDC Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 4.6 Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 4.7 Disclaimer of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE V CONDITIONS PRECEDENT TO THE ASSET PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 5.1 Conditions to Each Party's Obligation to Effect the Asset Purchase . . . . . . . . . . . . . . 7 SECTION 5.2 Conditions to Obligation of V&B to Effect the Asset Purchase . . . . . . . . . . . . . . . . . 7 SECTION 5.3 Conditions to Obligations of PDC to Effect the Asset Purchase . . . . . . . . . . . . . . . . . 7 ARTICLE VI GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 6.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 6.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 6.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 6.4 Entire Agreement; No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 6.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 6.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 6.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 6.8 Enforcement of This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ANNEX 1 Description of Drilling Rigs, Equipment and Rolling Stock ANNEX 2 Description of Real Property ANNEX 3 List of Drilling Contracts EXHIBIT A(I) Non-Competition Agreement of V&B Drilling, Inc. EXHIBIT A(II) Non-Competition Agreement of Vernon Byrd EXHIBIT A(III) Non-Competition Agreement of Roland J. Vaught EXHIBIT B Bill of Sale and Assignment EXHIBIT C Warranty Deed EXHIBIT D Warranty Deed EXHIBIT E Warranty Deed EXHIBIT F Warranty Deed
ii 4 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated November 14, 1997 (this "Agreement"), among PATTERSON DRILLING COMPANY ("PDC"), a Delaware corporation and a wholly-owned subsidiary of Patterson Energy, Inc. ("PEC"), and V&B DRILLING, INC., a Texas corporation ("V&B"). WITNESSETH: WHEREAS, V&B owns seven drilling rigs, related drilling equipment and certain rolling stock (collectively, the "Drilling Rigs, Equipment and Rolling Stock"), and a shop and four yards in Odessa, Texas (collectively, the "Real Property"), all as more particularly described on Annex 1, in the case of the Drilling Rigs, Equipment and Rolling Stock and Annex 2, in the case of the Real Property; WHEREAS, PDC desires to purchase, and V&B desires to sell, all of V&B's right, title and interest in the Drilling Rigs, Equipment and Rolling Stock and in the Real Property (the "Asset Purchase") for the consideration set forth and provided for herein; and WHEREAS, PDC, on the one hand, and V&B, on the other, desire to make certain representations, warranties and agreements in connection with the Asset Purchase. NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I THE ASSET PURCHASE SECTION 1.1 The Asset Purchase. Upon the terms and subject to the conditions of this Agreement, at the Closing (as defined in Section 1.3 below) provided herein, PDC shall purchase from V&B and V&B shall sell to PDC, all of V&B's right, title and interest in and to the Drilling Rigs, Equipment and Rolling Stock and in and to the Real Property. SECTION 1.2 Purchase Price. PDC agrees to pay to V&B at the Closing a total of $13 million cash (the "Purchase Price") for all of V&B's right, title and interest in and to the Drilling Rigs, Equipment and Rolling Stock and in and to the Real Property. Of the Purchase Price, $129,000 will be allocated to the Real Property. SECTION 1.3 Closing. The closing of the Asset Purchase (the "Closing") shall take place at 9:00 a.m., local time, on the date of this Agreement at the offices of Patterson Energy, Inc., in 5 Snyder, Texas, or at such other time and place as PDC and V&B shall agree. ARTICLE II REPRESENTATIONS AND WARRANTIES OF PDC PDC represents and warrants to V&B as follows: SECTION 2.1 Organization, Standing and Power. PDC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as now being conducted. SECTION 2.2 Authority; Non-Contravention. PDC has all requisite power and authority to enter into this Agreement and to consummate the Asset Purchase. The execution and delivery by PDC of this Agreement and the consummation by PDC of the Asset Purchase have been duly authorized by all necessary corporate action on the part of PDC. This Agreement has been duly executed and delivered by PDC and (assuming the valid authorization, execution and delivery of this Agreement by V&B) constitutes a valid and binding obligation of PDC enforceable against 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). 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 PDC in connection with the execution and delivery of this Agreement by PDC or is necessary for the consummation by PDC of the Asset Purchase and the other transactions contemplated by this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF V&B SECTION 3.1 Organization, Standing and Power. V&B is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Texas and has the requisite corporate power and authority to carry on its business as now being conducted. SECTION 3.2 Authority; Non-Contravention. V&B has all requisite power and authority to enter into this Agreement and to consummate the Asset Purchase. This Agreement has been duly executed and delivered by V&B and (assuming the valid authorization, execution and delivery of this Agreement by PDC) constitutes a valid and binding obligation of V&B enforceable against it in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, 2 6 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 Asset Purchase and compliance with the provisions hereof will not, conflict with, or result in any violation of, or default (with or without notice of lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a material benefit under, or result in the creation of any lien, security interest, charges or encumbrances upon any of the properties or assets of V&B under, any provision of (i) the Articles of Incorporation or Bylaws of V&B (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 V&B or (iii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to V&B or any of its respective properties or assets. No filing or registration with, or authorization, consent or approval of, any Governmental Entity is required by or with respect to V&B in connection with the execution and delivery of this Agreement by V&B is necessary for the consummation by V&B of the Asset Purchase. SECTION 3.3 Environmental Matters. (a) Except to the extent that the inaccuracy of any of the following, individually or in the aggregate, would not have a Material Adverse Effect on V&B, to the knowledge of V&B: (i) V&B 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 V&B 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 V&B of the transactions contemplated hereby or the operation of the business of V&B on the date of the Closing; (iii) V&B has not received any Environmental Claim, nor has any Environmental Claim been threatened against V&B; (iv) V&B 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; 3 7 (v) there are no circumstances that are reasonably likely to give rise to liability under any agreements with any person pursuant to which V&B 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 V&B 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 V&B 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 V&B under any Environmental Law. "Environmental Permits" means all permits, licenses, registrations, exemptions and other governmental authorizations required under Environmental Laws for V&B 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 3 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. "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, conditions (financial or otherwise), business or results of operations of V&B. SECTION 3.4 Contract Drilling Assets. Annex 1 and Annex 2 set forth a complete list 4 8 of all assets of V&B, relating to or used in its contract drilling operations, other than the two vehicles (1998 Lincoln Navigator and 1993 Lincoln) currently being used by Roland J. Vaught ("R Vaught") and Vernon Byrd ("V Byrd"). SECTION 3.5 Title. Set forth in Annex 1 and Annex 2 is a description of the Drilling Rigs, Equipment and Rolling Stock and of the Real Property, respectively, which description is accurate and complete in all material respects. V&B has good and, in the case of the Real Property, indefeasible title to a 100% interest in the Drilling Rigs, Equipment and Rolling Stock and in the Real 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. For purposes of this Agreement "Liens" means liens, mortgages, pledges, security interests, encumbrances, claims or charges of any kind. SECTION 3.6 Drilling Contracts. Set forth in Annex 3 is a true and correct list of all drilling contracts (collectively, the "Drilling Contracts") to which V&B is a party as of the date of this Agreement. A copy of each of the Drilling Contracts has previously been delivered to PDC. SECTION 3.7 Litigation. There is no suit, action, investigation or proceeding pending or, to the knowledge of V&B, threatened against V&B 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, except for a suit pending in Andrews County, Texas, involving ad valorem taxes in an amount less than $5,000 and otherwise not material to V&B or the transaction contemplated by this Agreement. SECTION 3.8 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 V&B. SECTION 3.9 Normal Operations. All wells currently being drilled by V&B under the Drilling Contracts are drilling under normal operations. SECTION 3.10 V&B Stockholders. Vernon Byrd and Roland J. Vaught are the only stockholders of V&B. ARTICLE IV ADDITIONAL AGREEMENTS SECTION 4.1 Fees and Expenses. All costs and expenses incurred by PDC in connection with this Agreement and the transactions contemplated hereby shall be paid by PDC; such costs and expenses incurred by V&B shall be paid by V&B. 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 best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Asset Purchase and the other transactions contemplated by this Agreement and the prompt satisfaction of the conditions hereto. 5 9 SECTION 4.3 V&B, V Byrd and R Vaught Indemnification. On and after the date of Closing, V&B, V Byrd, President, director and stockholder of V&B, and R Vaught ("R Vaught"), Vice President, director and stockholder of V&B, 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 reasonable attorneys' fees of PEC or PDC), relating to any misrepresentation, breach of any representation or warranty or non-fulfillment of any agreement on the part of V&B contained in this Agreement. The indemnification provided for in this Section 4.3 shall terminate and be of no further force and effect two years from the Closing Date, except as to any representation or warranty as to which a written notice of claim for indemnification has been given to V&B, V Byrd and R Vaught prior to the expiration of such two-year period. SECTION 4.4 PDC Assumption of Drilling Contracts; V&B Invoicing of Direct Costs. Effective as of 7:00 a.m. Odessa, Texas time on the date of this Agreement ("Effective Time of Assumption"), PDC shall assume all obligations and rights and benefits of V&B under each of the Drilling Contracts. In addition, within 30 days following Closing, V&B shall invoice PDC for all direct costs incurred by V&B under each of the Drilling Contracts prior to the Effective Time of Assumption, which invoices shall be paid to V&B by PDC within 30 days of receipt by PDC. SECTION 4.5 PDC Indemnification. PDC shall indemnify and hold V&B harmless from all costs and liabilities (including reasonably attorneys' fees) incurred by V&B under any of the Drilling Contracts for events that occurred after the Effective Time of Assumption. SECTION 4.6 Real Estate Taxes. V&B and PDC agree that any special assessments or other charges relating to the Real Property shall be prorated between V&B and PDC to the date of Closing. SECTION 4.7 Disclaimer of Warranties. V&B and PDC both understand and agree that the Drilling Rigs, Equipment and Rolling Stock are being conveyed by V&B to PDC in "AS IS, WHERE IS" condition, and V&B hereby disclaims any and all warranties relating to the condition of the Drilling Rigs, Equipment and Rolling Stock, and V&B hereby specifically disclaims the warranty of MERCHANTABILITY and FITNESS FOR A PARTICULAR PURPOSE, with respect to the Drilling Rigs, Equipment and Rolling Stock. 6 10 ARTICLE V CONDITIONS PRECEDENT TO THE ASSET PURCHASE SECTION 5.1 Conditions to Each Party's Obligation to Effect the Asset Purchase. The respective obligations of each party to effect the Asset Purchase shall be subject to the fulfillment or waiver (where permissible) at or prior to the Closing Date of each of the following conditions: (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 Asset 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) Consents. V&B shall have received written consents of the other party or parties to each of the Drilling Contracts for the assumption thereof by PDC pursuant to the provisions of Section 4.4 of this Agreement and delivered copies thereof to PDC. SECTION 5.2 Conditions to Obligation of V&B to Effect the Asset Purchase. The obligation of V&B to effect the Asset Purchase shall be subject to the fulfillment at or prior to the Closing of the following additional conditions; provided that V&B may waive any of such conditions in its sole discretion: (a) Performance of Obligations; Representations and Warranties. 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, each of the representations and warranties of PDC contained in this Agreement shall be true and correct on and as of the Closing. (b) Officers' Certificate. PDC shall have furnished to V&B a certificate, dated the Closing, signed by the appropriate officers of PDC, certifying to the effect that to the best of the knowledge and belief of PDC, the conditions set forth in Section 5.1 and Section 5.2(a) have been satisfied in full. (c) Payment of Purchase Price. PDC shall have made delivery of the Purchase Price as provided in Section 1.2 of this Agreement. SECTION 5.3 Conditions to Obligations of PDC to Effect the Asset Purchase. The obligations of PDC to effect the Asset Purchase shall be subject to the fulfillment at or prior to the Closing of the following additional conditions, provided that PDC may waive any such conditions in its sole discretion: 7 11 (a) Performance of Obligations; Representations and Warranties. V&B shall have performed in all material respects each of its agreements contained in this Agreement required to be performed on or prior to the Closing, each of the respective representations and warranties of V&B contained in this Agreement shall be true and correct on and as of the Closing shall be true in all material respects on and as of the Closing. (b) Officers' Certificate. V&B shall have furnished to PDC a certificate, dated the Closing, signed by the appropriate officers of V&B, certifying to the effect that to the best of the knowledge and belief of V&B, the conditions set forth in Section 5.1 and Section 5.3(a) have been satisfied. (c) Opinion of Counsel. PDC shall have received an opinion of counsel Rick Browning, Attorney at Law, Odessa, Texas, counsel to V&B, dated the Closing, substantially to the effect that: (i) The incorporation, existence and good standing of V&B are as stated in this Agreement. (ii) This Agreement has been duly authorized, executed and delivered by V&B, and (assuming the due and valid authorization, execution and delivery by PDC) constitutes the legal, valid and binding agreement of V&B enforceable against V&B 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 V&B of this Agreement will not violate the Articles of Incorporation or Bylaws of V&B 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 V&B is a party or to which it or any of its properties or assets may be bound. (iv) To the knowledge of such counsel, there are no actions, suits or proceedings, pending or threatened against or affecting V&B 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 V&B for consummation of the transactions contemplated by this Agreement. (vi) Each Non-Competition Agreement between PDC and each of V&B, V Byrd and R Roland constitutes the legal, valid and binding agreement of it/him enforceable against it/him in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, 8 12 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 V&B may rely as to matters of fact upon the representations of officers of V&B contained in any certificate delivered to such counsel and certificates of public officials. Such opinion shall be limited to the laws of the United States of America and the State of Texas. (d) Bill of Sale and Assignment. V&B shall have executed and delivered the Bill of Sale and Assignment covering the Drilling Rigs, Equipment and Rolling Stock in the form attached hereto as Exhibit B. (e) General Warranty Deeds. V&B shall have executed and delivered the respective General Warranty Deeds in the respective forms attached hereto as Exhibits C, D, E and F, relating to the respective yards being purchased hereunder by PDC (f) Title Insurance. PDC shall have obtained title commitments for title insurance on the Real Property. (g) Titles. V&B shall have endorsed and delivered the title certificates to the Rolling Stock described in Annex 1. (h) Non-Competition Agreements. A Non-Competition Agreement in the respective forms attached hereto as Exhibits A(I), A(II) and A(III) shall have been executed and delivered by V&B, V Byrd and R Vaught, as the case may be. (i) Phase I Environmental Report. PDC shall have received a Phase I Environmental Report (at its expense) covering the Real Property, with conclusions satisfactory to PDC. ARTICLE VI GENERAL PROVISIONS SECTION 6.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, sent by overnight courier or telecopied (with a confirmatory copy sent by overnight courier) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): 9 13 (a) If to PDC, to: Patterson Energy, Inc. 4510 Lamesa Highway P.O. Drawer 1416 Snyder, Texas 79549 Attention: A. Glenn Patterson President and Chief Operating Officer with copies to: Thomas H. Maxfield, Esq. Baker & Hostetler LLP 303 East 17th Avenue, Suite 1100 Denver, Colorado 80203-1264 (b) if to V&B, to: Vernon Byrd, President V&B Drilling, Inc. 2513 Mercury Avenue Post Office Box 69109 Odessa, Texas 79769-9109 with copies to: Rick Browning Attorney at Law 5050 East University, Suite One Odessa, Texas 79762 (c) if to Vernon Byrd, to: Vernon Byrd c/o V&B Drilling, Inc. 2513 Mercury Avenue Post Office Box 69109 Odessa, Texas 79769-9109 Facsimile: (915) 381-2720 with copies to: Rick Browning Attorney at Law 5050 East University, Suite One Odessa, Texas 79762 (d) if to Roland J. Vaught, to: Roland J. Vaught c/o V&B Drilling, Inc. 2513 Mercury Avenue Post Office Box 69109 Odessa, Texas 79769-9109 Facsimile: (915) 381-2720 10 14 with copies to: Rick Browning Attorney at Law 5050 East University, Suite One Odessa, Texas 79762 SECTION 6.2 Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated, and the words "hereof', "herein" and "hereunder" and similar terms refer to this Agreement as a whole and not to any particular provision of this Agreement, unless the context otherwise requires. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." SECTION 6.3 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. SECTION 6.4 Entire Agreement; No Third-Party Beneficiaries. This Agreement, including the documents and instruments referred to herein, (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 V&B hereto may rely upon the representations and warranties of V&B contained herein and in the certificates delivered pursuant to Sections 5.2(b) and 5.3(b). 11 15 SECTION 6.5 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 6.6 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. SECTION 6.7 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions be consummated as originally contemplated to the fullest extent possible. SECTION 6.8 Enforcement of This Agreement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. IN WITNESS WHEREOF, PDC and V&B have executed this Agreement as of the date first written above. PDC: PATTERSON DRILLING COMPANY By: /s/ A. GLENN PATTERSON --------------------------------------- A. Glenn Patterson Chief Operating Officer Attest: James C. Brown, Secretary 12 16 V&B: V&B DRILLING, INC. By: /s/ VERNON BYRD -------------------------------- Vernon Byrd President Attest: Roland J. Vaught, Secretary TO INDUCE PATTERSON DRILLING COMPANY TO ENTER INTO THIS ASSET PURCHASE AGREEMENT AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, THE UNDERSIGNED, BEING THE OFFICERS, DIRECTORS AND STOCKHOLDERS OF V&B DRILLING, INC., ACCEPT AND AGREE TO BE BOUND BY THE INDEMNIFICATION PROVISIONS OF SECTION 4.3 OF THIS ASSET PURCHASE AGREEMENT. /s/ VERNON BYRD ----------------------------- Vernon Byrd /s/ ROLAND J. VAUGHT ----------------------------- Roland J. Vaught 13 17 ANNEX 1 TO ASSET PURCHASE AGREEMENT DESCRIPTION OF DRILLING RIGS, EQUIPMENT AND ROLLING STOCK A. Drilling Rigs and Equipment. -------- ---- --- --------- Rig No. Drawworks Manufacturer --- --- --------- ------------ Rig No. 1 . . . . . . . . . . . . . . . . . W-45 Rig No. 2 . . . . . . . . . . . . . . . . . W-45 Rig No. 3 . . . . . . . . . . . . . . . . . W-45 Rig No. 4 . . . . . . . . . . . . . . . . . W-45 Rig No. 5 . . . . . . . . . . . . . . . . . BDW 450-T Rig No. 6 . . . . . . . . . . . . . . . . . V-15 Rig No. 9 . . . . . . . . . . . . . . . . . W-45 All related parts and equipment, including engines, mud pumps, hooks and blocks, derricks, substructures, rotary tables, blow-out prevention equipment, drill bits and all tubular goods on the rigs and in the yards owned by V&B, all of which are set forth on Appendix I to the Bill of Sale and Assignment attached to this Agreement as Exhibit B. NOTE: For more specific information concerning the rigs and related equipment, see Appendix I, to Bill of Sale and Assignment attached to this Agreement as Exhibit B. B. Rolling Stock All rolling stock owned by V&B at the Effective Time of Assumption (except the 1998 Lincoln Navigator driven by V Byrd and the 1993 Lincoln driven by R Vaught. NOTE: For more specific information concerning the rolling stock, see Appendix II to Bill of Sale and Assignment attached to this Agreement as Exhibit B. AX-1 - 1 18 ANNEX 2 TO ASSET PURCHASE AGREEMENT DESCRIPTION OF REAL PROPERTY I. Lots 15, 16, 17 and 18, Block 5, Rochester Replat of a portion of 1936 Subdivision as shown by the map or plat of record in Volume 9, Page 23, Plat Records, Ector County, Texas; II. Lots 22, 23, 24 and 25, Block 1, Rochester Replat of a portion of 1936 Subdivision, a subdivision of 312.19 acres of a land in the West part of Section 24, Block 43, T-2-S, T & P RR Company Survey, Ector County, Texas, as shown by the map or plat of record in the office of the County Clerk of said County; III. Lot 5, Block 6, Westover Acres, a subdivision in Ector County, Texas, according to the map or plat thereof of record in Volume 4, Page 44, Plat Records of Ector County, Texas; IV. Being a 4.47 acre tract of land in the Southwest Part of a 10.267 acre tract of land in the Northwest Part of Section 33, Block 43, T-2-S, T & P Ry. Co. Survey, Ector County, Texas. NOTE: The Real Property is more particularly described on the Warranty Deeds attached to this Agreement as Exhibits C, D, E and F, respectively. AX-2 - 1 19 ANNEX 3 TO ASSET PURCHASE AGREEMENT LIST OF DRILLING CONTRACTS RIG NO. COUNTY DATE OPERATOR WELL NAME --- ------- ---- -------- ---- ---- 5 Midland 04/15/97 Arco Permian TXL "N" 39-1 #1 6 Andrews 10/10/97 Minihan Oil & Gas University Consolidated XII #56 1 Ector 11/03/97 Citation Oil & Gas H. E. Cummins #15 4 Ector 01/17/97 Anadarko GCDU #284 9 Ector 01/17/97 Anadarko GCDU #264
AX-3 - 1 20 EXHIBIT A(I) PATTERSON DRILLING COMPANY NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT is made and entered into this _____ day of November, 1997 (this "Agreement"), by and between PATTERSON DRILLING COMPANY, a Delaware corporation ("PDC"), and V&B DRILLING, INC., a Texas corporation ("V&B"). RECITALS: A. Simultaneously with the execution of this Agreement, PDC and V&B have entered into that certain Asset Purchase Agreement, dated of even date herewith (the "Asset Purchase Agreement"), providing for, among other things, the purchase by PDC of the drilling rigs, related equipment and rolling stock owned by V&B. B. The execution and delivery of this Agreement is a condition to the consummation of the Asset Purchase contemplated by the Asset 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 November 1, 2002 (the "Non-Compete Period"). 2. Covenant Not to Compete. (a) V&B covenants and agrees that during the Non-Compete Period, V&B shall not, without the prior written consent of PDC, directly or indirectly, alone or in association with any other person, carry on, be engaged, concerned, or take part in, render services to, or otherwise assist, 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 V&B may (i) invest and/or engage in any business that routinely provides third-party services (as such term is commonly used in the contract oil and gas well drilling business) to a Competitive Business, but EXH A(I) - 1 21 is not engaged in the actual conduct of a Competitive Business, or (ii) invest in stock, bonds, or other securities of any Competitive Business (but without otherwise participating in the Competitive Business) if: (A) such stock, bonds, or other securities are listed on any national securities exchange or are registered under Section 12(g) of the Securities Exchange Act of 1934, as amended; (B) the investment does not exceed, in the case of any class of capital stock of any one issuer, two percent (2%) of the issued and outstanding shares, or, in the case of bonds or other securities of any one issuer, two percent (2%) of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by 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 V&B is prohibited from engaging in certain activities by this Section shall be extended by the length of time during which V&B is in breach of the terms of this section. (b) It is understood by and between the parties hereto that the foregoing covenant by V&B not to enter into competition with PDC as set forth in Section 2(a) hereof is an essential element of this Agreement and the Asset Purchase Agreement and that, but for the agreement of V&B to comply with such covenant, PDC would not have agreed to enter into this Agreement or the Asset Purchase Agreement. PDC and V&B 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. V&B agrees that such covenant is reasonable in scope, geographic area, and duration, and that compliance with such covenant would not impose economic hardship on V&B. 3. Restrictions on Soliciting Business of PDC. V&B further covenants and agrees that during the Non-Compete Period, V&B will not, either for itself 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 2 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. 4. Specific Performance. Without intending to limit the remedies available to PDC, V&B acknowledges that PDC will have no adequate remedies at law if V&B violates the terms of Sections 2 or 3, hereof. In EXH A(I) - 2 22 such event, V&B 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 V&B. The provisions of this Section 4 shall survive the expiration, termination or cancellation of this Agreement. 5. Attorneys Fees and Costs. If an action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary expenses in addition to any other relief to which that party may be entitled. This provision is applicable to this entire Agreement. 6. Representations and Warranties of PDC and V&B. (a) Representations and Warranties of PDC. PDC hereby represents and warrants to V&B 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 V&B. V&B hereby represents and warrants to PDC that: (i) V&B has the capacity and power to enter into and perform obligations of V&B under this Agreement; (ii) V&B has duly and validly executed this Agreement; (iii) the execution of this Agreement and performance of obligations of V&B hereunder do not require the consent or approval of any other party; and (iv) this Agreement constitutes a valid and binding obligation of V&B. 7. General Provisions. (a) Compliance with Laws. The parties agree that they will comply with all applicable laws and regulations of government bodies or agencies in their respective performance of their obligations under this Agreement. (b) Governing Law and Construction. This Agreement will be governed by and construed in accordance with the laws of the State of Texas without reference to its conflict-of-laws principles. This Agreement's final form resulted from review and negotiations among the parties and their attorneys, and no part of this Agreement should be construed against any party on the basis of authorship. EXH A(I) - 3 23 (c) Forum for Dispute Resolution. If any dispute arises among the parties concerning the interpretation or performance of any portion of this Agreement which the parties are unable to resolve themselves, and any party brings an action against any other party seeking a declaratory order, specific performance, damages, or any other legal or equitable relief based on this Agreement, the parties agree that the forum for any such action shall be an appropriate federal or state court in Texas having jurisdiction, agree that venue will be proper in such courts, and waive any objections based on inconvenience of the forum, and further agree that the prevailing party in any such action, as determined by the court, shall be awarded its reasonable attorneys' fees and costs in addition to any relief or judgment the court awards. (d) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter contained herein and supersedes any previous oral or written communications, representations, understandings or agreements with respect thereto. The terms of this Agreement may be modified only in a writing, signed by authorized representatives of both parties. (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 PEC or to another subsidiary of PEC without the prior written consent of V&B, 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 8(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 hereafter be designated by like notice. EXH A(I) - 4 24 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 4510 Lamesa Highway P.O. Drawer 1410 Snyder, Texas 79550 Facsimile: (915) 573-0281 Attention: A. Glenn Patterson President and Chief Operating Officer To V&B: V&B Drilling, Inc. 2513 Mercury Avenue P.O. Box 69109 Odessa, Texas 79769-9109 Facsimile: (915) 381-2720 with copies to: Rick Browning Attorney at Law 5050 East University, Suite One Odessa, Texas 79762 (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. EXH A(I) - 5 25 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. "PDC" PATTERSON DRILLING COMPANY By: /s/ JAMES C. BROWN ----------------------------------- James C. Brown Vice President-Finance "V&B" V&B DRILLING, INC. By: /s/ VERNON BYRD ----------------------------------- Vernon Byrd President EXH A(I) - 6 26 EXHIBIT A(II) PATTERSON DRILLING COMPANY NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT is made and entered into this _____ day of November, 1997 (this "Agreement"), by and between PATTERSON DRILLING COMPANY, a Delaware corporation ("PDC"), and VERNON BYRD, an individual residing in Odessa, Texas ("V Byrd"). RECITALS: A. Simultaneously with the execution of this Agreement, PDC has entered into that certain Asset Purchase Agreement, dated of even date herewith (the "Asset Purchase Agreement"), between PDC and V&B DRILLING, INC. ("V&B"), providing for, among other things, the purchase by PDC of the drilling rigs, related equipment and rolling stock owned by V&B. B. V Byrd is an officer, director and stockholder of V&B. C. The execution and delivery of this Agreement is a condition to the consummation of the Asset Purchase contemplated by the Asset 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 November 1, 2002 (the "Non-Compete Period"). 2. Covenant Not to Compete. (a) V Byrd covenants and agrees that during the Non-Compete Period, V Byrd 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 otherwise assist, EXH A(II) - 1 27 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 V Byrd may (i) invest and/or engage in any business that routinely provides third-party services (as such term is commonly used in the contract oil and gas well drilling business) to a Competitive Business, but is not engaged in the actual conduct of a Competitive Business, or (ii) invest in stock, bonds, or other securities of any Competitive Business (but without otherwise participating in the Competitive Business) if: (A) such stock, bonds, or other securities are listed on any national securities exchange or are registered under Section 12(g) of the Securities Exchange Act of 1934, as amended; (B) the investment does not exceed, in the case of any class of capital stock of any one issuer, two percent (2%) of the issued and outstanding shares, or, in the case of bonds or other securities of any one issuer, two percent (2%) of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by 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 V Byrd is prohibited from engaging in certain activities by this Section shall be extended by the length of time during which V Byrd is in breach of the terms of this section. (b) It is understood by and between the parties hereto that the foregoing covenant by V Byrd not to enter into competition with PDC as set forth in Section 3(a) hereof is an essential element of this Agreement and the Asset Purchase Agreement and that, but for the agreement of V Byrd to comply with such covenant, PDC would not have agreed to enter into this Agreement or the Asset Purchase Agreement. PDC and V Byrd 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. V Byrd 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 V Byrd. 3. Restrictions on Soliciting Business of PDC. V Byrd further covenants and agrees that during the Non-Compete Period, V Byrd 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. EXH A(II) - 2 28 4. Specific Performance. Without intending to limit the remedies available to PDC, V Byrd acknowledges that PDC will have no adequate remedies at law if V Byrd violates the terms of Section 3 or 4, hereof. In such event, V Byrd 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 V Byrd. The provisions of this Section 4 shall survive the expiration, termination or cancellation of this Agreement. 5. Attorneys Fees and Costs. If an action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary expenses in addition to any other relief to which that party may be entitled. This provision is applicable to this entire Agreement. 6. Representations and Warranties of PDC and V Byrd. (a) Representations and Warranties of PDC. PDC hereby represents and warrants to V Byrd 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 V Byrd. V Byrd hereby represents and warrants to PDC that: (i) V Byrd has the capacity and power to enter into and perform obligations of V Byrd under this Agreement; (ii) V Byrd has duly and validly executed this Agreement; (iii) the execution of this Agreement and performance of obligations of V Byrd hereunder do not require the consent or approval of any other party; and (iv) this Agreement constitutes a valid and binding obligation of V Byrd. 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. EXH A(II) - 3 29 (b) Governing Law and Construction. This Agreement will be governed by and construed in accordance with the laws of the State of Texas without reference to its conflict-of-laws principles. This Agreement's final form resulted from review and negotiations among the parties and their attorneys, and no part of this Agreement should be construed against any party on the basis of authorship. (c) Forum for Dispute Resolution. If any dispute arises among the parties concerning the interpretation or performance of any portion of this Agreement which the parties are unable to resolve themselves, and any party brings an action against any other party seeking a declaratory order, specific performance, damages, or any other legal or equitable relief based on this Agreement, the parties agree that the forum for any such action shall be an appropriate federal or state court in Texas having jurisdiction, agree that venue will be proper in such courts, and waive any objections based on inconvenience of the forum, and further agree that the prevailing party in any such action, as determined by the court, shall be awarded its reasonable attorneys' fees and costs in addition to any relief or judgment the court awards. (d) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter contained herein and supersedes any previous oral or written communications, representations, understandings or agreements with respect thereto. The terms of this Agreement may be modified only in a writing, signed by authorized representatives of both parties. (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 PEC or to another subsidiary of PEC without the prior written consent of V Byrd, 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 8(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 EXH A(II) - 4 30 convenience of reference only and are not to be considered in construing this Agreement. (i) Notice. Any notice, request, consent, demand or other communication required to be given under this Agreement will be in writing and will be given personally, by facsimile or by mailing the same, first-class, postage prepaid to the appropriate address and facsimile number set forth below or to such other person or at such other address as may hereafter be designated by like notice. Notices by mail will be considered delivered and become effective three days after the mailing thereof. All notices by facsimile will be considered delivered and become effective immediately upon the confirmed (by answer back or other tangible printed verification or successful receipt) sending thereof. To PDC: Patterson Drilling Company 4510 Lamesa Highway P.O. Drawer 1410 Snyder, Texas 79550 Facsimile: (915) 573-0281 Attention: A. Glenn Patterson President and Chief Operating Officer To V Byrd: Vernon Byrd c/o V&B Drilling, Inc. 2513 Mercury Avenue P.O. Box 69109 Odessa, Texas 79769-9109 Facsimile: (915) 381-2720 with copies to: Rick Browning Attorney at Law 5050 East University, Suite One Odessa, Texas 79762 8. 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. EXH A(II) - 5 31 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. "PDC" PATTERSON DRILLING COMPANY By: /s/ JAMES C. BROWN -------------------------------------- James C. Brown Vice President-Finance "V BYRD" /s/ VERNON BYRD ----------------------------------------- Vernon Byrd EXH A(II) - 6 32 EXHIBIT A(III) PATTERSON DRILLING COMPANY NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT is made and entered into this _____ day of November, 1997 (this "Agreement"), by and between PATTERSON DRILLING COMPANY, a Delaware corporation ("PDC"), and ROLAND J. VAUGHT, an individual residing in Odessa, Texas ("R Vaught"). RECITALS: A. Simultaneously with the execution of this Agreement, PDC has entered into that certain Asset Purchase Agreement, dated of even date herewith (the "Asset Purchase Agreement"), between PDC and V&B DRILLING, INC. ("V&B"), providing for, among other things, the purchase by PDC of the drilling rigs, related equipment, rolling stock owned by V&B. B. R Vaught is an officer, a director and a stockholder of V&B. C. The execution and delivery of this Agreement is a condition to the consummation of the Asset Purchase contemplated by the Asset 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 November 1, 2002 (the "Non-Compete Period"). 2. Covenant Not to Compete. (a) R Vaught covenants and agrees that during the Non-Compete Period, R Vaught 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 otherwise assist, or own, share in the earnings of, or invest in the stock, bonds, or other securities of, any person EXH A(III) - 1 33 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 R Vaught may (i) invest and/or engage in any business that routinely provides third-party services (as such term is commonly used in the contract oil and gas well drilling business) to a Competitive Business, but is not engaged in the actual conduct of a Competitive Business, or (ii) invest in stock, bonds, or other securities of any Competitive Business (but without otherwise participating in the Competitive Business) if: (A) such stock, bonds, or other securities are listed on any national securities exchange or are registered under Section 12(g) of the Securities Exchange Act of 1934, as amended; (B) the investment does not exceed, in the case of any class of capital stock of any one issuer, two percent (2%) of the issued and outstanding shares, or, in the case of bonds or other securities of any one issuer, two percent (2%) of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by 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 R Vaught is prohibited from engaging in certain activities by this Section shall be extended by the length of time during which R Vaught is in breach of the terms of this section. (b) It is understood by and between the parties hereto that the foregoing covenant by R Vaught not to enter into competition with PDC as set forth in Section 3(a) hereof is an essential element of this Agreement and the Asset Purchase Agreement and that, but for the agreement of R Vaught to comply with such covenant, PDC would not have agreed to enter into this Agreement or the Asset Purchase Agreement. PDC and R Vaught 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. R Vaught agrees that such covenant is reasonable in scope, geographic area, and duration, and that compliance with such covenant would not impose economic or professional hardship on R Vaught. 3. Restrictions on Soliciting Business of PDC. R Vaught further covenants and agrees that during the Non-Compete Period, R Vaught 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. EXH A(III) - 2 34 4. Specific Performance. Without intending to limit the remedies available to PDC, R Vaught acknowledges that PDC will have no adequate remedies at law if R Vaught violates the terms of Section 3 or 4, hereof. In such event, R Vaught 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 R Vaught. The provisions of this Section 4 shall survive the expiration, termination or cancellation of this Agreement. 5. Attorneys Fees and Costs. If an action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary expenses in addition to any other relief to which that party may be entitled. This provision is applicable to this entire Agreement. 6. Representations and Warranties of PDC and R Vaught. (a) Representations and Warranties of PDC. PDC hereby represents and warrants to R Vaught 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 R Vaught. R Vaught hereby represents and warrants to PDC that: (i) R Vaught has the capacity and power to enter into and perform obligations of R Vaught under this Agreement; (ii) R Vaught has duly and validly executed this Agreement; (iii) the execution of this Agreement and performance of obligations of R Vaught hereunder do not require the consent or approval of any other party; and (iv) this Agreement constitutes a valid and binding obligation of R Vaught. 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. EXH (III) - 4 35 (b) Governing Law and Construction. This Agreement will be governed by and construed in accordance with the laws of the State of Texas without reference to its conflict-of-laws principles. This Agreement's final form resulted from review and negotiations among the parties and their attorneys, and no part of this Agreement should be construed against any party on the basis of authorship. (c) Forum for Dispute Resolution. If any dispute arises among the parties concerning the interpretation or performance of any portion of this Agreement which the parties are unable to resolve themselves, and any party brings an action against any other party seeking a declaratory order, specific performance, damages, or any other legal or equitable relief based on this Agreement, the parties agree that the forum for any such action shall be an appropriate federal or state court in Texas having jurisdiction, agree that venue will be proper in such courts, and waive any objections based on inconvenience of the forum, and further agree that the prevailing party in any such action, as determined by the court, shall be awarded its reasonable attorneys' fees and costs in addition to any relief or judgment the court awards. (d) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter contained herein and supersedes any previous oral or written communications, representations, understandings or agreements with respect thereto. The terms of this Agreement may be modified only in a writing, signed by authorized representatives of both parties. (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 PEC or to a subsidiary of PEC without the prior written consent of R Vaught 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 8(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 EXH A(III) - 5 36 convenience of reference only and are not to be considered in construing this Agreement. (i) Notice. Any notice, request, consent, demand or other communication required to be given under this Agreement will be in writing and will be given personally, by facsimile or by mailing the same, first-class, postage prepaid to the appropriate address and facsimile number set forth below or to such other person or at such other address as may hereafter be designated by like notice. Notices by mail will be considered delivered and become effective three days after the mailing thereof. All notices by facsimile will be considered delivered and become effective immediately upon the confirmed (by answer back or other tangible printed verification or successful receipt) sending thereof. To PDC: Patterson Drilling Company 4510 Lamesa Highway P.O. Drawer 1410 Snyder, Texas 79550 Facsimile: (915) 573-0281 Attention: A. Glenn Patterson President and Chief Operating Officer To R Vaught: Roland J. Vaught c/o V&B Drilling, Inc. 2513 Mercury Avenue P.O. Box 69109 Odessa, Texas 79769-9109 Facsimile: (915) 381-2720 with copies to: Rick Browning Attorney at Law 5050 East University, Suite One Odessa, Texas 79762
(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. 37 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. "PDC" PATTERSON DRILLING COMPANY By: ------------------------------------- James C. Brown Vice President-Finance "R Vaught" ------------------------------------ Roland J. Vaught EXH A(III) - 6 38 EXHIBIT B BILL OF SALE AND ASSIGNMENT KNOW ALL MEN BY THESE PRESENTS, that, pursuant to that certain Asset Purchase Agreement, dated of even date herewith ("Asset Purchase Agreement") between PATTERSON DRILLING COMPANY ("PDC"), a Delaware corporation, and V&B DRILLING, INC. ("V&B"), a Texas corporation (V&B is referred to herein as the "Assignor"), the Assignor, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby grants, bargains, sells, conveys and transfers unto PDC (the "Assignee"), all of the Assignor's right, title and interest in and to (i) the Drilling Rigs, Equipment and Rolling Stock set forth in Appendix I attached hereto and incorporated herein by this reference; and (ii) the Drilling Contracts described in Appendix II attached hereto and incorporated herein by this reference. TO HAVE AND TO HOLD the same unto the Assignee and the Assignee's successors and assigns forever. The Assignor hereby covenants and agrees that it has the full right, power and authority to sell, convey and transfer the foregoing property to the Assignee pursuant to this Bill of Sale and Assignment. IN WITNESS WHEREOF, the Assignor has caused this Bill of Sale and Assignment to be duly executed by its duly authorized officer as of the ____ day of November, 1997. V&B DRILLING, INC. By: ----------------------------------- Vernon Byrd President 39 APPENDIX I TO BILL OF SALE AND ASSIGNMENT FROM V&B DRILLING, INC. TO PATTERSON DRILLING COMPANY (List of Assets Assigned) A. DRILLING RIGS, EQUIPMENT AND ROLLING STOCK The Drilling Rigs and Equipment includes all of the drilling rigs, parts and related equipment, including engines, mud pumps, hooks and blocks, derricks, substructures, rotary tables, blow-out prevention equipment, drill bits and all tubular goods on the rigs and in the yards owned by V&B, all of which are listed below. ------------------------- RIG #1 H.B. CUMMINS #15 - ECTOR CO. FOR CITATION OIL & GAS CORP. Substructure 10' H, l6' W, 40' L Derrick 97' Jacknife Drawworks W-45 Power 2 - 8 V71 Detroit Diesels, W 955 Allison Torque Convertor Blocks 4 - Sheave Block & Hook Swivel TSM 150 C Kelly 4-1/4 X 38' Rotary BDW 17-1/2 x 44 Tool House 8' x 8' X 28' Pump 1 Emsco D375, skid mounted
EXH B - 2 40 Power Cat. D353 Pump 2 Emsco D-375 Skid mounted Power Cat. 3408 Light Plant 2 - Cat 3306 Premix Pit 6' H, X 8' W x 30' L Water Tank 500 bbl Closing Unit Koomey 4 station Oil container 10 bbl 4 comp. Cat Walk 25' W X 42' H X 48' L V-Door Ramp 5' W x 14' L Pipe Racks 3 Sets - Triangle - 42 H 6" Drill collars 22 - Drill Collars, 29' plus 8" Drill collars 3 - 30' L Drill Pipe Approx. 7000' of 4-1/2" drill pipe Steps 3 Sets Pipe tubs 2 - 8 W X 3' X 35' L BOF Shaffer Type, 10" 900 W rams & choke Manifold Elevators, tools, subs and misc. equipment to operate Rig.
EXH B - 3 41 RIG #2 IN YARD Substructure 10' H, 18' W X 40' L Derrick 100' Jacknife Drawworks W-45, with 2 engine comp. Power 2 - 8V71 Detroits, 318 HP each Blocks 4 - Sheave with/hook Swivel Oilwell 150C Kelly 4-1/4" X 38' Rotary 17.5 BDW Tool House 8' X 8' X 28' Pump 1 Ellis Williams 15 W 600 skidded Power Cat 3412 Pump 2 FXN Gardner Denver Power Cat. 3408 Light Plant Cat. 3306 W - 150, KW gen. Premix Pit 6' X 8' x 30' Water Tank 500 bbl Horizontal skidded Closing Unit 4 Station Oil Container 10 bbl, 4 compartment Cat Walk 42' X 5' X 48' V-Door Ramp 5' X 13' EXH B - 4 42 Pipe Racks 3 Sets - Triangle 42" H 6" Drill collars 22 - 6" X 28+ Steps 3 sets Pipe Tub 2 - 8'W X 3'H X 35'L Drill pipe Approx. 6000' of 4-1/2" BOP Shaffer 10 - 900 L.W.S. Elevators, tools, subs and misc. equipment to operate Rig. EXH B - 5 43 RIG #3 - IN YARD ODESSA, TEXAS Pony Sub to Raise Floor to 14' Substructure 10' X 12' X 18' with Ramp Derrick 97' Telecope Derrick - free standing Drawworks W - 45 Power 2 - Cat. 3306 w/11500 Twin Disk Torque Conv. Blocks Brewster - 4 sheave Swivel Grey - Type F Kelly 4-1/4" X 37' Rotary Twister 175 Toolhouse 8 X 8 X 30' Pump 1 Brewster 550 (run 30 days since New) Power Cat D-353 Pump 2 FX2 G.D. Power 8771 Detroit Light Plant 671 Detroit w/100 KW Gen. Premix Pit 6' X 8' X 30' Water Tank 500 bbl - Hori. skidded Closing Unit 3 - Station Oil container 8 bbl, 3 compartments Catwalk 2 - 5' X 25' X 42 EXH B - 6 44 V-Door Ramp 5'W X 10' L Pipe Racks 3 sets - Triangle - 42" H 6" Drill Collars 22 - 5" Drill Collars Steps 3 Sets Pipe Tubs 2 - 8'W X 3'H X 35' L Drill pipe Approx. 6500' of 4-1/2" Elevators, tools, subs and misc. equipment to operate rig. EXH B - 7 45 RIG #4 GCDU #284 - ECTOR CO. FOR ANADARKO PETROLEUM CORP. Substructure 11'H X 17'W X 40'L Derrick Jacknife 100' Drawworks W 45 Power 2 - 8V71 Detroit Diesels, w955 Allison Torque Con. Blocks EMSCO, 4 sheave w/B.J. Hook Swivel P.C. 150 Ton Kelly 38' - 4-1/4 square Rotary B.D.W. - 17-1/2" Tool House 8'W X 8' H x 28' W, 15 Lockers Pump #1 EMSCO DB - 550, skid mounted Power Cat. 3412 Pump #2 EMCSO D-300, skid mounted Power Cat D-353 Light Plant 1 - Cat. 3306, 150 KW, 1 Detroit 6V71, 6 cly. - 90 KW Premix Pit 6'H X 6' W X 30 L Water Tank 500 bbl Closing Unit Koomey 4 station Oil Container 10 bbl 41 comp. Cat Walk 5' W X 42 H X 48' L EXH B - 8 46 V-Door Ramp 5' W X 16' L Pipe Racks 3 sets - 42" Triangle Pipe Tube 3 - 8' W x 3' H x 35' L 6" Drill Collars 25 - 29' plus 8" Drill Collars 3 - 28' plus Drill Pipe approx. 6000' of 4-1/2" X-hole Steps 3 sets Mud Pit BOP Shaffer 10" - 900 - BOP w/ram choke manifold Elevators, tools, subs and misc- equipment to operate Rig. EXH B - 9 47 RIG #5 TXL "N" 39 - 1 #1 IN MIDLAND COUNTY, TEXAS FOR SIERRA ENGINEERING/ARCO PERMIAN Substructure 12' H x 24' W X 50' L Derrick Derrick MFG 131', SN: 301002 Drawworks BDW 450-T Power 2 - Cat. 3406 & 2 air corp. Blocks Sowa - 5 sheave Swivel NSCO Ideal - DF 150 Kelly 4-1/4" X 40' Rotary BDW 17-1/2 Tool House 8' X 8' X 28' Pump 1 National C-350, skid mounted Power Cat. 3412 Pump 2 Wilson 600, skid mounted Power Cat. 3408 Light Plant 1 Cat. 3306, 150 KW, 1 Cat. 3304, 90 KW in house Premix Pit 6' H x 8' W X 30' L Water Tank 500 bbls Closing Unit Valcon, 4 stage closing unit Oil Container 10 bbls, 4 comp. Cat Walk 5' W - 42" H - 48' L EXH B - 10 48 V-Door Ramp 5' W X 16' L Pipe Racks 5 sets - 42" H, triangle Lay Down Racks 2 sets - 24" Triangle 6" Drill Collars 26 - 29' Plus 8" Drill Collars 8 - 28' plus Drill Pipe Approx. 10,000' Steps 3 Sets Mud Pit 10' W - 7'H - 50' BOP 10" 900 Shaffer Type A W/rams & Choke Manifold Elevator, tools, subs and misc. equipment to operate Rig. EXH B - 11 49 RIG #6 UNIVERSITY CONSOLIDATED XII #56 IN ANDREWS COUNTY, TEXAS FOR MINIHAN OIL & GAS CORP. Substructure 12'H X 22'W x 48' L Derrick TOFECO - 131", SN: 28-173 Drawworks V-15-DWKS Power 2 - Detroit, 12V71, w/Allison Torque Conv. and Triple hydro. Blocks SOWA, 5 sheave Swivel NSCO, Type F - 150 Ton Kelly 4-1/4" X 40' Rotary BDW 17-1/2" Tool House 8'H X 8'W X 28' L Pump 1 Tri Service 16", skid mounted Power Cat. D-353 Pump 2 EMSCO D - 300 - 14" Power Detroit l2V7l Light Plant 1 Cat. 3306 - 135 KW. 1 Detroit 6V71 90 KW Premix Pit 6'H X 8'W x 30' L Water Tank 2 - 500 BBL Closing Unit Valco - 4 station Oil Container 10 bbl - 4 comp. Cat Walk 2 - 5'W X 42" H X 48' L EXH B - 12 50 V-Door Ramp 5'W x 16' L Pipe Racks 5 sets - 42" H X 30' Lay down racks 2 sets - 18"h X 30' 6" Drill Collars 22 - 6-1/2" w/slip sec. fish neck, 6-1/2" 30' plus 8" Drill Collars 6 - 28' plus Drill Pipe Approx. 11,000' of 4-1/2" - 1660# Steps 3 sets Mud Pit 8' W X 7' H x 50'L BOP Shaffer 10" - 900 W/Rams & choke Manifold Tools, subs and misc. equipment to operate Rig. EXH B - 14 51 RIG #9 GCDU #264 IN ECTOR CO, TEXAS FOR ANADARKO PETROLEUM CORP. Substructure 10' H X 18' W X 40' L Derrick Jacknife 98' Drawworks W 45 Power 2 - Detroit, 8V71 with Allison Torque Conv. Blocks Baash Ross, 150 Ton Swivel Oilwell PC 150 Kelly 4-1/4" X 40' Rotary B.D.W. - 17-1/2" Tool House 8'H X 8'W X 30' Pump 1 National C-350, skid mounted Power Cat. 3412 Pump 2 EMSCO - D-300 Power Cat. D-353 Light Plant Cat. 3306, 150 KW Premix Pit 8'H X 8'W X 30' Water Tank 500 bbl Closing Unit Barksdale, 4 station Oil Container 10 bbl, 4 comp. Catwalk 1 - 5' X 42" X 48' V-Door Ramp 5' W X 14' EXH B - 14 52 Pipe Racks 5 sets - Triangle Pipe Tubs 8' W X 3'H X 35' L 6" Drill Collars 21 - 29' plus 8" Drill Collars 3 - 28' plus Drill pipe Approx. 6000' of 4-1/2" X-Hole, 16# Steps 3 sets BOP Cameron 10" - 900 Space Saver Tools, subs and misc. equipment to operate Rig. EXH B - 15 53 2513 MERCURY AVE. ODESSA, TEXAS 2 Utility Trailers 1 Lincoln Welder 1 Ford 900 Truck (Yard Truck) VIN F90LVDK1239 1 Lufkin Trailer - VIN 1LOlB3825B1057976 1 Allis Chalmers, Fork Lift - SN: A0139000 1 Caterpiller, Fork Lift 1980 Kenworth JSC Lowboy Trailer 1 1987 Ford PU - VIN 1FTEX15V1HKA83479 1 1990 Ford PU - VIN 1FTEX15Y6LKA20509 1 1994 Ford PU - VIN IFTEF15N7RLA40070 1 1995 Ford PU - VIN 1FTEF15N3SNB08732 Assortment of Drilling Bits - new and used, various sizes 2 Radiators for D-353 cat. 2 Radiators for 3306 Cat. 1 8V-71 Detroit (new overhaul) By - J & J Engine Serv. 1 D-353 Cat. (new overhaul) by General Machine 1 3412 Cat. (new overhaul) 2 Electric Motors EXH B - 16 54 1 Miller Electric welder 4 Weight Indicators 1 Steam Cleaner 9 Tool Houses for Storage - full 2 Kellys 4-1/4 x 40' 44 6" drill collars 4 Docks with Misc. Parts 8 Swivels, various makes & sizes 8 Blocks - various makes and sizes 4 Hook - various makes and sizes 10 Triangle Pipe Racks In Shop Shelves & Bins with assortment of bolts, nuts & etc. 1 BDW 17.5 - Rotary - New EXH B - 17 55 YARD #4 - 24TH ST. & MERCURY AVE. ODESSA, TEXAS 2 Tool Houses, 8' X 8' X 30' 1 W-45 Drawworks - New 6 Misc. Mud Pits 2 Tool Houses, 8' X 8' x 15' 1 Fuel Tank, 6000 gal. skid 35 6" collars 18 8" collars 4 Kellys, 4-1/4 Square x 40' 42 Triangle Pipe Racks - 30' long Misc. Motors, Accumulator Units, Parts and etc. 395 Joints of Double White Drill Pipe - Grade E EXH B - 19 56 YARD 6831 UNIVERSITY BLVD. ODESSA, TEXAS 1 Light Plant House 1 Tool House 2 FXzl72 Mud Pumps, skidded Misc. Drawworks - 1 N4 Brewster W 2 Wakesha 1 S45A Beth. 1 National C150 Mud Pump Misc. well used mud pumps EXH B - 20 57 MOSS YARD MOSS AVE. AND TISDALE ROAD ODESSA, TEXAS 1 Substructure 10 X 18 X 35 2 97' Jackknife Derrick 2 172' LCM Derrick 3 Junk Substructures 1 C350 Mud Pump 2 120000 gal. Diesel Tank - skidded 2 500 bbl. Horizontal water tanks - skidded 5 Misc. Mud Pits Approx. 200 Joints - Structural drill pipe 2 Catwalk - 4' X 42" X 25' 9 Catwalk with Misc. Equip. 28 Triangle Pipe Racks 4 Triangle Lay down racks 1 7 X 8 X 15 Tool house Misc. Motors, parts and junk EXH B - 21 58 APPENDIX II TO BILL OF SALE AND ASSIGNMENT FROM V&B DRILLING, INC. TO PATTERSON DRILLING COMPANY (List of Drilling Contracts Assigned) RIGNO No. COUNTY DATE OPERATOR WELL NAME --- ------ ---- -------- ---- ---- 5 Midland 04/15/97 Arco Permian TXL "N" 39-1 #1 6 Andrews 10/10/97 Minihan Oil & Gas University Consolidated XII #56 1 Ector 11/03/97 Citation Oil & Gas H. E. Cummins #15 4 Ector 01/17/97 Anadarko GCDU #284 9 Ector 01/17/97 Anadarko GCDU #264
EXH B - 21 59 EXHIBIT C 2251 Prepared by the State Bar of Texas for use by lawyers only Revised 10-85 19__ for the State Bar of Texas WARRANTY DEED Date: Grantor: V&B Drilling, Inc. Grantor's Mailing Address (including county): Grantee: Patterson Drilling Company Grantee's Mailing Address (including county): P.O. Drawer 1416 Snyder Texas 79550 Scurry County, Texas Consideration: One Hundred Dollars ($100) and other good and valuable consideration. Property (including any improvements): Lots 15, 16, 17 and 18, Block 5, Rochester Replat of a portion of 1936 Subdivision as shown by the map or plat of record in Volume 9, Page 23, Plat Records, Ector County, Texas. Reservations from and Exceptions to Conveyance and Warranty: Easements, rights-of-way, and prescriptive rights, whether of record or not; all presently recorded restrictions, reservations, covenants, conditions, oil and gas leases, mineral severances, and other instruments other than liens and conveyances, that affect the property. Grantor, for the consideration and subject to the reservations from and exceptions to conveyance and warranty, grants, sells and conveys to Grantee the property, together with all and singular the rights and appurtenances thereto in any wise belonging, to have and hold it to Grantee, Grantee's heirs, executors, administrators, successors or assigns forever. Grantor binds Grantor and Grantor's heirs, executors, administrators and successors to warrant and forever defend all and singular the property to Grantee and Grantee's heirs, executors, administrators, successors and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof, except as to the reservations from and exceptions to conveyance and warranty. When the context requires, singular nouns and pronouns include the plural. V & B DRILLING, INC. ---------------------------- By: Vernon Byrd, President EXH C - 1 60 (Acknowledgement) STATE OF TEXAS ) COUNTY OF ) This instrument was acknowledged before me on the day of , 19____. --------------------------------------- Notary Public, State of Texas Notary's name (printed): Notary's commission expires: (Corporate Acknowledgement) STATE OF TEXAS ) COUNTY OF ) This instrument was acknowledge before me on the day of November, 1997, by VERNON BYRD, President of V&B Drilling, Inc., a Texas corporation, on behalf of said corporation. ------------------------------ Notary Public, State of Texas Notary's name (printed): Notary's commission expires: EXH C - 2 61 EXHIBIT D 2251 Prepared by the State Bar of Texas for use by lawyers only Revised 10-85 19__ for the State Bar of Texas WARRANTY DEED Date: Grantor: V&B Drilling, Inc. Grantor's Mailing Address (including county): Grantee: Patterson Drilling Company Grantee's Mailing Address (including county): P.O. Drawer 1416 Snyder Texas 79550 Scurry County, Texas Consideration: One Hundred Dollars ($100) and other good and valuable consideration. Property (including any improvements): Lots 22, 23, 24, and 25, Block 1, Rochester Replat of a portion of 1936 Subdivision, a subdivision of 312.19 acres of land in the West part of Section 24, Block 43, T-2-S, T & P RR Company Survey, Ector County, Texas, as shown by the map or plat of record in the office of the County Clerk of said County. Reservations from and Exceptions to Conveyance and Warranty: Easements, rights-of-way, and prescriptive rights, whether of record or not; all presently recorded restrictions, reservations, covenants, conditions, oil and gas leases, mineral severances, and other instruments other than liens and conveyances, that affect the property. Grantor, for the consideration and subject to the reservations from and exceptions to conveyance and warranty, grants, sells and conveys to Grantee the property, together with all and singular the rights and appurtenances thereto in any wise belonging, to have and hold it to Grantee, Grantee's heirs, executors, administrators, successors or assigns forever. Grantor binds Grantor and Grantor's heirs, executors, administrators and successors to warrant and forever defend all and singular the property to Grantee and Grantee's heirs, executors, administrators, successors and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof, except as to the reservations from and exceptions to conveyance and warranty. When the context requires, singular nouns and pronouns include the plural. V & B DRILLING, INC. ----------------------------- By: Vernon Byrd, President EXH D - 1 62 (Acknowledgement) STATE OF TEXAS ) COUNTY OF ) This instrument was acknowledged before me on the day of , 19____. ----------------------------- Notary Public, State of Texas Notary's name (printed): Notary's commission expires: (Corporate Acknowledgement) STATE OF TEXAS ) COUNTY OF ) This instrument was acknowledged before me on the day of November, 1997, by VERNON BYRD, President of V&B Drilling, Inc., a Texas corporation, on behalf of said corporation. ----------------------------- Notary Public, State of Texas Notary's name (printed): Notary's commission expires: EXH D - 2 63 EXHIBIT E 2251 Prepared by the State Bar of Texas for use by lawyers only Revised 10-85 19__ for the State Bar of Texas WARRANTY DEED Date: Grantor: V&B Drilling, Inc. Grantor's Mailing Address (including county): Grantee: Patterson Drilling Company Grantee's Mailing Address (including county): P.O. Drawer 1416 Snyder Texas 79550 Scurry County, Texas Consideration: One Hundred Dollars ($100) and other good and valuable consideration. Property (including any improvements): Lot 5, Block 6, WESTOVER ACRES, a subdivision in Ector County, Texas, according to the map or plat thereof of record in Volume 4, Page 44, Plat Records of Ector County, Texas Reservations from and Exceptions to Conveyance and Warranty: Easements, rights-of-way, and prescriptive rights, whether of record or not; all presently recorded restrictions, reservations, covenants, conditions, oil and gas leases, mineral severances, and other instruments other than liens and conveyances, that affect the property. Grantor, for the consideration and subject to the reservations from and exceptions to conveyance and warranty, grants, sells and conveys to Grantee the property, together with all and singular the rights and appurtenances thereto in any wise belonging, to have and hold it to Grantee, Grantee's heirs, executors, administrators, successors or assigns forever. Grantor binds Grantor and Grantor's heirs, executors, administrators and successors to warrant and forever defend all and singular the property to Grantee and Grantee's heirs, executors, administrators, successors and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof, except as to the reservations from and exceptions to conveyance and warranty. When the context requires, singular nouns and pronouns include the plural. V & B DRILLING, INC. By: Vernon Byrd, President EXH E - 1 64 (Acknowledgement) STATE OF TEXAS ) COUNTY OF ) This instrument was acknowledged before me on the day of , 19____. ------------------------------------- Notary Public, State of Texas Notary's name (printed): Notary's commission expires: (Corporate Acknowledgement) STATE OF TEXAS ) COUNTY OF )
This instrument was acknowledged before me on the day of November, 1997, by VERNON BYRD, President of V&B Drilling, Inc., a Texas corporation, on behalf of said corporation. ------------------------------ Notary Public, State of Texas Notary's name (printed): Notary's commission expires: EXH E - 2 65 EXHIBIT F 2251 Prepared by the State Bar of Texas for use by lawyers only Revised 10-85 19__ for the State Bar of Texas WARRANTY DEED Date: Grantor: V&B Drilling, Inc. Grantor's Mailing Address (including county): Grantee: Patterson Drilling Company Grantee's Mailing Address (including county): P.O. Drawer 1416 Snyder Texas 79550 Scurry County, Texas Consideration: One Hundred Dollars ($100) and other good and valuable consideration. Property (including any improvements): See attached Exhibit "A" Reservations from and Exceptions to Conveyance and Warranty: Easements, rights-of-way, and prescriptive rights, whether of record or not; all presently recorded restrictions, reservations, covenants, conditions, oil and gas leases, mineral severances, and other instruments other than liens and conveyances, that affect the property. Grantor, for the consideration and subject to the reservations from and exceptions to conveyance and warranty, grants, sells and conveys to Grantee the property, together with all and singular the rights and appurtenances thereto in any wise belonging, to have and hold it to Grantee, Grantee's heirs, executors, administrators, successors or assigns forever. Grantor binds Grantor and Grantor's heirs, executors, administrators and successors to warrant and forever defend all and singular the property to Grantee and Grantee's heirs, executors, administrators, successors and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof, except as to the reservations from and exceptions to conveyance and warranty. When the context requires, singular nouns and pronouns include the plural. V & B DRILLING, INC. --------------------------- By: Vernon Byrd, President EXH F - 1 66 (Acknowledgement) STATE OF TEXAS ) COUNTY OF ) This instrument was acknowledged before me on the day of , 19____. ---------------------------------- Notary Public, State of Texas Notary's name (printed): Notary's commission expires: (Corporate Acknowledgement) STATE OF TEXAS ) COUNTY OF ) This instrument was acknowledged before me on the day of November, 1997, by VERNON BYRD, President of V&B Drilling, Inc., a Texas corporation, on behalf of said corporation. ---------------------------------------- Notary Public, State of Texas Notary's name (printed): Notary's commission expires: EXH F - 2 67 EXHIBIT "A" Attached to and made a part of that certain Warranty Deed dated November 14, 1997, between V&B Drilling, Inc., as Grantor, and Patterson Drilling Company, as Grantee. PROPERTIES Being a 4.47 acre tract of land in the Southwest Part of a 10.267 acre tract of land in the Northwest Part of Section 33, Block 43, T-2-S, T & P Ry. Co. Survey, Ector County, Texas, and being more particularly described by metes and bounds as follows, to wit: BEGINNING at a 1/2" iron rod set in the east boundary Moss Avenue and west boundary of a 10.267 acre tract of land in the northwest part of Section 33, Block 43, T-2-S, T & P Ry. Ector County, Texas, for the northwest corner this tract, from which point a fence corner post at the northwest corner of 10.267 acre tract bears N 15degrees 17- 1/2 W, 150 feet, and a 1/2" galvanized iron pipe in the east boundary Moss Avenue and north boundary Section 33 bears N 15degrees 17- 1/2 W, 650.0 feet, from which point the northwest corner Section 33, being in the centerline of Moss Avenue, bears S 74degrees 42- 1/2' W, 50 feet; THENCE S 15degrees 17- 1/2' E, with east boundary Moss Avenue and west boundary 10.267 acre tract, 350.0 feet to a 1/2" iron rod set in north boundary of Tisdale Road for the southwest corner of 10.267 acre tract and this tract; THENCE, N 74degrees 42- 1/2' E, with north boundary Tisdale Road and south boundary 10.267 acre tract, 556.0 feet to a 1/2" iron rod set for southwest corner this tract, from which point a 1/2" galvanized iron pipe at the southeast corner 10.267 acre tract bears N 74degrees 42- 1/2' E, 338.5 feet; THENCE N 15degrees 17- 1/2' W, 350.0 feet to a 1/2" iron rod set for northeast corner this tract; THENCE S 74degrees 42- 1/2' W, 556.0 feet to the place of beginning, containing 4.47 acres of land, more or less. EXH F - 3 EX-99.2 7 ASSET PURCHASE AGREEMENT DATED NOVEMBER 20, 1997 1 EXHIBIT 99.2 ASSET PURCHASE AGREEMENT BETWEEN PATTERSON DRILLING COMPANY AND CIRCLE R DRILLING, LTD. 1981-A 2 TABLE OF CONTENTS
Page ---- ARTICLE I THE ASSET PURCHASE . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.1 The Asset Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II REPRESENTATIONS AND WARRANTIES OF PDC . . . . . . . . . . . . . . . . . . 2 SECTION 2.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 2.2 Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III REPRESENTATIONS AND WARRANTIES OF CIRCLE R . . . . . . . . . . . . . . . . . 2 SECTION 3.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 3.2 Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 3.3 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 3.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 3.5 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 3.6 General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 3.7 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE IV ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 4.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 4.2 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 4.3 PDC Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 4.4 Circle R, CRD and Terry Pat Reynolds Indemnification . . . . . . . . . . . . . . . . . . . . . 5 SECTION 4.5 Notice of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE V CONDITIONS PRECEDENT TO THE ASSET PURCHASE . . . . . . . . . . . . . . . . . 6 SECTION 5.1 Conditions to Each Party's Obligation to Effect the Asset Purchase . . . . . . . . . . . . . . 6
i 3 SECTION 5.2 Conditions to Obligation of Circle R to Effect the Asset Purchase . . . . . . . . . . . . . . . 6 SECTION 5.3 Conditions to Obligations of PDC to Effect the Asset Purchase . . . . . . . . . . . . . . . . . 7 ARTICLE VI GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 6.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 6.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 6.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 6.4 Entire Agreement; No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 6.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 6.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 6.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 6.8 Enforcement of This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ANNEX 1 Description of Drilling Rig and Equipment EXHIBIT A(I) Non-Competition Agreement of Circle R Drilling, Ltd. 1981-A EXHIBIT A(II) Non-Competition Agreement of Circle R Drilling, Inc. EXHIBIT A(III) Non-Competition Agreement of Terry Pat Reynolds EXHIBIT A(IV) Non-Competition Agreement of Reynolds Drilling Co., Inc. EXHIBIT B Bill of Sale and Assignment ii 4 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated November __, 1997 (this "Agreement"), among PATTERSON DRILLING COMPANY ("PDC"), a Delaware corporation and a wholly-owned subsidiary of Patterson Energy, Inc. ("PEC"), and CIRCLE R DRILLING, LTD. 1981-A, a Louisiana limited partnership ("Circle R"). WITNESSETH: WHEREAS, Circle R owns one drilling rig and related drilling equipment (collectively, the "Drilling Rig and Equipment"), all as more particularly described on Annex 1; WHEREAS, PDC desires to purchase, and Circle R desires to sell, all of Circle R's right, title and interest in the Drilling Rig and Equipment (the "Asset Purchase") for the consideration set forth and provided for herein; and WHEREAS, PDC, on the one hand, and Circle R, on the other, desire to make certain representations, warranties and agreements in connection with the Asset Purchase. NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I THE ASSET PURCHASE SECTION 1.1 The Asset Purchase. Upon the terms and subject to the conditions of this Agreement, at the Closing (as defined in Section 1.3 below) provided herein, PDC shall purchase from Circle R and Circle R shall sell to PDC, all of Circle R's right, title and interest in and to the Drilling Rig and Equipment. SECTION 1.2 Purchase Price. PDC agrees to pay to Circle R at the Closing a total of $1,460,000 cash (the "Purchase Price") for all of Circle R's right, title and interest in and to the Drilling Rig and Equipment. SECTION 1.3 Closing. The closing of the Asset Purchase (the "Closing") shall take place at 9:00 a.m., local time, on the date of this Agreement at the offices of PEC in Snyder, Texas or at such other time and place as PDC and Circle R shall agree. 5 ARTICLE II REPRESENTATIONS AND WARRANTIES OF PDC PDC represents and warrants to Circle R as follows: SECTION 2.1 Organization, Standing and Power. PDC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as now being conducted. SECTION 2.2 Authority; Non-Contravention. PDC has all requisite power and authority to enter into this Agreement and to consummate the Asset Purchase. The execution and delivery by PDC of this Agreement and the consummation by PDC of the Asset Purchase have been duly authorized by all necessary corporate action on the part of PDC. This Agreement has been duly executed and delivered by PDC and (assuming the valid authorization, execution and delivery of this Agreement by Circle R) constitutes a valid and binding obligation of PDC enforceable against 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). 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 PDC in connection with the execution and delivery of this Agreement by PDC or is necessary for the consummation by PDC of the Asset Purchase and the other transactions contemplated by this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF CIRCLE R Circle R represents and warrants to PDC as follows: SECTION 3.1 Organization, Standing and Power. Circle R is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Louisiana and has the requisite power and authority to carry on its business as now being conducted. SECTION 3.2 Authority; Non-Contravention. Circle R has all requisite power and authority to enter into this Agreement and to consummate the Asset Purchase. This Agreement has been duly executed and delivered by Circle R and (assuming the valid authorization, execution and delivery of this Agreement by PDC) constitutes a valid and binding obligation of Circle R enforceable against it 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 2 6 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 Asset Purchase and compliance with the provisions hereof will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation which will have an adverse effect on the Drilling Rig and Equipment or the ownership or operation thereof by PDC after the Closing under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Circle R under, any provision of (i) the Certificate of Limited Partnership or Agreement of Limited Partnership of Circle R (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 Circle R or (iii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Circle R or any of its respective properties or assets. No filing or registration with, or authorization, consent or approval of, any Governmental Entity is required by or with respect to Circle R in connection with the execution and delivery of this Agreement by Circle R or is necessary for the consummation by Circle R of the Asset Purchase and the other transactions contemplated by this Agreement. SECTION 3.3 Title. Set forth in Annex 1 is a description of the Drilling Rig and Equipment, which description is accurate and complete in all material respects. Circle R has good title to a 100% interest in the Drilling Rig and Equipment, 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. For purposes of this Agreement "Liens" means liens, mortgages, pledges, security interests, encumbrances, claims or charges of any kind. SECTION 3.4 Litigation. There is no suit, action, investigation or proceeding pending or, to the knowledge of Circle R, threatened against Circle R or Circle D Drilling, Inc. ("CRD"), the General Partner of Circle R, 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. SECTION 3.5 Brokers. No broker, investment banker or other person (other than Jerry Bailey, the fees and expenses of which will be paid by Circle R) 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 Circle R. SECTION 3.6 General Partner. Circle R Drilling, Inc. is the sole General Partner of Circle R; Circle R. Drilling, Inc. is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Louisiana and has the power and authority to carry on its business as now being conducted. SECTION 3.7 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES. THERE ARE NO WARRANTIES THAT EXTEND BEYOND THE FACE OF THIS AGREEMENT. THE 3 7 EXPRESS REPRESENTATIONS AND WARRANTIES OF CIRCLE R CONTAINED IN THIS ARTICLE III ARE EXCLUSIVE AND ARE IN LIEU OF, AND CIRCLE R EXPRESSLY DISCLAIMS AND NEGATES AND PDC HEREBY WAIVES, ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE. AS EXAMPLES AND FOR THE AVOIDANCE OF DOUBT, BUT WITHOUT LIMITATION OF THE FOREGOING, THE DRILLING RIG AND EQUIPMENT SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE (OTHER THAN, AND WITHOUT LIMITING IN ANY MANNER OR TO ANY EXTENT, THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE III), WITH RESPECT TO: (A) THE QUALITY, CONDITION, WEIGHT, SERVICEABILITY, CONFORMITY TO SAMPLES OF MODELS OR ANY OTHER ASPECT OF ANY PORTION OF THE DRILLING RIG AND EQUIPMENT, ALL OF WHICH SHALL BE CONVEYED TO PURCHASER AS IS, WHERE IS, AND WITH ALL FAULTS AND DEFECTS AND IN ITS PRESENT CONDITION AND STATE OF REPAIR AND WITHOUT ANY WARRANTIES WHATSOEVER OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE; (B) THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS, OR INFORMATION OF MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO PDC IN CONNECTION WITH THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE OR DISPOSAL OF HAZARDOUS SUBSTANCES OR NATURALLY OCCURRING RADIOACTIVE MATERIALS; (C) THE COMPLETENESS OR ACCURACY OF INFORMATION CONTAINED IN ANY MATERIALS FURNISHED OR MADE AVAILABLE TO PDC BY CIRCLE R OR BY CIRCLE R'S AGENTS OR REPRESENTATIVES OR BY ANY OTHER PARTY, IT BEING AGREED BY PDC THAT ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO PDC HAVE BEEN AND WILL BE PROVIDED TO PDC AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST CIRCLE R AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT PDC'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW; (D) THE OPERATION OF THE DRILLING RIG AND EQUIPMENT OR ANY PART THEREOF; AND (E) ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR STATUTORY. PURCHASER ACKNOWLEDGES THAT THIS WAIVER IS CONSPICUOUS. ARTICLE IV ADDITIONAL AGREEMENTS SECTION 4.1 Fees and Expenses. All costs and expenses incurred by PDC in connection with this Agreement and the transactions contemplated hereby shall be paid by PDC; such costs and expenses incurred by Circle R shall be paid by Circle R. 4 8 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 best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Asset Purchase and the other transactions contemplated by this Agreement and the prompt satisfaction of the conditions hereto. SECTION 4.3 PDC Indemnification. On or after the date of Closing, PDC shall indemnify and hold Circle R and CRD harmless against and in respect of all actions, suits, demands, judgments, costs and expenses (including reasonable attorneys' fees of Circle R and CRD), relating to any misrepresentation, breach of any representation or warranty or non-fulfillment of any agreement on the part of PDC contained in this Agreement. The indemnification provided for in this Section 4.3 shall terminate and be of no further force and effect one year from the date of Closing, except as to any representation or warranty as to which a written notice of claim for indemnification has been given to PDC prior to the expiration of such one-year period. SECTION 4.4 Circle R, CRD and Terry Pat Reynolds Indemnification. On and after the date of Closing, Circle R, CRD, and Terry Pat Reynolds ("T. Reynolds"), a principal stockholder of Reynolds Drilling Company, Inc., the majority stockholder of CRD, 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 reasonable attorneys' fees of PEC or PDC), relating to any misrepresentation, breach of any representation or warranty or non-fulfillment of any agreement on the part of Circle R contained in this Agreement. The indemnification provided for in this Section 4.4 shall terminate and be of no further force and effect one year from the date of the Closing, except as to any representation or warranty as to which a written notice of claim for indemnification has been given to Circle R, CRD, and T. Reynolds prior to the expiration of such one-year period. SECTION 4.5 Notice of Claim. Within fifteen (15) days after any party (the "Indemnified Party") becomes aware of facts giving rise to a claim by it for indemnification pursuant to this Article IV, and prior to the expenditure or approval of the expenditure of any funds, such Indemnified Party will provide notice thereof in writing (a "Claim Notice") to the party owing such indemnification (the "Indemnifying Party") specifying the nature and specific basis for such claim and a copy of all papers served with respect to such claim (if any). For purposes of this Section 4.5, receipt by the Indemnified Party of written notice of any demand, assertion, claim, action or proceeding (judicial, administrative or otherwise) by or from any person or entity other than a party to this Agreement or any affiliate thereof which gives rise to a claim on behalf of such party shall constitute becoming aware of facts giving rise to a claim by it and shall require notice within fifteen (15) days after the receipt of such matter as provided in the first sentence of this Section 4.5. Each Claim Notice shall set forth a reasonable description of the claim based upon the information the Indemnified Party shall then have and shall contain a statement to the effect that the Indemnified Party is making a claim pursuant to, and formal demand for indemnification under, this Article IV. No party shall be entitled to any indemnification without having first timely delivered a proper Claim Notice. 5 9 ARTICLE V CONDITIONS PRECEDENT TO THE ASSET PURCHASE SECTION 5.1 Conditions to Each Party's Obligation to Effect the Asset Purchase. The respective obligations of each party to effect the Asset Purchase shall be subject to the fulfillment or waiver (where permissible) at or prior to the Closing of each of the following conditions: (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 Asset 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. SECTION 5.2 Conditions to Obligation of Circle R to Effect the Asset Purchase. The obligation of Circle R to effect the Asset Purchase shall be subject to the fulfillment at or prior to the Closing of the following additional conditions; provided that Circle R may waive any of such conditions in its sole discretion: (a) Performance of Obligations; Representations and Warranties. 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 and each of the representations and warranties of PDC contained in this Agreement shall be true and correct on and as of the Closing. (b) Officers' Certificate. PDC shall have furnished to Circle R a certificate, dated the Closing, signed by the appropriate officers of PDC, certifying to the effect that to the best of the knowledge and belief of PDC, the conditions set forth in Section 5.1 and Section 5.2(a) have been satisfied in full. (c) Payment of Purchase Price. PDC shall have made delivery of the Purchase Price as provided in Section 1.2 of this Agreement by wire transfer to the account of Circle R. SECTION 5.3 Conditions to Obligations of PDC to Effect the Asset Purchase. The obligations of PDC to effect the Asset Purchase shall be subject to the fulfillment at or prior to the Closing of the following additional conditions, provided that PDC may waive any such conditions in its sole discretion: (a) Performance of Obligations; Representations and Warranties. Circle R 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 and each of the respective representations and warranties of Circle R contained in this Agreement shall be true and correct on and as of the Closing. 6 10 (b) Officers' Certificate. Circle R shall have furnished to PDC a certificate, dated the Closing, signed by the appropriate officers of CRD as general partner of Circle R, certifying to the effect that to the best of the knowledge and belief of CRD and Circle R, the conditions set forth in Section 5.1 and Section 5.3(a) have been satisfied. (c) Opinion of Counsel. PDC shall have received an opinion of counsel from Davidson, Nix & Jones, Professional Law Corporation, counsel to Circle R and CRD, dated the Closing, substantially to the effect that: (i) The organization, existence and good standing of Circle R are as stated in this Agreement. (ii) This Agreement has been duly authorized, executed and delivered by Circle R, and (assuming the due and valid authorization, execution and delivery by PDC) constitutes the legal, valid and binding agreement of Circle R enforceable against Circle R 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 Circle R of this Agreement will not violate the Certificate of Limited Partnership of Circle R 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 Circle R is a party or to which it or any of its properties or assets may be bound. (iv) To the knowledge of such counsel, there are no actions, suits or proceedings, pending or threatened against or affecting Circle R or CRD 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 Circle R for consummation of the transactions contemplated by this Agreement. (vi) Each Non-Competition Agreement between PDC and each of Circle R, CRD, Reynolds Drilling Co., Inc. ("RDC") and Terry Pat Reynolds constitutes the legal, valid and binding agreement of it/him enforceable against it/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). 7 11 In rendering such opinion, counsel for Circle R may rely as to matters of fact upon the representations of officers of Circle R contained in any certificate delivered to such counsel and certificates of public officials. (d) Bill of Sale and Assignment. Circle R shall have executed and delivered the Bill of Sale and Assignment covering the Drilling Rig and Equipment in the form attached hereto as Exhibit A. (e) Non-Competition Agreements. A Non-Competition Agreement in the respective forms attached hereto as Exhibits A(I), A(II), A(III) or A(IV) shall have been executed and delivered by Circle R, CRD, RDC and Terry Pat Reynolds, as the case may be. ARTICLE VI GENERAL PROVISIONS SECTION 6.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, sent by overnight courier or telecopied (with a confirmatory copy sent by overnight courier) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to PDC, to: Patterson Energy, Inc. 4510 Lamesa Highway P.O. Drawer 1416 Snyder, Texas 79549 Telecopier No.: (915) 573-0281 Attention: A. Glenn Patterson President and Chief Operating Officer with copies to: Thomas H. Maxfield, Esq. Baker & Hostetler LLP 303 East 17th Avenue, Suite 1100 Denver, Colorado 80203-1264 Telecopier No.: (303) 861-2307 8 12 (b) if to Circle R, to: Terry Pat Reynolds Circle R Drilling, Ltd. 1981-A 515 Spring Street Shreveport, Louisiana 71101 Telecopier No.: (318) 227-0171 with copies to: Ernest Nix, Esq. Davidson, Nix & Jones Professional Law Corporation 509 Market Street, Suite 800 Shreveport, Louisiana 71101 Telecopier No.: (318) 226-0168 (c) if to CRD, to: Terry Pat Reynolds Circle R Drilling, Inc. 515 Spring Street Shreveport, Louisiana 71101 Telecopier No.: (318) 227-0171 with copies to: Ernest Nix, Esq. Davidson, Nix & Jones Professional Law Corporation 509 Market Street, Suite 800 Shreveport, Louisiana 71101 Telecopier No.: (318) 226-0168 (d) if to RDC, to: Terry Pat Reynolds Reynolds Drilling Co., Inc. 515 Spring Street Shreveport, Louisiana 71101 Telecopier No.: (318) 227-0171 9 13 with copies to: Ernest Nix, Esq. Davidson, Nix & Jones Professional Law Corporation 509 Market Street, Suite 800 Shreveport, Louisiana 71101 Telecopier No.: (318) 226-0168 (e) if to T. Reynolds, to: Terry Pat Reynolds 515 Spring Street Shreveport, Louisiana 71101 Telecopier No.: (318) 227-0171 with copies to: Ernest Nix, Esq. Davidson, Nix & Jones Professional Law Corporation 509 Market Street, Suite 800 Shreveport, Louisiana 71101 Telecopier No.: (318) 226-0168 SECTION 6.2 Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated, and the words "hereof', "herein" and "hereunder" and similar terms refer to this Agreement as a whole and not to any particular provision of this Agreement, unless the context otherwise requires. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." SECTION 6.3 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. SECTION 6.4 Entire Agreement; No Third-Party Beneficiaries. This Agreement, including the documents and instruments referred to herein, (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 Circle R hereto may rely upon the representations and warranties of Circle R contained herein and in the certificate delivered pursuant to Section 5.3(b). 10 14 SECTION 6.5 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 6.6 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. SECTION 6.7 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions be consummated as originally contemplated to the fullest extent possible. SECTION 6.8 Enforcement of This Agreement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. IN WITNESS WHEREOF, PDC and Circle R have executed this Agreement as of the date first written above. PDC: PATTERSON DRILLING COMPANY By: /s/ A. GLENN PATTERSON ----------------------------------- A. Glenn Patterson Chief Operating Officer Attest: /s/ JAMES C. BROWN - ----------------------------- James C. Brown, Secretary 11 15 CIRCLE R: CIRCLE R DRILLING, LTD. 1981-A, a Louisiana limited partnership By: Circle R Drilling, Inc., General Partner By: /s/ TERRY PAT REYNOLDS -------------------------------- Terry Pat Reynolds, Vice President Attest: DONNA S. WALSH - -------------------------- Donna S. Walsh, Secretary TO INDUCE PATTERSON DRILLING COMPANY TO ENTER INTO THIS ASSET PURCHASE AGREEMENT AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, THE UNDERSIGNED, BEING BENEFICIAL OWNERS OF CIRCLE R, ACCEPT AND AGREE TO BE BOUND BY THE INDEMNIFICATION PROVISIONS OF SECTION 4.4 OF THIS ASSET PURCHASE AGREEMENT. CIRCLE R DRILLING, INC. By: /s/ TERRY PAT REYNOLDS ---------------------------------- Terry Pat Reynolds, Vice President ---------------------------------- TERRY PAT REYNOLDS 12 16 ANNEX 1 TO ASSET PURCHASE AGREEMENT DESCRIPTION OF DRILLING RIG AND EQUIPMENT A. Drilling Rig and Equipment. The Drilling Rig and Equipment includes the drilling rig, parts and related equipment, including engines, mud pumps, hooks and blocks, derrick, substructure, rotary tables, blow-out prevention equipment, drill bits and all tubular goods on the rig, all of which are listed below, less the parts and related equipment sold or disposed of since August 26, 1997, and plus the parts and related equipment acquired by Circle R since August 26, 1997, in each case in the ordinary course of business, consistent with past practice. ------------ DRAWWORKS Superior 1000-M Single Drum Drawworks, 1000 HP, LEBUS Grooved f/1 1/4" Line, Makeup & Breakout Catheads, Overrunning Clutch, Air Driller's Console Controls, Crown-O-Matic COMPOUND SUPERIOR 3-Engine In-Line Compound w/Single-Pedestal Pump Drive, GARDNER-DENVER 2-Stage A/C Belt Drive BRAKE (2) PARMAC V-80 Single Hydromatic Brakes ENGINES (3)CAT D-353E TA Diesel Engines, S/Ns-46BO9128 & N/A, Each w/Air Starter, Radiator, Gauges, NATIONAL C- 245-80 Torque Converter; (1) CAT D-353ETA Diesel Engine, S/N 046B07814 located at Darr Equipment Company, Waco, Texas MAST DRECO 136'H x 22'W Cantilever Mast, 600,000# Static Hook Load, Pin-Type, Crown Block w/(5) Sheaves, Fastline Sheave, 4" Standpipe, Crown Safety Platform, Racking AX-1 - 1 17 Board, Tong Counterweights, Ladder, Derrick Climber, Mast Stand, Standpipe Manifold w/4" & 2" Gate Valves, OTECO 5000 PSI Pressure Gauge SUBSTRUCTURE DRECO 18'6"H x 27'W x 50'L Slingshot Substructure w/Rotary Beams, V-Door Ramp, (4) Stairs, Safety Rails, Deadline Anchor, Air Volume Tank, Hydraulic Reservoir, (2) LANTEC Air Winches PUMP GARDNER-DENVER PZ-9 Triplex Mud Pump, 1000 HP, Forged Steel Fluid End w/Quick-Change Caps, HYDRIL K-20- 1 0000 Pulsation Dampener, Rod Cooling Pump, DEMCO 4" & OTECO 2" Gate Valves, Drive Assembly, Compound- Driven PUMP WILSON 600 Duplex Mud Pump, 600 HP, 7 1/2" x 14", MATTCO Cast Steel Fluid End w/Quick-Change Caps, CONTINENTAL EMSCO Pulsation Dampener, OTECO 2" Shear Relief Valve, Rod Cooling Pump, OTECO 4" & DEMCO 2" Gate Valves, Drive Assembly, Master Skidded w/Engine PUMP POWER CAT D-379 TA Diesel Engine, S/N-68BO7069, w/Air Starter, Radiator, Gauges, Torque Converter ROTATING EQUIPMENT HACKER 27 1/2" x 44 1/2" Rotary Table w/Split Master Bushing GARDNER-DENVER 300-Ton Swivel VARCO Kelly Drive Bushing, Square Drive Lower Kelly Valve Inside BOP TRAVELING EQUIPMENT GARDNER-DENVER 300-Ton Block/Hook Combination w/(5) 60" Sheaves, 1 1/4" Line, BJ 6150 Unimatic Hook AX-1 - 2 18 2 1/2" x 102" Elevator Links WELL CONTROL EQUIPMENT HYDRIL GK-10-5000 5000 PSI Annular Blowout Preventer HYDRIL WP 11" 5000 PSI Double Blowout w/Pipe & Blind Rams 24"H x 11"ID Drilling Spool w/4-1/16" Outlets, (2) DEMCO 3-1/16" 5000 PSI & (2) DEMCO 2-1/16" 3000 PSI Gate Valves 24"H x 11"D 5000 PSI Spacer Spool KOOMEY T20120 5-Station 120-Gallon Closing Unit, S/N-1 550601, (12) 10-Gallon Accumulator Bottles, Triplex Charging Pump p/b 25 HP Electric Motor, (1) Air-Actuated Hydraulic Charging Pump SHAFFER 5-Station Remote Closing Unit, Mounted on Console 5000 PSI Blowout Preventer Choke Manifold, 5-Way Cross w/(2) DEMCO 3-1/16" 5000 PSI & (2) 2-1/16" 3000 PSI Gate Valves, Buffer Chamber, Mounted on Adjustable-Height Skid RIG HOUSES 8'W x 30'L Triaxle Toolpusher's Trailer, Fully Furnished 10'W x 24'L Doghouse w/4'L Porch Extension, Round Top, Knowledge Box, Lockers, Bench Storage, Cabinets, Parts Bins, Fluorescent Lights, Heater, Skidded 10'W x 38'L Parts/Change House w/Round-Top, Lockers, Bench Storage, Cabinets, Parts Bins, Workbenches, Fluorescent Lights, Heater, Skidded GENERATORS/UTILITY HOUSE CAT SR-4 320 KW AC Generator Set, SIN-5LA01675, p/b CAT 3412 DITA Diesel Engine, S/N-38509492, w/Air Starter, Radiator, Gauges, Skidded 502FDR 320 KW AC Generator Set, S/N-PJ3156691, p/b CAT 3412 DITA Diesel Engine w/Air Starter, Radiator, Gauges, Skidded QUINCY 350 Air Compressor p/b LISTER 2-Cylinder Air-Cooled Diesel Engine, SN-US11078ST2A3110, w/Manual & Electric Starter, Air Volume Tank AX-1 - 3 19 QUINCY 520 Air Compressor p/b 10 HP Electric Motor SQUARE D Electrical Control Panel w/Switchboard All Above Mounted in 10'W x 38'L Utility House w/Round Top, Fluorescent Lights, Heater, Skidded MUD SYSTEM 10'W x 7H x 36'L Mud Suction Tank w/10'L Covered Porch Extension, (2) Compartments, Round Bottom, Internal Plumbing, (3) DEMCO 6" x 8" Centrifugal Pumps, Each p/b 50 HP Electric Motor, (2) 7 1/2 HP Mud Agitators, Each p/b Electric Motor, Mud Hopper, Top-Mounted Walkways, Stairs, Safety Rails, Skidded 10'W x 7'H x 40'L Mud Shaker Tank w/(2) 4'L Covered Porch Extensions, (3) Compartments, Round Bottom, Internal Plumbing, (2) DEMCO 6" x 8" Centrifugal Pumps, Each p/b 50 HP Electric Motor, (2) 7 1/2 HP Mud Agitators, Each p/b Electric Motor, Top-Mounted, Walkways, Stairs, Safety Rails, Skidded FLUID SYSTEMS High Speed Linear Screen Vibrating Shale Shaker p/b 5 HP Electric Motor DEMCO Desander w/12" Cone DEMCO Desilter w/(1) 6" Cones WATER/FUEL TANKS 10'Dia x 30'L Water Tank, Skidded 10'W x 8'H x 30'L Fuel Tank, Skidded w/Fuel Pump & Filter p/b (2) 1 HP Electric Motors, Mounted on Stand 7'10"W x 3'H x 5'L 3-Compartment Lubester HANDLING TOOLS INGERSOLL-RAND Pneumatic Pipe Spinner BJ Type B Rotary Tongs w/Extra Heads BJ 3 3/8" BN to 5 1/2" BN 250-Ton Center Latch Pipe Elevators BJ Type A 6 3/4" SS 250-Ton Center Latch Drill Collar Elevators AX-1 - 4 20 WOOLLEY DU Long 4 1/2" Drill Pipe Slips 8" Drill Collar Slips 6 1/4" Drill Collar Slips Approximately (1) Drill Collar Lift Subs INGERSOLL-RAND HUL-RO 9000 PSI Capacity Air Hoist, S/N-RSH11417 Mud Bucket AUXILIARY EQUIPMENT MARTIN DECKER E 600,000# Capacity Weight Indicator w/Pump Pressure, Tong Line Pull & RPM Gauges, Console-Mounted 3 1/2"ID x 55'L Rotary Hose (2)6"ID x 5'L & 8'L Suction Hoses w/Pipe (2) 3 1/2"ID x 10'L Vibrator Hoses 42"H x 5'W x 60'L 2-Section Catwalk w/Steel Deck Steps 60"H x 8"W x 25'L Junk Box w/15'L Covered Porch f/Closing Unit MATHEY RET Hydraulic/Electric Wireline Measuring Device, S/N-633, w/.092" Measuring Line Rathole & Mousehole Fluorescent Rig Lights w/Wiring Approximately 6000' of 1 1/4" Drill Line w/Spool Stand BEAR Automatic Driller (4) Sets of 42"H x 28'L Triangular Pipe Rack Miscellaneous Spare Parts, Hand Tools, Valves, Fire Extinguishers, Etc. AX-1 - 5 21 DRILL PIPE 12,000' (400 Joints) 4 1/2", Grade E, 16.60#, Range 2 Drill Pipe w/4 1/2"XH, BN, HB Tool Joints, 5- 15/16" to 6"OD, PC DRILL COLLARS (24) 6 1/8"OD to 6 1/2"OD x 2"ID x 30'L Slick Drill Collars w/4 1/2"XH Connections, HB, Recessed AX-1 - 6 22 EXHIBIT A(I) PATTERSON DRILLING COMPANY NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT is made and entered into this _____ day of November, 1997 (this "Agreement"), by and between PATTERSON DRILLING COMPANY, a Delaware corporation ("PDC"), and CIRCLE R DRILLING, LTD. 1981-A, a Louisiana limited partnership ("Circle R"). RECITALS: A. Simultaneously with the execution of this Agreement, PDC and Circle R have entered into that certain Asset Purchase Agreement, dated of even date herewith (the "Asset Purchase Agreement"), providing for, among other things, the purchase by PDC of the drilling rig and related equipment owned by Circle R. B. The execution and delivery of this Agreement is a condition to the consummation of the Asset Purchase contemplated by the Asset 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 November 1, 2000 (the "Non-Compete Period"). 2. Covenant Not to Compete. (a) Circle R covenants and agrees that during the Non-Compete Period, Circle R shall not, without the prior written consent of PDC, directly or indirectly, alone or in association with any other person, carry on, be engaged, concerned, or take part in, render services to, or otherwise assist, or own, share in the earnings of, or invest in the stock, bonds, or other securities of, any person which is engaged in providing contract drilling rig services to the oil and gas industry within Texas Railroad Commission Districts 1, 2, 3, 4, 5 and 6 in the State of Texas (the "Competitive Business"); provided, however, that Circle R may (i) invest and/or engage in any business that EXH A(I) - 1 23 EXHIBIT A(I) routinely provides third-party services (as such term is commonly used in the contract oil and gas well drilling business) to a Competitive Business, but is not engaged in the actual conduct of a Competitive Business, or (ii) invest in stock, bonds, or other securities of any Competitive Business (but without otherwise participating in the Competitive Business) if: (A) such stock, bonds, or other securities are listed on any national securities exchange or are registered under Section 12(g) of the Securities Exchange Act of 1934, as amended; (B) the investment does not exceed, in the case of any class of capital stock of any one issuer, two percent (2%) of the issued and outstanding shares, or, in the case of bonds or other securities of any one issuer, two percent (2%) of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by 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 Circle R is prohibited from engaging in certain activities by this Section shall be extended by the length of time during which Circle R is in breach of the terms of this Section. (b) It is understood by and between the parties hereto that the foregoing covenant by Circle R not to enter into competition with PDC as set forth in Section 2(a) hereof is an essential element of this Agreement and the Asset Purchase Agreement and that, but for the agreement of Circle R to comply with such covenant, PDC would not have agreed to enter into this Agreement or the Asset Purchase Agreement. PDC and Circle R 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. Circle R agrees that such covenant is reasonable in scope, geographic area, and duration, and that compliance with such covenant would not impose economic hardship on Circle R. 3. Restrictions on Soliciting Business of PDC. Circle R further covenants and agrees that during the Non-Compete Period, Circle R will not, either for itself 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; or (b) Engage in any act which would interfere with or harm any business relationship PDC has with any employee or (with respect to PDC's contract oil and gas well drilling business) with any customer, lessor, principal or supplier. EXH A(I) - 2 24 EXHIBIT A(I) 4. Specific Performance. Without intending to limit the remedies available to PDC, Circle R acknowledges that PDC will have no adequate remedies at law if Circle R violates the terms of Sections 2 or 3, hereof. In such event, Circle R 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 Circle R. The provisions of this Section 4 shall survive the expiration, termination or cancellation of this Agreement. 5. Attorneys Fees and Costs. If an action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary expenses in addition to any other relief to which that party may be entitled. This provision is applicable to this entire Agreement. 6. Representations and Warranties of PDC and Circle R. (a) Representations and Warranties of PDC. PDC hereby represents and warrants to Circle R 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 Circle R. Circle R hereby represents and warrants to PDC that: (i) Circle R has the capacity and power to enter into and perform obligations of Circle R under this Agreement; (ii) Circle R has duly and validly executed this Agreement; (iii) the execution of this Agreement and performance of obligations of Circle R hereunder do not require the consent or approval of any other party; and (iv) this Agreement constitutes a valid and binding obligation of Circle R. 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. EXH A(I) - 3 25 EXHIBIT A(I) (b) Governing Law and Construction. This Agreement will be governed by and construed in accordance with the laws of the State of Louisiana without reference to its conflict-of-laws principles. This Agreement's final form resulted from review and negotiations among the parties and their attorneys, and no part of this Agreement should be construed against any party on the basis of authorship. (c) Forum for Dispute Resolution. If any dispute arises among the parties concerning the interpretation or performance of any portion of this Agreement which the parties are unable to resolve themselves, and any party brings an action against any other party seeking a declaratory order, specific performance, damages, or any other legal or equitable relief based on this Agreement, the parties agree that the forum for any such action shall be an appropriate federal or state court in Texas having jurisdiction, agree that venue will be proper in such courts, and waive any objections based on inconvenience of the forum, and further agree that the prevailing party in any such action, as determined by the court, shall be awarded its reasonable attorneys' fees and costs in addition to any relief or judgment the court awards. (d) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter contained herein and supersedes any previous oral or written communications, representations, understandings or agreements with respect thereto. The terms of this Agreement may be modified only in a writing, signed by authorized representatives of both parties. (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 PEC or to another subsidiary of PEC without the prior written consent of Circle R, 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 EXH A(I) - 4 26 EXHIBIT A(I) provision that approximates the intent and economic effect of the invalid provision as closely as possible. (h) Headings. The titles of the Sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. (i) Notice. Any notice, request, consent, demand or other communication required to be given under this Agreement will be in writing and will be given personally, by facsimile or by mailing the same, first-class, postage prepaid to the appropriate address and facsimile number set forth below or to such other person or at such other address as may hereafter be designated by like notice. Notices by mail will be considered delivered and become effective three days after the mailing thereof. All notices by facsimile will be considered delivered and become effective immediately upon the confirmed (by answer back or other tangible printed verification or successful receipt) sending thereof. To PDC: Patterson Drilling Company 4510 Lamesa Highway P.O. Drawer 1410 Snyder, Texas 79550 Facsimile: (915) 573-0281 Attention: A. Glenn Patterson President and Chief Operating Officer To Circle R: Circle R Drilling, Ltd. 1981-A 515 Spring Street Shreveport, Louisiana 71101 Facsimile: (318) 227-0171 Attention: Terry Pat Reynolds with copies to: Ernest Nix, Esq. Davidson, Nix & Jones Professional Law Corporation 509 Market Street, Suite 800 Shreveport, Louisiana 71101 Facsimile: (318) 226-0168 EXH A(I) - 5 27 EXHIBIT A(I) (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. "PDC" PATTERSON DRILLING COMPANY By: ---------------------------- James C. Brown Vice President-Finance "Circle R" CIRCLE R DRILLING, LTD. 1981-A By: Circle R Drilling, Inc., General Partner By: ------------------------ Terry Pat Reynolds, Vice President EXH A(I) - 6 28 EXHIBIT A(II) PATTERSON DRILLING COMPANY NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT is made and entered into this _____ day of November, 1997 (this "Agreement"), by and between PATTERSON DRILLING COMPANY, a Delaware corporation ("PDC"), and CIRCLE R DRILLING, INC., a Louisiana corporation ("CRD"). RECITALS: A. Simultaneously with the execution of this Agreement, PDC has entered into that certain Asset Purchase Agreement, dated of even date herewith (the "Asset Purchase Agreement"), between PDC and CIRCLE R DRILLING, LTD. 1981-A ("Circle R"), providing for, among other things, the purchase by PDC of the drilling rig and related equipment owned by Circle R. B. CRD is the sole general partner of Circle R. C. The execution and delivery of this Agreement is a condition to the consummation of the Asset Purchase contemplated by the Asset 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 November 1, 2000 (the "Non-Compete Period"). 2. Covenant Not to Compete. (a) CRD covenants and agrees that during the Non-Compete Period, CRD 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 otherwise assist, or own, share in the earnings of, or invest in the stock, bonds, or other securities of, any person which is engaged in providing contract drilling rig services to the oil and gas industry within Texas Railroad Commission Districts 1, 2, 3, 4, 5 and 6 in the State of Texas (the "Competitive Business"); provided, however, that CRD may (i) invest and/or engage in any business that routinely provides third-party EXH A(II) - 1 29 services (as such term is commonly used in the contract oil and gas well drilling business) to a Competitive Business, but is not engaged in the actual conduct of a Competitive Business, or (ii) invest in stock, bonds, or other securities of any Competitive Business (but without otherwise participating in the Competitive Business) if: (A) such stock, bonds, or other securities are listed on any national securities exchange or are registered under Section 12(g) of the Securities Exchange Act of 1934, as amended; (B) the investment does not exceed, in the case of any class of capital stock of any one issuer, two percent (2%) of the issued and outstanding shares, or, in the case of bonds or other securities of any one issuer, two percent (2%) of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by 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 CRD is prohibited from engaging in certain activities by this Section shall be extended by the length of time during which CRD is in breach of the terms of this Section. (b) It is understood by and between the parties hereto that the foregoing covenant by CRD not to enter into competition with PDC as set forth in Section 2(a) hereof is an essential element of this Agreement and the Asset Purchase Agreement and that, but for the agreement of CRD to comply with such covenant, PDC would not have agreed to enter into this Agreement or the Asset Purchase Agreement. PDC and CRD 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. CRD 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 CRD. 3. Restrictions on Soliciting Business of PDC. CRD further covenants and agrees that during the Non-Compete Period, CRD 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; or (b) Engage in any act which would interfere with or harm any business relationship PDC has with any employee or (with respect to PDC's contract oil and gas well drilling business) with any customer, lessor, principal or supplier. 4. Specific Performance. Without intending to limit the remedies available to PDC, CRD acknowledges that PDC will have no adequate remedies at law if CRD violates the terms of Section 2 or 3, hereof. In such event, CRD 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 EXH A(II) - 2 30 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 CRD. The provisions of this Section 4 shall survive the expiration, termination or cancellation of this Agreement. 5. Attorneys Fees and Costs. If an action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary expenses in addition to any other relief to which that party may be entitled. This provision is applicable to this entire Agreement. 6. Representations and Warranties of PDC and CRD. (a) Representations and Warranties of PDC. PDC hereby represents and warrants to CRD 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 CRD. CRD hereby represents and warrants to PDC that: (i) CRD has the capacity and power to enter into and perform obligations of CRD under this Agreement; (ii) CRD has duly and validly executed this Agreement; (iii) the execution of this Agreement and performance of obligations of CRD hereunder do not require the consent or approval of any other party; and (iv) this Agreement constitutes a valid and binding obligation of CRD. 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 Louisiana without reference to its conflict-of-laws principles. This Agreement's final form resulted from review and negotiations among the parties and their attorneys, and no part of this Agreement should be construed against any party on the basis of authorship. (c) Forum for Dispute Resolution. If any dispute arises among the parties concerning the interpretation or performance of any portion of this Agreement which the parties are EXH A(II) - 3 31 unable to resolve themselves, and any party brings an action against any other party seeking a declaratory order, specific performance, damages, or any other legal or equitable relief based on this Agreement, the parties agree that the forum for any such action shall be an appropriate federal or state court in Texas having jurisdiction, agree that venue will be proper in such courts, and waive any objections based on inconvenience of the forum, and further agree that the prevailing party in any such action, as determined by the court, shall be awarded its reasonable attorneys' fees and costs in addition to any relief or judgment the court awards. (d) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter contained herein and supersedes any previous oral or written communications, representations, understandings or agreements with respect thereto. The terms of this Agreement may be modified only in a writing, signed by authorized representatives of both parties. (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 PEC or to another subsidiary of PEC without the prior written consent of CRD, 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 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 EXH A(II) - 4 32 the confirmed (by answer back or other tangible printed verification or successful receipt) sending thereof. To PDC: Patterson Drilling Company 4510 Lamesa Highway P.O. Drawer 1410 Snyder, Texas 79550 Facsimile: (915) 573-0281 Attention: A. Glenn Patterson President and Chief Operating Officer To CRD: Circle R Drilling, Inc. 515 Spring Street Shreveport, Louisiana 71101 Facsimile: (318) 227-0171 Attention: Terry Pat Reynolds with copies to: Ernest Nix, Esq. Davidson, Nix & Jones Professional Law Corporation 509 Market Street, Suite 800 Shreveport, Louisiana 71101 Facsimile: (318) 226-0168 8. 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. EXH A(II) - 5 33 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. "PDC" PATTERSON DRILLING COMPANY By: --------------------------------- James C. Brown Vice President-Finance "CRD" CIRCLE R DRILLING, INC. By: --------------------------------- Terry Pat Reynolds, Vice President EXH A(II) - 6 34 EXHIBIT A(III) PATTERSON DRILLING COMPANY NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT is made and entered into this _____ day of November, 1997 (this "Agreement"), by and between PATTERSON DRILLING COMPANY, a Delaware corporation ("PDC"), and TERRY PAT REYNOLDS, an individual residing in Shreveport, Louisiana ("T. Reynolds"). RECITALS: A. Simultaneously with the execution of this Agreement, PDC has entered into that certain Asset Purchase Agreement, dated of even date herewith (the "Asset Purchase Agreement"), between PDC and CIRCLE R DRILLING, LTD. 1981-A ("Circle R"), providing for, among other things, the purchase by PDC of the drilling rig and related equipment owned by Circle R. B. T. Reynolds is an officer, a director and a principal stockholder of Reynolds Drilling Company, Inc., the majority stockholder of Circle R Drilling, Inc., general partner of Circle R. C. The execution and delivery of this Agreement is a condition to the consummation of the Asset Purchase contemplated by the Asset 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 November 1, 2000 (the "Non-Compete Period"). 2. Covenant Not to Compete. (a) T Reynolds covenants and agrees that during the Non-Compete Period, T 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 otherwise assist, or own, share in the earnings of, or invest in the stock, bonds, or other securities of, any person which is engaged in providing contract drilling rig services to the oil and gas EXH A(III) - 1 35 industry within Texas Railroad Commission Districts 1, 2, 3, 4, 5, and 6 of the State of Texas (the "Competitive Business"); provided, however, that T. Reynolds may (i) invest and/or engage in any business that routinely provides third-party services (as such term is commonly used in the contract oil and gas well drilling business) to a Competitive Business, but is not engaged in the actual conduct of a Competitive Business, or (ii) invest in stock, bonds, or other securities of any Competitive Business (but without otherwise participating in the Competitive Business) if: (A) such stock, bonds, or other securities are listed on any national securities exchange or are registered under Section 12(g) of the Securities Exchange Act of 1934, as amended; (B) the investment does not exceed, in the case of any class of capital stock of any one issuer, two percent (2%) of the issued and outstanding shares, or, in the case of bonds or other securities of any one issuer, two percent (2%) of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by 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 T. Reynolds is prohibited from engaging in certain activities by this Section shall be extended by the length of time during which T. 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 T. Reynolds not to enter into competition with PDC as set forth in Section 2(a) hereof is an essential element of this Agreement and the Asset Purchase Agreement and that, but for the agreement of T. Reynolds to comply with such covenant, PDC would not have agreed to enter into this Agreement or the Asset Purchase Agreement. PDC and T. 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. T. 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 T. Reynolds. 3. Restrictions on Soliciting Business of PDC. T. Reynolds further covenants and agrees that during the Non-Compete Period, T. 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; or (b) Engage in any act which would interfere with or harm any business relationship PDC has with any employee or (with respect to PDC's contract oil and gas well drilling business) with any customer, lessor, principal or supplier. EXH A(III) - 2 36 4. Specific Performance. Without intending to limit the remedies available to PDC, T. Reynolds acknowledges that PDC will have no adequate remedies at law if T. Reynolds violates the terms of Section 2 or 3, hereof. In such event, T. 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 T. Reynolds. The provisions of this Section 4 shall survive the expiration, termination or cancellation of this Agreement. 5. Attorneys Fees and Costs. If an action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary expenses in addition to any other relief to which that party may be entitled. This provision is applicable to this entire Agreement. 6. Representations and Warranties of PDC and T. Reynolds. (a) Representations and Warranties of PDC. PDC hereby represents and warrants to T. 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 T. Reynolds. T. Reynolds hereby represents and warrants to PDC that: (i) T. Reynolds has the capacity and power to enter into and perform obligations of T. Reynolds under this Agreement; (ii) T. Reynolds has duly and validly executed this Agreement; (iii) the execution of this Agreement and performance of obligations of T. Reynolds hereunder do not require the consent or approval of any other party; and (iv) this Agreement constitutes a valid and binding obligation of T. 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. EXH A(III) - 3 37 (b) Governing Law and Construction. This Agreement will be governed by and construed in accordance with the laws of the State of Louisiana without reference to its conflict-of-laws principles. This Agreement's final form resulted from review and negotiations among the parties and their attorneys, and no part of this Agreement should be construed against any party on the basis of authorship. (c) Forum for Dispute Resolution. If any dispute arises among the parties concerning the interpretation or performance of any portion of this Agreement which the parties are unable to resolve themselves, and any party brings an action against any other party seeking a declaratory order, specific performance, damages, or any other legal or equitable relief based on this Agreement, the parties agree that the forum for any such action shall be an appropriate federal or state court in Texas having jurisdiction, agree that venue will be proper in such courts, and waive any objections based on inconvenience of the forum, and further agree that the prevailing party in any such action, as determined by the court, shall be awarded its reasonable attorneys' fees and costs in addition to any relief or judgment the court awards. (d) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter contained herein and supersedes any previous oral or written communications, representations, understandings or agreements with respect thereto. The terms of this Agreement may be modified only in a writing, signed by authorized representatives of both parties. (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 PEC or to a subsidiary of PEC without the prior written consent of T. 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. EXH A(III) - 4 38 (h) Headings. The titles of the Sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. (i) Notice. Any notice, request, consent, demand or other communication required to be given under this Agreement will be in writing and will be given personally, by facsimile or by mailing the same, first-class, postage prepaid to the appropriate address and facsimile number set forth below or to such other person or at such other address as may hereafter be designated by like notice. Notices by mail will be considered delivered and become effective three days after the mailing thereof. All notices by facsimile will be considered delivered and become effective immediately upon the confirmed (by answer back or other tangible printed verification or successful receipt) sending thereof. To PDC: Patterson Drilling Company 4510 Lamesa Highway P.O. Drawer 1410 Snyder, Texas 79550 Facsimile: (915) 573-0281 Attention: A. Glenn Patterson President and Chief Operating Officer To T. Reynolds: Terry Pat Reynolds 515 Spring Street Shreveport, Louisiana 71101 Facsimile: (318) 227-0171 with copies to: Ernest Nix, Esq. Davidson, Nix & Jones Professional Law Corporation 509 Market Street, Suite 800 Shreveport, Louisiana 71101 Facsimile: (318) 226-0168 8. 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. EXH A(III) - 5 39 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. "PDC" PATTERSON DRILLING COMPANY By: ----------------------------------- James C. Brown Vice President-Finance "T. Reynolds" -------------------------------------- Terry Pat Reynolds EXH A(III) - 6 40 EXHIBIT A(IV) PATTERSON DRILLING COMPANY NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT is made and entered into this _____ day of November, 1997 (this "Agreement"), by and between PATTERSON DRILLING COMPANY, a Delaware corporation ("PDC"), and REYNOLDS DRILLING CO., INC., a Louisiana corporation ("RDC"). RECITALS: A. Simultaneously with the execution of this Agreement, PDC has entered into that certain Asset Purchase Agreement, dated of even date herewith (the "Asset Purchase Agreement"), between PDC and CIRCLE R DRILLING, LTD. 1981-A ("Circle R"), providing for, among other things, the purchase by PDC of the drilling rig and related equipment, rolling stock and office equipment owned by Circle R. B. RDC is the majority stockholder of CRD. C. The execution and delivery of this Agreement is a condition to the consummation of the Asset Purchase contemplated by the Asset 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 November 1, 2000 (the "Non-Compete Period"). 2. Covenant Not to Compete. (a) RDC covenants and agrees that during the Non-Compete Period, RDC 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 otherwise assist, or own, share in the earnings of, or invest in the stock, bonds, or other securities of, any person which is engaged in providing contract drilling rig services to the oil and gas industry within Texas Railroad Commission Districts 1, 2, 3, 4, 5, and 6 of the State of Texas (the "Competitive Business"); EXH A(IV) - 1 41 provided, however, that RDC may (i) invest and/or engage in any business that routinely provides third-party services (as such term is commonly used in the contract oil and gas well drilling business) to a Competitive Business, but is not engaged in the actual conduct of a Competitive Business, or (ii) invest in stock, bonds, or other securities of any Competitive Business (but without otherwise participating in the Competitive Business) if: (A) such stock, bonds, or other securities are listed on any national securities exchange or are registered under Section 12(g) of the Securities Exchange Act of 1934, as amended; (B) the investment does not exceed, in the case of any class of capital stock of any one issuer, two percent (2%) of the issued and outstanding shares, or, in the case of bonds or other securities of any one issuer, two percent (2%) of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by 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 RDC is prohibited from engaging in certain activities by this Section shall be extended by the length of time during which RDC is in breach of the terms of this Section. (b) It is understood by and between the parties hereto that the foregoing covenant by RDC not to enter into competition with PDC as set forth in Section 2(a) hereof is an essential element of this Agreement and the Asset Purchase Agreement and that, but for the agreement of RDC to comply with such covenant, PDC would not have agreed to enter into this Agreement or the Asset Purchase Agreement. PDC and RDC 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. RDC 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 RDC. 3. Restrictions on Soliciting Business of PDC. RDC further covenants and agrees that during the Non-Compete Period, RDC 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; or (b) Engage in any act which would interfere with or harm any business relationship PDC has with any employee or (with respect to PDC's contract oil and gas well drilling business) with any customer, lessor, principal or supplier. 4. Specific Performance. Without intending to limit the remedies available to PDC, RDC acknowledges that PDC will have no adequate remedies at law if RDC violates the terms of Section 2 or 3, hereof. In EXH A(IV) - 2 42 such event, RDC 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 RDC. The provisions of this Section 4 shall survive the expiration, termination or cancellation of this Agreement. 5. Attorneys Fees and Costs. If an action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary expenses in addition to any other relief to which that party may be entitled. This provision is applicable to this entire Agreement. 6. Representations and Warranties of PDC and RDC. (a) Representations and Warranties of PDC. PDC hereby represents and warrants to RDC 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 RDC. RDC hereby represents and warrants to PDC that: (i) RDC has the capacity and power to enter into and perform obligations of RDC under this Agreement; (ii) RDC has duly and validly executed this Agreement; (iii) the execution of this Agreement and performance of obligations of RDC hereunder do not require the consent or approval of any other party; and (iv) this Agreement constitutes a valid and binding obligation of RDC. 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 Louisiana without reference to its conflict-of-laws principles. This Agreement's final form resulted from review and negotiations among the parties and their attorneys, and no part of this Agreement should be construed against any party on the basis of authorship. EXH A(IV) - 3 43 (c) Forum for Dispute Resolution. If any dispute arises among the parties concerning the interpretation or performance of any portion of this Agreement which the parties are unable to resolve themselves, and any party brings an action against any other party seeking a declaratory order, specific performance, damages, or any other legal or equitable relief based on this Agreement, the parties agree that the forum for any such action shall be an appropriate federal or state court in Texas having jurisdiction, agree that venue will be proper in such courts, and waive any objections based on inconvenience of the forum, and further agree that the prevailing party in any such action, as determined by the court, shall be awarded its reasonable attorneys' fees and costs in addition to any relief or judgment the court awards. (d) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter contained herein and supersedes any previous oral or written communications, representations, understandings or agreements with respect thereto. The terms of this Agreement may be modified only in a writing, signed by authorized representatives of both parties. (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 PEC or to a subsidiary of PEC without the prior written consent of RDC 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 hereafter be designated by like notice. EXH A(IV) - 4 44 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 4510 Lamesa Highway P.O. Drawer 1410 Snyder, Texas 79550 Facsimile: (915) 573-0281 Attention: A. Glenn Patterson President and Chief Operating Officer To RDC: Reynolds Drilling Co., Inc. Terry Pat Reynolds 515 Spring Street Shreveport, Louisiana 71101 Facsimile: (318) 227-0171 with copies to: Ernest Nix, Esq. Davidson, Nix & Jones Professional Law Corporation 509 Market Street, Suite 800 Shreveport, Louisiana 71101 Facsimile: (318) 226-0168 8. 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. EXH A(IV) - 5 45 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. "PDC" PATTERSON DRILLING COMPANY By: ---------------------------------- James C. Brown Vice President-Finance "RDC" REYNOLDS DRILLING CO., INC. By: ---------------------------------- Terry Pat Reynolds Vice President EXH A(IV) - 6 46 EXHIBIT B BILL OF SALE AND ASSIGNMENT KNOW ALL MEN BY THESE PRESENTS, that, pursuant to that certain Asset Purchase Agreement, dated of even date herewith ("Asset Purchase Agreement") between PATTERSON DRILLING COMPANY ("PDC"), a Delaware corporation, and CIRCLE R DRILLING, LTD. 1981-A ("Circle R"), a Louisiana limited partnership (Circle R is referred to herein as the "Assignor"), the Assignor, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby grants, bargains, sells, conveys and transfers unto PDC (the "Assignee"), all of the Assignor's right, title and interest in and to the Drilling Rig and Equipment (as defined in the Asset Purchase Agreement) set forth in Appendix I attached hereto and incorporated herein by this reference. TO HAVE AND TO HOLD the same unto the Assignee and the Assignee's successors and assigns forever. The Assignor hereby covenants and agrees that it has the full right, power and authority to sell, convey and transfer the foregoing property to the Assignee pursuant to this Bill of Sale and Assignment. CIRCLE R MAKES THIS ASSIGNMENT AND BILL OF SALE WITHOUT ANY REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE EXCEPT AS MAY BE SPECIFICALLY CONTAINED HEREIN OR IN THE ASSET PURCHASE AGREEMENT. AS EXAMPLES AND FOR THE AVOIDANCE OF DOUBT, BUT WITHOUT LIMITATION OF THE FOREGOING, THE DRILLING RIG AND EQUIPMENT SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE (OTHER THAN, AND WITHOUT LIMITING IN ANY MANNER OR TO ANY EXTENT, THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THE ASSET PURCHASE AGREEMENT), WITH RESPECT TO THE QUALITY, CONDITION, WEIGHT, SERVICEABILITY, CONFORMITY TO SAMPLES OF MODELS OR ANY OTHER ASPECT OF ANY PART, COMPONENT OR PORTION OF THE DRILLING RIG AND EQUIPMENT, ALL OF WHICH IS CONVEYED TO PDC AS IS, WHERE IS, AND WITH ALL FAULTS AND DEFECTS AND IN ITS PRESENT CONDITION AND STATE OF REPAIR AND WITHOUT ANY WARRANTIES WHATSOEVER OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE AND ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR STATUTORY. PDC ACKNOWLEDGES THAT THIS WAIVER IS CONSPICUOUS. EXH B - 1 47 IN WITNESS WHEREOF, the Assignor has caused this Bill of Sale and Assignment to be duly executed by its duly authorized officer as of the ____ day of November, 1997. CIRCLE R DRILLING, LTD. 1981-A Its General Partner By: CIRCLE R DRILLING, INC. Its General Partner By: --------------------------------- Terry Pat Reynolds Vice President EXH B - 2 48 APPENDIX I TO BILL OF SALE AND ASSIGNMENT FROM CIRCLE R DRILLING, LTD. 1981-A TO PATTERSON DRILLING COMPANY (List of Assets Assigned) A. Drilling Rig and Equipment The Drilling Rig and Equipment includes the drilling rig, parts and related equipment, including engines, mud pumps, hooks and blocks, derrick, substructure, rotary tables, blow-out prevention equipment, drill bits and all tubular goods on the rig, all of which are listed below, less the parts and related equipment sold or disposed of since August 26, 1997, and plus the parts and related equipment acquired by Circle R since August 26, 1997, in each case in the ordinary course of business, consistent with past practice. -------------- DRAWWORKS Superior 1000-M Single Drum Drawworks, 1000 HP, LEBUS Grooved f/1 1/4" Line, Makeup & Breakout Catheads, Overrunning Clutch, Air Driller's Console Controls, Crown-O-Matic COMPOUND SUPERIOR 3-Engine In-Line Compound w/Single-Pedestal Pump Drive, GARDNER-DENVER 2-Stage A/C Belt Drive BRAKE (2) PARMAC V-80 Single Hydromatic Brakes ENGINES (3)CAT D-353E TA Diesel Engines, S/Ns-46BO9128 & N/A, Each w/Air Starter, Radiator, Gauges, NATIONAL C- 245-80 Torque Converter; (1) CAT D-353ETA Diesel Engine, S/N 046B07814 located at Darr Equipment Company, Waco, Texas EXH B - 3 49 MAST DRECO 136'H x 22'W Cantilever Mast, 600,000# Static Hook Load, Pin-Type, Crown Block w/(5) Sheaves, Fastline Sheave, 4" Standpipe, Crown Safety Platform, Racking Board, Tong Counterweights, Ladder, Derrick Climber, Mast Stand, Standpipe Manifold w/4" & 2" Gate Valves, OTECO 5000 PSI Pressure Gauge SUBSTRUCTURE DRECO 18'6"H x 27'W x 50'L Slingshot Substructure w/Rotary Beams, V-Door Ramp, (4) Stairs, Safety Rails, Deadline Anchor, Air Volume Tank, Hydraulic Reservoir, (2) LANTEC Air Winches PUMP GARDNER-DENVER PZ-9 Triplex Mud Pump, 1000 HP, Forged Steel Fluid End w/Quick-Change Caps, HYDRIL K-20- 1 0000 Pulsation Dampener, Rod Cooling Pump, DEMCO 4" & OTECO 2" Gate Valves, Drive Assembly, Compound- Driven PUMP WILSON 600 Duplex Mud Pump, 600 HP, 7 1/2" x 14", MATTCO Cast Steel Fluid End w/Quick-Change Caps, CONTINENTAL EMSCO Pulsation Dampener, OTECO 2" Shear Relief Valve, Rod Cooling Pump, OTECO 4" & DEMCO 2" Gate Valves, Drive Assembly, Master Skidded w/Engine PUMP POWER CAT D-379 TA Diesel Engine, S/N-68BO7069, w/Air Starter, Radiator, Gauges, Torque Converter ROTATING EQUIPMENT HACKER 27 1/2" x 44 1/2" Rotary Table w/Split Master Bushing GARDNER-DENVER 300-Ton Swivel VARCO Kelly Drive Bushing, Square Drive Lower Kelly Valve Inside BOP EXH B - 4 50 TRAVELING EQUIPMENT GARDNER-DENVER 300-Ton Block/Hook Combination w/(5) 60" Sheaves, 1 1/4" Line, BJ 6150 Unimatic Hook 2 1/2" x 102" Elevator Links WELL CONTROL EQUIPMENT HYDRIL GK-10-5000 5000 PSI Annular Blowout Preventer HYDRIL WP 11" 5000 PSI Double Blowout w/Pipe & Blind Rams 24"H x 11"ID Drilling Spool w/4-1/16" Outlets, (2) DEMCO 3-1/16" 5000 PSI & (2) DEMCO 2-1/16" 3000 PSI Gate Valves 24"H x 11"D 5000 PSI Spacer Spool KOOMEY T20120 5-Station 120-Gallon Closing Unit, S/N-1 550601, (12) 10-Gallon Accumulator Bottles, Triplex Charging Pump p/b 25 HP Electric Motor, (1) Air-Actuated Hydraulic Charging Pump SHAFFER 5-Station Remote Closing Unit, Mounted on Console 5000 PSI Blowout Preventer Choke Manifold, 5-Way Cross w/(2) DEMCO 3-1/16" 5000 PSI & (2) 2-1/16" 3000 PSI Gate Valves, Buffer Chamber, Mounted on Adjustable-Height Skid RIG HOUSES 8'W x 30'L Triaxle Toolpusher's Trailer, Fully Furnished 10'W x 24'L Doghouse w/4'L Porch Extension, Round Top, Knowledge Box, Lockers, Bench Storage, Cabinets, Parts Bins, Fluorescent Lights, Heater, Skidded 10'W x 38'L Parts/Change House w/Round-Top, Lockers, Bench Storage, Cabinets, Parts Bins, Workbenches, Fluorescent Lights, Heater, Skidded GENERATORS/UTILITY HOUSE CAT SR-4 320 KW AC Generator Set, SIN-5LA01675, p/b CAT 3412 DITA Diesel Engine, S/N-38509492, w/Air Starter, Radiator, Gauges, Skidded EXH B - 5 51 502FDR 320 KW AC Generator Set, S/N-PJ3156691, p/b CAT 3412 DITA Diesel Engine w/Air Starter, Radiator, Gauges, Skidded QUINCY 350 Air Compressor p/b LISTER 2-Cylinder Air-Cooled Diesel Engine, SN-US11078ST2A3110, w/Manual & Electric Starter, Air Volume Tank QUINCY 520 Air Compressor p/b 10 HP Electric Motor SQUARE D Electrical Control Panel w/Switchboard All Above Mounted in 10'W x 38'L Utility House w/Round Top, Fluorescent Lights, Heater, Skidded MUD SYSTEM 10'W x 7H x 36'L Mud Suction Tank w/10'L Covered Porch Extension, (2) Compartments, Round Bottom, Internal Plumbing, (3) DEMCO 6" x 8" Centrifugal Pumps, Each p/b 50 HP Electric Motor, (2) 7 1/2 HP Mud Agitators, Each p/b Electric Motor, Mud Hopper, Top-Mounted Walkways, Stairs, Safety Rails, Skidded 10'W x 7'H x 40'L Mud Shaker Tank w/(2) 4'L Covered Porch Extensions, (3) Compartments, Round Bottom, Internal Plumbing, (2) DEMCO 6" x 8" Centrifugal Pumps, Each p/b 50 HP Electric Motor, (2) 7 1/2 HP Mud Agitators, Each p/b Electric Motor, Top-Mounted, Walkways, Stairs, Safety Rails, Skidded FLUID SYSTEMS High Speed Linear Screen Vibrating Shale Shaker p/b 5 HP Electric Motor DEMCO Desander w/12" Cone DEMCO Desilter w/(1) 6" Cones WATER/FUEL TANKS 10'Dia x 30'L Water Tank, Skidded 10'W x 8'H x 30'L Fuel Tank, Skidded w/Fuel Pump & Filter p/b (2) 1 HP Electric Motors, Mounted on Stand 7'10"W x 3'H x 5'L 3-Compartment Lubester EXH B - 6 52 HANDLING TOOLS INGERSOLL-RAND Pneumatic Pipe Spinner BJ Type B Rotary Tongs w/Extra Heads BJ 3 3/8" BN to 5 1/2" BN 250-Ton Center Latch Pipe Elevators BJ Type A 6 3/4" SS 250-Ton Center Latch Drill Collar Elevators WOOLLEY DU Long 4 1/2" Drill Pipe Slips 8" Drill Collar Slips 6 1/4" Drill Collar Slips Approximately (1) Drill Collar Lift Subs INGERSOLL-RAND HUL-RO 9000 PSI Capacity Air Hoist, S/N-RSH11417 Mud Bucket AUXILIARY EQUIPMENT MARTIN DECKER E 600,000# Capacity Weight Indicator w/Pump Pressure, Tong Line Pull & RPM Gauges, Console-Mounted 3 1/2"ID x 55'L Rotary Hose (2)6"ID x 5'L & 8'L Suction Hoses w/Pipe (2) 3 1/2"ID x 10'L Vibrator Hoses 42"H x 5'W x 60'L 2-Section Catwalk w/Steel Deck Steps 60"H x 8"W x 25'L Junk Box w/15'L Covered Porch f/Closing Unit MATHEY RET Hydraulic/Electric Wireline Measuring Device, S/N-633, w/.092" Measuring Line Rathole & Mousehole Fluorescent Rig Lights w/Wiring Approximately 6000' of 1 1/4" Drill Line w/Spool Stand EXH B - 7 53 BEAR Automatic Driller (4) Sets of 42"H x 28'L Triangular Pipe Rack Miscellaneous Spare Parts, Hand Tools, Valves, Fire Extinguishers, Etc. DRILL PIPE 12,000' (400 Joints) 4 1/2", Grade E, 16.60#, Range 2 Drill Pipe w/4 1/2"XH, BN, HB Tool Joints, 5- 15/16" to 6"OD, PC DRILL COLLARS (24) 6 1/8"OD to 6 1/2"OD x 2"ID x 30'L Slick Drill Collars w/4 1/2"XH Connections, HB, Recessed EXH B - 8 -----END PRIVACY-ENHANCED MESSAGE-----