-----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, JdTL8skai9xUsPaAgrAOVIWx6rInP5vvJo+JmBS8s6v+VHliWNoYJWGk/tbPng0y iJ+wGrYCgZ2lu7BaWEQ1Tg== 0000950134-02-008694.txt : 20020724 0000950134-02-008694.hdr.sgml : 20020724 20020724172536 ACCESSION NUMBER: 0000950134-02-008694 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020724 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATTERSON UTI 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22664 FILM NUMBER: 02710172 BUSINESS ADDRESS: STREET 1: 4510 LAMESA HWY STREET 2: P O DRAWER 1416 CITY: SNYDER STATE: TX ZIP: 79549 BUSINESS PHONE: 9155731104 MAIL ADDRESS: STREET 1: P O DRAWER 1416 CITY: SNYDER STATE: TX ZIP: 79550 FORMER COMPANY: FORMER CONFORMED NAME: PATTERSON ENERGY INC DATE OF NAME CHANGE: 19940228 10-Q 1 d98468e10vq.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2002 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------ Commission file number 0-22664 PATTERSON-UTI ENERGY, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2504748 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) P. O. BOX 1416, 4510 LAMESA HIGHWAY, SNYDER, TEXAS, 79550 (Address of principal executive offices) (Zip Code) (915) 574-6300 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 78,946,371 shares of common stock, $0.01 par value, as of July 23, 2002 ================================================================================ PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES TABLE OF CONTENTS
Part I - Financial Information PAGE ---- Item 1. Financial Statements Unaudited condensed consolidated balance sheets............................ 3 Unaudited condensed consolidated statements of operations.................. 4 Unaudited condensed consolidated statement of stockholders' equity......... 5 Unaudited condensed consolidated statements of cash flows.................. 6 Notes to unaudited condensed consolidated financial statements............. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................... 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk..................... 16 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995................................................... 17 Part II - Other Information Item 2. Changes in Securities and Use of Proceeds...................................... 18 Item 6. Exhibits and Reports on Form 8-K............................................... 18 Signatures....................................................................................... 20
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE FOLLOWING UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDE ALL ADJUSTMENTS WHICH, IN THE OPINION OF MANAGEMENT, ARE NECESSARY IN ORDER TO MAKE SUCH FINANCIAL STATEMENTS NOT MISLEADING. PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands)
JUNE 30, DECEMBER 31, 2002 2001 --------- ------------ ASSETS Current assets: Cash and cash equivalents ........................................................... $ 52,869 $ 33,584 Accounts receivable, net of allowance for doubtful accounts of $3,547 at June 30, 2002 and $4,021 at December 31, 2001 ..................................... 86,248 133,837 Federal and state income taxes receivable, net ...................................... 21,901 1,673 Inventory ........................................................................... 16,796 16,272 Deferred tax assets ................................................................. 11,842 8,747 Other ............................................................................... 4,936 5,345 --------- ------------ Total current assets ............................................................ 194,592 199,458 Property and equipment, at cost, net .................................................... 637,857 614,420 Goodwill and intangible assets, net ..................................................... 51,403 51,634 Investment in equity securities ......................................................... 12,659 -- Other ................................................................................... 3,333 4,130 --------- ------------ Total assets..................................................................... $ 899,844 $ 869,642 ========= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade ............................................................................ $ 29,824 $ 47,945 Other ............................................................................ 3,132 4,833 Accrued expenses .................................................................... 31,082 36,508 --------- ------------ Total current liabilities ....................................................... 64,038 89,286 Deferred tax liabilities ................................................................ 110,520 92,859 Other ................................................................................... 2,859 355 --------- ------------ Total liabilities ............................................................... 177,417 182,500 --------- ------------ Commitments and contingencies ........................................................... -- -- Stockholders' equity: Preferred stock, par value $.01; authorized 1,000 shares, no shares issued .......... -- -- Common stock, par value $.01; authorized 200,000 shares with 80,432 and and 78,463 issued and 78,925 and 76,956 outstanding at June 30, 2002 and December 31, 2001, respectively ............................................ 804 784 Additional paid-in capital .......................................................... 474,571 441,475 Retained earnings ................................................................... 258,924 258,834 Accumulated other comprehensive loss ................................................ (217) (2,296) Treasury stock, at cost, 1,507 shares ............................................... (11,655) (11,655) --------- ------------ Total stockholders' equity ...................................................... 722,427 687,142 --------- ------------ Total liabilities and stockholders' equity ...................................... $ 899,844 $ 869,642 ========= ============
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2002 2001 2002 2001 --------- --------- --------- --------- Operating revenues: Drilling .................................. $ 98,461 $ 247,173 $ 200,401 $ 453,232 Drilling and completion fluids ............ 16,189 27,516 32,335 47,186 Pressure pumping .......................... 6,614 8,750 14,042 16,087 Other ..................................... 4,099 4,125 6,808 9,645 --------- --------- --------- --------- 125,363 287,564 253,586 526,150 --------- --------- --------- --------- Operating costs and expenses: Drilling .................................. 78,323 137,724 151,755 267,921 Drilling and completion fluids ............ 13,849 23,210 28,572 39,575 Pressure pumping .......................... 4,352 4,755 8,509 9,150 Depreciation, depletion and amortization... 23,090 19,381 45,292 38,701 General and administrative ................ 6,610 7,704 12,953 15,366 Bad debt expense .......................... 30 1,053 30 1,453 Merger costs .............................. -- 5,943 -- 5,943 Restructuring and other charges ........... 4,700 7,202 4,700 7,202 Other ..................................... 1,000 1,343 1,938 2,430 --------- --------- --------- --------- 131,954 208,315 253,749 387,741 --------- --------- --------- --------- Operating income (loss) ....................... (6,591) 79,249 (163) 138,409 --------- --------- --------- --------- Other income (expense): Interest income ........................... 268 665 493 1,516 Interest expense .......................... (94) (1,192) (205) (2,722) Other ..................................... 8 63 25 131 --------- --------- --------- --------- 182 (464) 313 (1,075) --------- --------- --------- --------- Income (loss) before income taxes ............. (6,409) 78,785 150 137,334 --------- --------- --------- --------- Income tax expense (benefit): Current ................................... (6,794) 21,388 (11,351) 36,429 Deferred .................................. 4,230 8,931 11,411 15,828 --------- --------- --------- --------- (2,564) 30,319 60 52,257 --------- --------- --------- --------- Net income (loss) ............................. $ (3,845) $ 48,466 $ 90 $ 85,077 ========= ========= ========= ========= Net income (loss) per common share: Basic ..................................... $ (0.05) $ 0.63 $ 0.00 $ 1.12 ========= ========= ========= ========= Diluted ................................... $ (0.05) $ 0.61 $ 0.00 $ 1.07 ========= ========= ========= ========= Weighted average number of common shares outstanding: Basic ..................................... 78,742 76,350 78,080 76,123 ========= ========= ========= ========= Diluted ................................... 78,742 79,152 80,684 79,158 ========= ========= ========= =========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) (in thousands)
Common Stock Accumulated -------------------- Additional other Number paid-in Retained comprehensive Treasury of shares Amount capital earnings loss stock Total --------- ------ ---------- --------- ------------- ---------- --------- Balance, December 31, 2001 ....... 78,463 $ 784 $ 441,475 $ 258,834 $ (2,296) $ (11,655) $ 687,142 Issuance of common stock ......... 650 7 16,933 -- -- -- 16,940 Exercise of stock options ........ 1,319 13 7,372 -- -- -- 7,385 Tax benefit related to exercise of stock options ............. -- -- 8,791 -- -- -- 8,791 Foreign currency translation ..... -- -- -- -- 2,079 -- 2,079 Net income ....................... -- -- -- 90 -- 90 --------- ------ ---------- --------- ------------- ---------- --------- Balance, June 30, 2002 ........... 80,432 $ 804 $ 474,571 $ 258,924 $ (217) $ (11,655) $ 722,427 ========= ====== ========== ========= ============= ========== =========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
SIX MONTHS ENDED JUNE 30, ------------------------ 2002 2001 --------- --------- Cash flows from operating activities: Net income .......................................................................... $ 90 $ 85,077 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization .......................................... 45,292 38,701 Bad debt expense .................................................................. 30 1,453 Deferred income tax expense ....................................................... 11,411 16,626 Tax benefit related to stock options .............................................. 8,791 2,120 Other ............................................................................. (47) 1,316 Changes in operating assets and liabilities: Accounts receivable .................................................... 47,685 (53,848) Inventory and other current assets ..................................... (108) 1,217 Accrued federal income taxes receivable ................................ (21,355) 24,269 Accounts payable ....................................................... (18,192) (3,268) Other liabilities ...................................................... (4,731) 12,884 --------- --------- Net cash provided by operating activities .......................... 68,866 126,547 --------- --------- Cash flows from investing activities: Acquisitions ........................................................................ -- (27,045) Purchases of property and equipment ................................................. (46,194) (86,429) Proceeds from sales of property and equipment ....................................... 632 816 Purchase of investment equity securities ............................................ (12,659) -- Change in other assets .............................................................. 803 (143) --------- --------- Net cash used in investing activities ................................... (57,418) (112,801) --------- --------- Cash flows from financing activities: Proceeds from issuance of notes payable ............................................. -- 9,760 Payments of notes payable ........................................................... -- (69,177) Proceeds from exercise of stock options ............................................. 7,385 4,825 --------- --------- Net cash provided by (used in) financing activities ................ 7,385 (54,592) --------- --------- Net increase (decrease) in cash and cash equivalents ............... 18,833 (40,846) Foreign currency translation adjustment ............................ 452 (55) Cash and cash equivalents at beginning of period ......................................... 33,584 66,916 --------- --------- Cash and cash equivalents at end of period ............................................... $ 52,869 $ 26,015 ========= ========= Supplemental disclosure of cash flow information: Net cash paid during the period for: Interest .......................................................................... $ 205 $ 3,247 Income taxes ...................................................................... $ 218 $ 7,150
Non-cash investing and financing activities: In March 2002, the Company acquired five SCR Electric land-based drilling rigs through the acquisition of Odin Drilling, Inc., for a purchase price of $16.9 million. The purchase price consisted of 650,000 shares of common stock valued at $26.06 per share. A deferred tax liability of $4.1 million was recorded as a result of the transaction. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF CONSOLIDATION AND PRESENTATION The consolidated financial statements include the accounts of Patterson-UTI ("Patterson-UTI") and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The interim condensed consolidated financial statements have been prepared by management of the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for presentation of the information have been included. The unaudited condensed consolidated balance sheet as of December 31, 2001, as presented herein, was derived from the audited balance sheet of the Company, but does not include all disclosures required by generally accepted accounting principles. The U.S. dollar is the functional currency for all of the Company's operations except for its Canadian operations, which use the Canadian dollar as functional currency. The effects of exchange rate changes are reflected in accumulated other comprehensive income, which is a separate component of stockholders' equity (See Note 4). The Company provides a dual presentation of its earnings per share in its Consolidated Statements of Income: Basic Earnings per Share ("Basic EPS") and Diluted Earnings per Share ("Diluted EPS"). Basic EPS is computed using the weighted average number of shares outstanding during the periods presented. Diluted EPS includes common stock equivalents, generally stock options and warrants that are "in the money", which are dilutive to earnings per share. For the three months ended June 30, 2002, potentially dilutive securities of 2.5 million shares were excluded from the calculation of Diluted EPS as a result of the Company's net loss for that period. For the six months ended June 30, 2002, dilutive securities included in the calculation of Diluted EPS were 2.6 million shares. For the three and six months ended June 30, 2001, dilutive securities of 2.8 million shares and 3.0 million shares, respectively, were included in the calculation of diluted EPS. There are 15,000 and 55,000 potentially dilutive options and warrants outstanding at June 30, 2002 which have been excluded from the calculation of Diluted EPS as their exercise price is greater than the average market prices for the three and six month periods ended June 30, 2002, respectively. The results of operations for the three and six months ended June 30, 2002, are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the 2001 consolidated financial statements in order for them to conform with the 2002 presentation. 2. RECENT ACQUISITION Odin Drilling, Inc. -- In March 2002, the Company acquired five SCR Electric land-based drilling rigs through the acquisition of Odin Drilling, Inc., for a purchase price of $16.9 million. The purchase price consisted of 650,000 shares of common stock valued at $26.06 per share. A deferred tax liability of $4.1 million was recorded as a result of the transaction. The transaction was accounted for as a purchase and the related purchase price was allocated among the rigs based on their estimated fair values. 7 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED 2. RECENT ACQUISITION - (CONTINUED) Odin Drilling, Inc. had no operations prior to its acquisition by the Company. No goodwill was recorded in connection with this acquisition. 3. STOCKHOLDERS' EQUITY In March 2002, the Company issued 650,000 shares of its common stock as consideration for the acquisition of Odin Drilling, Inc. (see Note 2). The common stock was valued at $26.06 per share, its fair market value on the date the terms of the transaction were agreed upon. 4. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table illustrates the Company's comprehensive income (loss) including the effects of foreign currency translation adjustments for the three and six months ended June 30, 2002 and 2001 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- --------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net income (loss) ...................................... $ (3,845) $ 48,466 $ 90 $ 85,077 Other comprehensive income (loss): Foreign currency translation adjustment ......... 2,180 1,268 2,079 (354) -------- -------- -------- -------- Comprehensive income (loss) ............................ $ (1,665) $ 49,734 $ 2,169 $ 84,723 ======== ======== ======== ========
All accumulated other comprehensive income (loss) at June 30, 2002 and December 31, 2001 consists of foreign currency translation adjustments. 5. RESTRUCTURING AND OTHER CHARGES The Company recognized an expense of $4.7 million in the second quarter of 2002 due to the financial failure of a workers' compensation insurance carrier that had provided coverage for the Company between 1992 and March of 2001. As a result of the financial failure of this insurance carrier, the Company expects to incur cash outlays related to workers' compensation claims involving incidents that occurred during the coverage period. The amount recorded during the quarter ended June 30, 2002, includes estimates for the costs of these claims. 8 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED 6. BUSINESS SEGMENTS Our revenues, operating profits and identifiable assets are primarily attributable to three industry segments: contract drilling, drilling and completion fluid services and pressure pumping services. Separate financial data for each of our three business segments is provided below (in thousands).
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Revenues: Drilling .................................................. $ 98,461 $ 247,173 $ 200,401 $ 453,232 Drilling and completion fluids ............................ 16,189 27,516 32,335 47,186 Pressure pumping .......................................... 6,614 8,750 14,042 16,087 Corporate and other ....................................... 4,099 4,125 6,808 9,645 ---------- ---------- ---------- ---------- Total operating revenues ...................................... $ 125,363 $ 287,564 $ 253,586 $ 526,150 ========== ========== ========== ========== Income (loss) from operations: Drilling .................................................. $ (920) $ 89,763 $ 6,407 $ 147,326 Drilling and completion fluids ............................ 23 1,596 (819) 2,602 Pressure pumping .......................................... 613 2,646 2,094 4,293 Corporate and other ....................................... 1,607) (1,611) (3,145) (2,667) Merger costs, restructuring and other charges ............. (4,700) (13,145) (4,700) (13,145) ---------- ---------- ---------- ---------- (6,591) 79,249 (163) 138,409 Interest income ............................................... 268 665 493 1,516 Interest expense .............................................. (94) (1,192) (205) (2,722) Other ......................................................... 8 63 25 131 ---------- ---------- ---------- ---------- Income (loss) before income taxes ............................. $ (6,409) $ 78,785 $ 150 $ 137,334 ========== ========== ========== ==========
JUNE 30, DECEMBER 31, 2002 2001 ---------- ------------ Identifiable assets: Drilling ................................................... $ 691,177 $ 681,700 Drilling and completion fluids ............................. 33,265 41,724 Pressure pumping ........................................... 30,691 29,473 Corporate and other (a) .................................... 144,711 116,745 ---------- ------------ $ 899,844 $ 869,642 ========== ============
- ---------- (a) Corporate and other assets primarily includes cash managed by the parent and oil and natural gas properties. 7. RECENTLY ISSUED ACCOUNTING STANDARDS The FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," ("SFAS No. 143") in July 2001. SFAS No. 143 addresses financial accounting requirements for retirement obligations associated with tangible long-lived assets. SFAS No. 143 is effective beginning June 15, 2002. The provisions of SFAS No. 143 are not expected to have a material impact on the Company's consolidated financial statements. The FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," (SFAS No. 144) in August 2001. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The provisions of SFAS No. 144, which the Company adopted on January 1, 2002, did not have an impact on the Company's consolidated financial statements. 9 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED 8. GOODWILL AND INTANGIBLE ASSETS Effective January 1, 2002 we adopted Statement of Financial Accounting Standards 142, "Goodwill and Other Intangible Assets". This accounting pronouncement requires that the Company cease amortization of all intangible assets having indefinite useful economic lives. Such assets, including goodwill, are not to be amortized until their lives are determined to be finite, however, a recognized intangible asset with an indefinite useful life should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. During the second quarter of 2002, the Company completed a transitional test of its goodwill impairment. As a result, no change to the valuation of goodwill was determined to be necessary. Other intangible assets include covenants-not-to-compete and other agreements. All of our intangible assets, having definite lives, are being amortized on a straight-line basis over their estimated useful lives. SFAS Nos. 141 and 142 also require disclosure of the following information related to goodwill and other intangible assets (in thousands):
JUNE 30, DECEMBER 31, 2002 2001 ---------- ------------ Goodwill ..................................... $ 69,860 $ 69,860 Accumulated amortization ..................... (19,661) (19,661) ---------- ------------ Goodwill, net ................................ 50,199 50,199 ---------- ------------ Covenants-not-to-compete and other ........... $ 3,629 $ 3,635 Accumulated amortization ..................... (2,425) (2,200) ---------- ------------ Other intangible assets, net ................. 1,204 1,435 ---------- ------------ Total goodwill and intangible assets, net .... $ 51,403 $ 51,634 ========== ============
Change in the net carrying amount of goodwill for the six months ended June 30, 2002 is as follows (in thousands):
DRILLING & COMPLETION DRILLING FLUIDS TOTAL -------- ---------- -------- Balance at December 31, 2001..................... $ 40,265 $ 9,934 $ 50,199 Changes to goodwill............................... -- -- -- -------- ---------- -------- Balance at June 30, 2002......................... $ 40,265 $ 9,934 $ 50,199 ======== ========== ========
Amortization expense of approximately $817,000 and $1.8 million, recognized during the three and six months ended June 30, 2001, respectively, would not have been recognized under SFAS No. 142. Amortization expense consists of the following (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 2002 2001 2002 2001 ------ ------ ------ ------ Goodwill ................................... $ -- $ 817 $ -- $1,761 Covenants-not-to-compete and other ......... 98 120 225 334 ------ ------ ------ ------ $ 98 $ 937 $ 225 $2,095 ====== ====== ====== ======
10 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED 8. GOODWILL AND INTANGIBLE ASSETS - (CONTINUED) Our weighted average amortization period for intangible assets is approximately 10 years. The following table shows the estimated amortization expense for these assets for each of the five succeeding fiscal years (in thousands): 2003................... $ 134 2004................... $ 97 2005................... $ 97 2006................... $ 97 2007................... $ 97
Had SFAS No. 142 been in effect prior to January 1, 2002, our reported net income and net income (loss) per share would have been as follows (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ----------------------- Net income (loss): 2002 2001 2002 2001 -------- ---------- -------- ---------- Reported .............................. $ (3,845) $ 48,466 $ 90 $ 85,077 Goodwill amortization ................. -- 817 -- 1,761 -------- ---------- -------- ---------- Adjusted .............................. $ (3,845) $ 49,283 $ 90 $ 86,838 ======== ========== ======== ========== Basic net income (loss) per common share: Reported .............................. $ (0.05) $ 0.63 $ 0.00 $ 1.12 Effect of goodwill amortization ....... -- 0.01 -- 0.02 -------- ---------- -------- ---------- Adjusted .............................. $ (0.05) $ 0.64 $ 0.00 $ 1.14 ======== ========== ======== ========== Diluted net income (loss) per common share: Reported .............................. $ (0.05) $ 0.61 $ 0.00 $ 1.07 Effect of goodwill amortization ....... -- 0.01 -- 0.02 -------- ---------- -------- ---------- Adjusted .............................. $ (0.05) $ 0.62 $ 0.00 $ 1.09 ======== ========== ======== ==========
9. INVESTMENT IN EQUITY SECURITIES On June 11, 2002, the Company entered into an agreement to purchase 762,597 shares of the common stock of TMBR/Sharp Drilling, Inc., $.10 par value per share, for an aggregate cash purchase price of $12.7 million, or $16.60 per share. The purchase of these shares was completed on June 14, 2002. The agreement also includes (i) an option for the Company to purchase and (ii) an option for the sellers to require the Company to purchase up to an additional 195,000 shares of common stock at $16.60 per share. These options expire on December 16, 2002. The investment was recorded using the equity method of accounting. 10. Legal Matters Westfort Energy LTD and Westfort Energy (US) LTD f/k/a Canadian Delta, Inc. ("Westfort"), filed a lawsuit against two Patterson-UTI subsidiaries, Patterson Petroleum LP and Patterson Drilling Company LP, in the Circuit Court, Rankin County, Mississippi, Case No. 2002-18. The lawsuit relates to a letter agreement entered into in July 2000 between Patterson Petroleum and Westfort concerning the drilling of a daywork well in Mississippi. This lawsuit was filed by Westfort after Patterson Petroleum made demand on Westfort for payment of the contract drilling services. There have been no significant developments in these proceedings since year-end 2001. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2002, we had working capital of approximately $130.6 million including cash and cash equivalents of $52.9 million. For the six months ended June 30, 2002, our primary sources of cash flow were: o $68.9 million provided by operations, including a $3.3 million net decrease in related working capital accounts, and o $7.4 million from the exercise of stock options. Correspondingly, we used approximately $12.7 million for the acquisition of approximately 18% of the shares outstanding of TMBR/Sharp Drilling, Inc. (see Note 9), and approximately $46.2 million: o to make capital expenditures for the betterment and refurbishment of our drilling rigs, o for the acquisition and procurement of drilling equipment, o to fund leasehold acquisition and exploration and development of oil and natural gas properties and o to fund capital expenditures for our drilling and completion fluids and pressure pumping divisions. In March 2002, the Company acquired five SCR Electric land-based drilling rigs through the acquisition of Odin Drilling, Inc., for a purchase price of $16.9 million. The purchase price consisted of 650,000 shares of common stock valued at $26.06 per share. A deferred tax liability of $4.1 million was recorded as a result of the transaction. The purchase price was allocated among the rigs based on their estimated fair values. As of June 30, 2002, there were no amounts drawn under the Company's $100.0 million revolving line of credit. The line of credit carries a floating interest rate of LIBOR plus 1.75% to 2.75% based on twelve-month trailing EBITDA. The facility has no financial covenants unless availability under the facility is less than $20.0 million. At June 30, 2002, the Company had letters of credit in the aggregate amount of $22.3 million for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under the terms of the underlying insurance contracts. We believe that the current level of cash and short-term investments, together with cash generated from operations should be sufficient to meet our capital needs. From time to time, acquisition opportunities are reviewed. The timing, size or success of any acquisition and the associated capital commitments are unpredictable. Over the longer term, should further opportunities for growth requiring capital arise, we believe we would be able to satisfy these needs through a combination of working capital, cash generated from operations, and either debt or equity financing. However, there can be no assurance that such capital would be available. CRITICAL ACCOUNTING POLICIES There have been no changes in the Company's critical accounting policies since year-end 2001. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS Westfort Energy LTD and Westfort Energy (US) LTD f/k/a Canadian Delta, Inc. ("Westfort"), filed a lawsuit against two Patterson-UTI subsidiaries, Patterson Petroleum LP and Patterson Drilling Company LP, in the Circuit Court, Rankin County, Mississippi, Case No. 2002-18. The lawsuit relates to a letter agreement entered into in July 2000 between Patterson Petroleum and Westfort concerning the drilling of a daywork well in Mississippi. This lawsuit was filed by Westfort after Patterson Petroleum made demand on Westfort for payment of the contract drilling services. There have been no significant developments in these proceedings since year-end 2001. On June 11, 2002, the Company entered into an agreement to purchase 762,597 shares of the common stock of TMBR/Sharp Drilling, Inc., $.10 par value per share, for an aggregate cash purchase price of $12.7 million, or $16.60 per share. The purchase of these shares was completed on June 14, 2002. The agreement also includes (i) an option for the Company to purchase and (ii) an option for the sellers to require the Company to purchase up to an additional 195,000 shares of common stock at $16.60 per share. These options expire on December 16, 2002. The investment was recorded using the equity method of accounting. 12 RESULTS OF OPERATIONS The following tables summarize operations by business segment for the three months ended June 30, 2002 and 2001:
CONTRACT DRILLING 2002 2001 % CHANGE - ----------------- -------- -------- -------- (DOLLARS IN THOUSANDS) Revenues ......................................... $ 98,461 $247,173 (60.2)% Direct operating costs ........................... $ 78,323 $137,724 (43.1)% Selling, general and administrative .............. $ 974 $ 1,895 (48.6)% Depreciation and amortization .................... $ 20,084 $ 17,791 12.9% Operating income (loss) .......................... $ (920) $ 89,763 N/A% Operating days ................................... 10,846 22,560 (51.9)% Average revenue per operating day ................ $ 9.08 $ 10.95 (17.1)% Average direct operating cost per operating day .. $ 7.22 $ 6.10 18.4% Average margin per operating day ................. $ 1.86 $ 4.85 (61.7)% Number of owned rigs at end of period ............ 324 302 7.3% Average number of rigs owned during period ....... 324 302 7.3% Average rigs operating ........................... 119 248 (52.0)% Rig utilization percentage ....................... 37% 82% (54.9)% Capital expenditures ............................. $ 16,599 $ 32,124 (48.3)%
Deteriorating industry conditions, which began in the third quarter of 2001 and continued into the second quarter of 2002 have had an adverse impact on the market prices of oil and natural gas. Accordingly, the demand for our contract drilling services has been negatively impacted. Natural gas prices fell from an average of $4.41 per Mcf during the second quarter of 2001 to an average of $3.41 per Mcf for the same three-month period in 2002. We have recently begun to see improvements in rig utilization as oil and natural gas prices have increased. Oil prices in the first quarter of 2002 were $21.72 per barrel as compared to $26.19 per barrel during the second quarter of 2002 and average natural gas prices have improved to $3.42 per Mcf from $2.51 per Mcf for the same comparative period. We expect demand for our contract drilling services to continue to increase as industrial demand for oil and natural gas improves and the economy strengthens. The decreased operating results were reflective of a significant decline in demand for our contract drilling services as evidenced by: o decreases in average rig utilization and the number of operating days and o decreases in average daily margins due to declines in day rates and increases in average costs per day. The increased costs as a percentage of revenues are largely attributable to our efforts to maintain our most experienced field personnel despite the significant decline in rig utilization.
DRILLING AND COMPLETION FLUIDS 2002 2001 % CHANGE - ------------------------------ -------- -------- -------- (DOLLARS IN THOUSANDS) Revenues............................................. $ 16,189 $ 27,516 (41.2)% Direct operating costs............................... $ 13,849 $ 23,210 (40.3)% Selling, general and administrative.................. $ 1,761 $ 2,075 (15.1)% Depreciation and amortization........................ $ 556 $ 635 (12.4)% Operating income..................................... $ 23 $ 1,596 (98.6)% Total jobs........................................... 352 487 (27.7)% Average revenue per job.............................. $ 45.99 $ 56.50 (18.6)% Average costs per job................................ $ 39.34 $ 47.66 (17.5)% Average margin per job............................... $ 6.65 $ 8.84 (24.8)% Capital expenditures................................. $ 278 $ 1,528 (81.8)%
The decreases noted were primarily attributable to deteriorating industry conditions, as noted above, and the resulting decline in demand for our drilling and completion fluid services, which is further illustrated by the 27.7% decline in the number of jobs completed in the 2002 quarter versus the 2001 quarter. The recent increases in oil and natural gas prices noted above have contributed to improvements in our drilling and completion fluids operations from our first quarter results. Total jobs have risen from 321 in the first quarter of 2002 to 352 in the second quarter, a 9.7% increase. As commodity prices improve, we expect to begin to see increases in the demand for our drilling and completion fluids services. 13
PRESSURE PUMPING 2002 2001 % CHANGE - ---------------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Revenues ................................. $ 6,614 $ 8,750 (24.4)% Direct operating costs ................... $ 4,352 $ 4,755 (8.5)% Selling, general and administrative ...... $ 980 $ 876 11.9% Depreciation ............................. $ 669 $ 473 41.4% Operating income ......................... $ 613 $ 2,646 (76.8)% Total jobs ............................... 777 1,052 (26.1)% Average revenue per job .................. $ 8.51 $ 8.32 2.3% Average costs per job .................... $ 5.60 $ 4.52 23.9% Average margin per job ................... $ 2.91 $ 3.80 (23.4)% Capital expenditures ..................... $ 1,438 $ 2,004 (28.2)%
Decreased revenues are primarily due to deteriorating industry conditions as evidenced by the 26.1% decline in number of jobs. Increased general and administrative expense and depreciation for our pressure pumping operations can be attributed to significant growth of the pressure pumping segment during 2001, with additions to personnel as well as equipment and facilities.
CORPORATE AND OTHER 2002 2001 % CHANGE - ------------------- ------------ ------------ ------------ (IN THOUSANDS) Revenues ..................................... $ 4,099 $ 4,125 (0.6)% Selling, general and administrative .......... $ 2,895 $ 2,858 1.3% Bad debt expense ............................. $ 30 $ 1,053 (97.2)% Depreciation, depletion and amortization ..... $ 1,781 $ 482 269.5% Other expenses ............................... $ 1,000 $ 1,343 (25.5)% Operating loss ............................... $ (1,607) $ (1,611) 0.2% Merger costs ................................. $ -- $ 5,943 (100.0)% Restructuring and other charges .............. $ 4,700 $ 7,202 (34.7)% Capital expenditures ......................... $ 1,385 $ 2,550 (45.7)%
Merger costs and restructuring and other charges reflect a $4.7 million charge taken in the second quarter of 2002 due to the financial failure of a workers' compensation insurance carrier we used from 1992 until March of 2001 and expenses in the second quarter of 2001 related to the UTI Energy Corp. merger. The following tables summarize by business segment operations for the six months ended June 30, 2002 and 2001:
CONTRACT DRILLING 2002 2001 % CHANGE - ----------------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Revenues ........................................... $ 200,401 $ 453,232 (55.8)% Direct operating costs ............................. $ 151,755 $ 267,921 (43.4)% Selling, general and administrative ................ $ 2,157 $ 3,632 (40.6)% Depreciation and amortization ...................... $ 40,082 $ 34,353 16.7% Operating income ................................... $ 6,407 $ 147,326 (95.7)% Operating days ..................................... 21,396 43,313 (50.6)% Average revenue per operating day .................. $ 9.36 $ 10.46 (10.5)% Average direct operating cost per operating day .... $ 7.09 $ 6.18 14.7% Average margin per operating day ................... $ 2.27 $ 4.28 (47.0)% Number of owned rigs at end of period .............. 324 302 7.3% Average number of rigs owned during period ......... 322 301 7.0% Average rigs operating ............................. 118 239 (50.6)% Rig utilization percentage ......................... 37% 79% (53.2)% Capital expenditures ............................... $ 38,266 $ 74,939 (48.9)%
Deteriorating industry conditions, which began in the third quarter of 2001 and continued into the second quarter of 2002 have had an adverse impact on the market prices of oil and natural gas. Accordingly, the demand for our contract drilling services has been negatively impacted. Market prices for oil fell from an average of $28.02 per barrel during the first six months of 2001 to an average of $24.11 per barrel during the first six months of 2002 and natural gas prices fell from an average of $5.32 per Mcf during the first six months of 2001 to an average of $2.99 14 per Mcf for the same period in 2002. We expect demand for our contract drilling services to increase as industrial demand for oil and natural gas improves and the economy strengthens. The decreased operating results were reflective of a significant decline in demand for our contract drilling services as evidenced by: o decreases in average rig utilization and in the number of operating days and o decreases in average daily margin due to declines in day rates and increases in average costs per day. The increased costs as a percentage of revenues are largely attributable to our efforts to maintain our most experienced field personnel despite the significant decline in rig utilization.
DRILLING AND COMPLETION FLUIDS 2002 2001 % CHANGE - ------------------------------ ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Revenues ................................. $ 32,335 $ 47,186 (31.5)% Direct operating costs ................... $ 28,572 $ 39,575 (27.8)% Selling, general and administrative ...... $ 3,488 $ 3,788 (7.9)% Depreciation and amortization ............ $ 1,094 $ 1,221 (10.4)% Operating income (loss) .................. $ (819) $ 2,602 N/A% Total jobs ............................... 673 971 (30.7)% Average revenue per job .................. $ 48.05 $ 48.60 (1.1)% Average costs per job .................... $ 42.45 $ 40.76 4.1% Average margin per job ................... $ 5.60 $ 7.84 (28.6)% Capital expenditures ..................... $ 941 $ 2,471 (61.9)%
The decreases noted were primarily attributable to deteriorating industry conditions, as noted above, and the resulting decline in demand for our drilling and completion fluid services, which is further illustrated by the 30.7% decline in the number of jobs completed in 2002 versus 2001. As commodity prices improve, we expect to begin to see increases in the demand for our drilling and completion fluids services.
PRESSURE PUMPING 2002 2001 % CHANGE - ---------------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Revenues ................................. $ 14,042 $ 16,087 (12.7)% Direct operating costs ................... $ 8,509 $ 9,150 (7.0)% Selling, general and administrative ...... $ 2,161 $ 1,794 20.5% Depreciation ............................. $ 1,278 $ 850 50.4% Operating income ......................... $ 2,094 $ 4,293 (51.2)% Total jobs ............................... 1,616 2,020 (20.0)% Average revenue per job .................. $ 8.69 $ 7.96 9.1% Average costs per job .................... $ 5.27 $ 4.53 16.2% Average margin per job ................... $ 3.42 $ 3.43 (0.3)% Capital expenditures ..................... $ 2,374 $ 3,738 (36.5)%
Decreased revenues are primarily due to deteriorating industry conditions as evidenced by the 20.0% decrease in number of jobs. Increased general and administrative expense and depreciation for our pressure pumping operations can be attributed to significant growth of the pressure pumping segment during 2001, with additions to personnel as well as equipment and facilities.
CORPORATE AND OTHER 2002 2001 % CHANGE - ------------------- ----------- ----------- ----------- (IN THOUSANDS) Revenues .................................... $ 6,808 $ 9,645 (29.4)% Selling, general and administrative ......... $ 5,147 $ 6,152 (16.3)% Bad debt expense ............................ $ 30 $ 1,453 (97.9)% Depreciation, depletion and amortization .... $ 2,838 $ 2,277 24.6% Other expenses .............................. $ 1,938 $ 2,430 (20.2)% Operating loss .............................. $ (3,145) $ (2,667) 17.9% Merger costs ................................ $ -- $ 5,943 (100.0)% Restructuring and other charges ............. $ 4,700 $ 7,202 (34.7)% Capital expenditures ........................ $ 4,427 $ 5,286 (16.3)%
15 The decrease in revenues in Corporate and Other is largely attributable to the impact of the weakened commodity prices on our oil and natural gas operations. Merger costs and restructuring and other charges reflect a $4.7 million charge taken in the second quarter of 2002 due to the financial failure of a workers' compensation insurance carrier we used from 1992 until March of 2001 and expenses in the second quarter of 2001 related to the UTI Energy Corp. merger. The following table summarizes certain industry data for the three and six months ended June 30, 2002 and 2001:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- INDUSTRY DATA 2002 2001 % CHG. 2002 2001 % CHG. - ------------- ---------- ---------- ---------- ---------- ---------- ---------- Average US natural gas spot price per Mcf (a) ......... $ 3.41 $ 4.41 (22.7)% $ 2.99 $ 5.32 (43.8)% Average West Texas intermediate crude oil spot Price per BBL (a) ................................. $ 26.19 $ 26.91 (2.7)% $ 24.11 $ 28.02 (14.0)% Average weekly US land rig count (b) .................. 701 1,072 (34.6)% 697 1,023 (31.9)% Average weekly Canadian land rig count (b) ............ 137 253 (45.8)% 254 379 (33.0)%
- ---------- (a) Source: 2002-Raymond James; 2001-Market Energy (b) Source: Baker Hughes VOLATILITY OF OIL AND NATURAL GAS PRICES AND ITS IMPACT ON OPERATIONS Our revenue, profitability and future rate of growth are substantially dependent upon prevailing prices for oil and natural gas, with respect to all of our operating segments. Historically, oil and natural gas prices and markets have been volatile. Prices are affected by market supply and demand factors as well as actions of state and local agencies, the United States and foreign governments and international cartels. All of these are beyond our control. An extended or further significant decline in oil and/or natural gas prices would have a further material adverse effect on our financial condition and results of operations. Due to a decline in oil and natural gas prices beginning in the second quarter of 2001, demand for drilling rigs declined beginning in the third quarter of 2001 and continued into the second quarter of 2002. This decline in demand has resulted in a steep decline in drilling rig utilization and day rates, which in turn has adversely impacted our operations. An extended or further significant decline in oil and/or natural gas prices would have a further material adverse effect on our financial condition and results of operations. IMPACT OF INFLATION We believe that inflation will not have a significant near-term impact on our financial position. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We currently have no exposure to interest rate market risk because we have no outstanding balance under our credit facility. Should we incur a balance in the future, we would have some exposure associated with the floating rate of the interest charged on that balance. The credit facility, which expires on June 29, 2005, bears interest at LIBOR plus 1.75 % to 2.75% based on the Company's twelve-month trailing EBITDA. Our exposure to interest rate risk due to changes in LIBOR is not expected to be material. We conduct some business in Canadian dollars through our Canadian land-based drilling operations. The exchange rate between Canadian dollars and U.S. dollars has fluctuated over the last ten years. If the value of the Canadian dollar against the U.S. dollar weakens, revenues and earnings of our Canadian operations will be reduced when they are translated to U.S. dollars. Also, the value of our Canadian net assets in U.S. dollars may decline. 16 ---------- CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 2 of this Report contains forward-looking statements which are made pursuant to the "safe harbor" provisions of The Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements relating to: liquidity; financing of operations; continued volatility of oil and natural gas prices; source and sufficiency of funds required for immediate capital needs and additional rig acquisitions (if further opportunities arise); and other matters. The words "believes," "plans," "intends," "expected," "estimates" or "budgeted" and similar expressions identify forward-looking statements. The forward-looking statements are based on certain assumptions and analyses we make in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. We do not undertake to update, revise or correct any of the forward-looking information. Factors that could cause actual results to differ materially from our expectations expressed in the forward-looking statements include, but are not limited to, the following: o Changes in prices and demand for oil and natural gas; o Changes in demand for contract drilling, pressure pumping and drilling and completion fluids services; o Shortages of drill pipe and other drilling equipment; o Labor shortages, primarily qualified drilling personnel; o Effects of competition from other drilling contractors and providers of pressure pumping and drilling and completion fluids services; o Occurrence of operating hazards and uninsured losses inherent in our business operations; and o Environmental and other governmental regulation. For a more complete explanation of these various factors and others, see "Cautionary Statement for Purposes of the 'Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995" included in our Annual Report on Form 10-K for the year ended December 31, 2001, beginning on page 13. You are cautioned not to place undue reliance on any of our forward-looking statements, which speak only as of the date of the document or in the case of documents incorporated by reference, the date of those documents. ---------- 17 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Since year-end 2001, the Company has issued 650,000 shares of common stock that were not registered under the Securities Act of 1933, as amended, at the time of issuance. The securities were issued in March 2002 as consideration for the acquisition of Odin Drilling, Inc. The common stock was valued at $26.06 per share. No underwriter was involved in the transaction and no sales commissions, fees or similar compensation were paid to any person in connection with the issuance of the shares. The Company believes that the issuance of the securities was exempt from the registration requirements of Section 5 of the Securities Act by virtue of Section 4(2) of the Securities Act and/or under Rule 506 of Regulation D promulgated thereunder. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. The following exhibits are filed herewith or incorporated by reference: 2.1 Plan and Agreement of Merger dated October 14, 1993, between Patterson Energy, Inc., a Texas corporation, and Patterson Energy, Inc., a Delaware corporation, together with related Certificates of Merger. (1) 2.2 Agreement and Plan of Merger, dated April 22, 1996 among Patterson Energy, Inc., Patterson Drilling Company and Tucker Drilling Company, Inc. (2) 2.2.1 Amendment to Agreement and Plan of Merger, dated May 16, 1996 among Patterson Energy, Inc., Patterson Drilling Company and Tucker Drilling Company, Inc. (3) 2.3 Agreement and Plan of Merger, dated February 4, 2001, by and between UTI Energy Corp. and Patterson Energy, Inc. (4) 2.4 Agreement and Plan of Merger, dated March 10, 2002 among Patterson-UTI Energy, Inc., Patterson-UTI Drilling Company LP, LLLP and Odin Drilling, Inc. (11) 2.5 Stock Purchase Agreement by and among Patterson-UTI Energy, Inc. and Roper Family Properties, LTD., Estate of Joe G. Roper, Patricia R. Elledge, Judy Kathleen Roper Davis, Jeanie Elisabeth Cornelius and J. Mark Roper. 3.1 Restated Certificate of Incorporation. (5) 3.1.1 Certificate of Correction of Restated Certificate of Incorporation.(10) 3.2 Amended and Restated Bylaws. (10) 3.3 Rights Agreement dated January 2, 1997, between Patterson Energy, Inc. and Continental Stock Transfer & Trust Company. (6) 3.3.1 Amendment to Rights Agreement dated as of October 23, 2001.(8) 4.1 Excerpt from Restated Certificate of Incorporation of Patterson-UTI Energy, Inc. regarding authorized Common Stock and Preferred Stock.(7) 4.2 Certificate of Designation.(9) 4.2.1 Amendment to Certificate of Designation.(10) 4.3 Registration Rights Agreement with Bear, Stearns and Co. Inc., dated March 25, 1994, as assigned to REMY Capital Partners III, L.P.(10) - ---------- (1) Incorporated herein by reference to Item 27, "Exhibits" to Amendment No. 2 to Registration Statement on Form SB-2 (File No. 33-68058-FW) filed on October 28, 1993. (2) Incorporated by reference to Item 7, "Financial Statements and Exhibits" to Form 8-K dated April 22, 1996 and filed on April 30, 1996. 18 (3) Incorporated by reference to Item 7, "Financial Statements and Exhibits" to Form 8-K dated May 16, 1996 and filed on May 22, 1996. (4) Incorporated herein by reference to Joint Proxy Statement/Prospectus filed on March 14, 2001. (5) Incorporated herein by reference to Item 7, "Financial Statements and Exhibits" to Form 8-K dated and filed on May 8, 2001. (6) Incorporated by reference to Item 2, "Exhibits" to Registration Statement on Form 8-A filed on January 14, 1997. (7) Incorporated herein by reference to Item 6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the quarterly period ended June 30, 2001, filed on August 1, 2001. (8) Incorporated herein by reference to Item 6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the quarterly period ended September 30, 2001, filed on October 31, 2001. (9) Incorporated herein by reference to Item 2, "Exhibits" to Registration Statement on Form 8-A (File No. 000-22664) filed on January 14, 1997. (10) Incorporated herein by reference to Item 14, "Exhibits, Financial Statement Schedules and Reports on Form 8-K" to Form 10-K dated December 31, 2001. (11) Incorporated herein by reference to Item 6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the quarterly period ended March 31, 2002, filed on May 14, 2002. (b) REPORTS ON FORM 8-K. The following report on Form 8-K was filed during the three months ended June 30, 2002: (1) Report dated January 1, 2002, announcing the Company's adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", filed June 13, 2002. 19 SIGNATURES 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-UTI ENERGY, INC. By: /s/ Cloyce A. Talbott ------------------------------------- Cloyce A. Talbott Chief Executive Officer By: /s/ Jonathan D. Nelson ------------------------------------- Jonathan D. Nelson Vice President, Chief Financial Officer, Secretary and Treasurer DATED: July 24, 2002 20 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------ ----------- 2.5 Stock Purchase Agreement by and among Patterson-UTI Energy, Inc. and Roper Family Properties, LTD., Estate of Joe G. Roper, Patricia R. Elledge, Judy Kathleen Roper Davis, Jeanie Elisabeth Cornelius and J. Mark Roper.
21 EX-2.5 3 d98468exv2w5.txt STOCK PURCHASE AGREEMENT EXHIBIT 2.5 STOCK PURCHASE AGREEMENT By and Among PATTERSON-UTI ENERGY, INC. as Purchaser and ROPER FAMILY PROPERTIES, LTD., Estate of Joe G. Roper, Patricia R. Elledge, Judy Kathleen Roper Davis and Jeanie Elisabeth Cornelius as Sellers Dated as of June 11, 2002 TABLE OF CONTENTS
Page 1. Purchase and Sale of Securities; Closing................................................................1 1.1 Purchase and Sale of Securities................................................................1 1.2 Closing........................................................................................1 2. Purchaser's Conditions of Closing.......................................................................2 2.1 Representations and Warranties.................................................................2 2.2 Purchase Permitted by Applicable Laws..........................................................2 2.3 Board Approval.................................................................................2 2.4 J. Mark Roper Irrevocable Proxy................................................................2 2.5 Compliance with Securities Laws................................................................2 2.6 No Adverse Action or Decision..................................................................2 2.7 No Shareholders Rights Plan; No Reduction in Outstanding Stock.................................2 3. Sellers' Conditions of Closing..........................................................................3 3.1 Representations and Warranties.................................................................3 3.2 Purchase Permitted by Applicable Laws..........................................................3 3.3 Purchase of Securities.........................................................................3 3.4 No Adverse Action or Decision..................................................................3 3.5 Compliance with Securities Laws................................................................3 4. Other Agreements........................................................................................3 4.1 Option.........................................................................................3 4.2 Put............................................................................................4 4.3 Voting Agreement; Irrevocable Proxy............................................................4 4.4 Agreement not to Transfer or Encumber Option Securities........................................4 4.5 No Change in Purchase Price....................................................................5 5. Representations and Warranties of the Sellers...........................................................5 5.1 Existence......................................................................................5 5.2 Power and Authority............................................................................5 5.3 Binding Obligations............................................................................5 5.4 Title to Securities and Option Securities......................................................5 5.5 No Adverse Action or Decision..................................................................5 5.6 No Other Representations and Warranties........................................................6
6. Representations, Warranties and Agreements of J. Mark Roper.............................................6 6.1 Title to Roper Proxy Shares....................................................................6 6.2 Authority; Binding Agreement...................................................................6 6.3 Agreement not to Transfer or Encumber Option Securities........................................6 6.4 No Rights Plan; No Reduction in Outstanding Stock..............................................7 6.5 No Other Representations and Warranties........................................................7 7. Representations and Warranties of Purchaser.............................................................7 7.1 Purchase for Investment........................................................................7 7.2 Power and Authority; Binding Obligation........................................................8 7.3 No Adverse Action or Decision..................................................................8 7.4 No Other Representations or Warranties.........................................................8 8. Termination, Amendment and Waiver.......................................................................8 8.1 Termination....................................................................................8 8.2 Effect of Termination.........................................................................10 9. Miscellaneous..........................................................................................10 9.1 Amendment.....................................................................................10 9.2 Spousal Consent...............................................................................10 9.3 Extension; Waiver.............................................................................10 9.4 Assignment....................................................................................10 9.5 Survival of Representations and Warranties....................................................10 9.6 Successors and Assigns; No Third Party........................................................11 9.7 Notices.......................................................................................11 9.8 Descriptive Headings..........................................................................12 9.9 Governing Law; Consent to Jurisdiction........................................................12 9.10 Remedies......................................................................................12 9.11 Entire Agreement..............................................................................12 9.12 Severability..................................................................................12 9.13 Counterparts..................................................................................12 9.14 Brokerage.....................................................................................13 9.15 Attorneys' Fees...............................................................................13
-2- STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of June 11, 2002, by and among Patterson-UTI Energy Inc., a Delaware corporation (the "Purchaser"), and Roper Family Properties, Ltd., a Texas limited partnership (the "Partnership"), Estate of Joe G. Roper, Patricia R. Elledge, Judy Kathleen Roper Davis and Jeanie Elisabeth Cornelius (collectively, with the Partnership, the "Sellers"). RECITALS WHEREAS, the Purchaser desires to purchase from the Sellers, and the Sellers desire to sell to the Purchaser, subject to the terms and conditions set forth herein, an aggregate of 957,597 shares of common stock, $.10 par value per share (including the "Option Securities" as defined below) ("Common Stock"), of TMBR/Sharp Drilling, Inc., a Texas corporation (the "Company"); and WHEREAS, the Purchaser and the Sellers wish to enter into certain other agreements related to the shares of Common Stock owned, directly or indirectly, by the Sellers; NOW, THEREFORE, in consideration of the recitals and the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: AGREEMENTS 1. PURCHASE AND SALE OF SECURITIES; CLOSING. 1.1 Purchase and Sale of Securities. Subject to the terms and conditions herein set forth, the Sellers agree to sell to the Purchaser and the Purchaser agrees to purchase from the Sellers, an aggregate of 762,597 shares of Common Stock (the "Securities"), in the individual amounts set forth in Schedule 1 to this Agreement, for $16.60 per share, or an aggregate cash purchase price of $12,659,110.20 (the "Purchase Price"). 1.2 Closing. The purchase and delivery of the Securities shall take place at a closing (the "Closing") to be held at the offices of Fulbright & Jaworski L.L.P., Houston, Texas, at 10:00 a.m., local time, on the third business day following the date first written above, or at such other time and place or on such other business day thereafter as the parties hereto may agree (herein called the "Closing Date"). On the Closing Date, (a) the Sellers will deliver to the Purchaser (i) original certificates evidencing the Securities which are certificated and held of record by the Sellers, together with appropriate stock powers, and, (ii) with respect to the Securities that are held by a broker in an account for the benefit of the Sellers, irrevocable instructions to such broker to transfer such Securities to the Purchaser together with appropriate stock powers against (b) receipt of the purchase price therefor by the Sellers by wire transfer of immediately available funds to an account or accounts designated by the Sellers in writing to the Purchaser within one business day of the date hereof, or by such other payment method as is mutually agreed to by the Purchaser and the Sellers. -1- 2. PURCHASER'S CONDITIONS OF CLOSING. The Purchaser's obligation to purchase and pay for the Securities is subject to the satisfaction or waiver, on or before the Closing Date, of the conditions precedent contained in this Section 2. 2.1 Representations and Warranties. The representations and warranties contained in Sections 5 and 6 hereof shall be true and correct on and as of the Closing Date, except to the extent of changes caused by the transactions herein contemplated; and the Sellers shall have delivered to the Purchaser a certificate of a duly authorized officer of the general partner of the Partnership and of each of the other Sellers as to Section 5, dated the Closing Date, to such effect and J. Mark Roper shall have delivered to the Purchaser a certificate as to Section 6. 2.2 Purchase Permitted by Applicable Laws. The purchase of and payment for the Securities shall not be prohibited by any applicable law or governmental regulation. 2.3 Board Approval. The Board of Directors of the Purchaser shall have approved this Agreement and the transactions contemplated hereby. 2.4 J. Mark Roper Irrevocable Proxy. At closing, J. Mark Roper shall have delivered an irrevocable proxy to John E. Vollmer, III and Mark S. Siegel, Senior Vice President and Chairman of the Board, respectively, of the Purchaser, in substantially the form attached to this Agreement as Exhibit B pursuant to Section 4.3(b) of this Agreement.. 2.5 Compliance with Securities Laws. The offer and sale of the Securities under this Agreement shall have complied with all applicable requirements of federal and state securities laws. 2.6 No Adverse Action or Decision. There shall be no legal action, suit, investigation or proceeding pending, or to the Purchaser's actual knowledge, threatened, against or affecting the Purchaser or the Company or any of their respective properties or rights, or any of their respective affiliates, associates, officers or directors, before any court, arbitrator or administrative or governmental body which (a) seeks to restrain, enjoin or prevent the consummation of the transactions contemplated by this Agreement or (b) questions the validity or legality of any such transaction or seeks to recover damages or to obtain other relief in connection with any such transaction. 2.7 No Shareholders Rights Plan; No Reduction in Outstanding Stock. The Company shall not have adopted a plan, commonly referred to as a Shareholders' Rights Plan (a "Rights Plan"), which would have the effect of diluting the value of the Securities and the Option Securities owned by the Purchaser as compared with the rights of other holders of Common Stock, and the number of outstanding shares of Common Stock shall not be more than 25,000 shares less than that reported in the last quarterly report on Form 10-Q filed by the Company with the Securities and Exchange Commission. -2- 3. SELLERS' CONDITIONS OF CLOSING. The Sellers' obligations to sell the Securities hereunder are subject to the satisfaction or waiver, on or before the Closing Date, of the conditions precedent contained in this Section 3. 3.1 Representations and Warranties. The representations and warranties contained in Section 7 of shall be true and correct on and as of the Closing Date; and the Purchaser shall have delivered to the Sellers a certificate, dated the Closing Date, to such effect. 3.2 Purchase Permitted by Applicable Laws. The purchase of and payment for the Securities shall not be prohibited by any applicable law or governmental regulation. 3.3 Purchase of Securities. The Purchaser shall have purchased and paid for the Securities. 3.4 No Adverse Action or Decision. There shall be no action, suit, investigation or proceeding pending, or to the Sellers' actual knowledge, threatened, against or affecting the Sellers or the Company or any of their respective properties or rights, or any of their respective affiliates, associates, officers or directors, before any court, arbitrator or administrative or governmental body which (a) seeks to restrain, enjoin, prevent the consummation of or otherwise adversely affect the transactions contemplated by this Agreement or (b) questions the validity or legality of any such transaction or seeks to recover damages or to obtain other relief in connection with any such transaction. 3.5 Compliance with Securities Laws. The offer and sale of the Securities under this Agreement shall have complied with all applicable requirements of federal and state securities laws. 4. OTHER AGREEMENTS. 4.1 Option. The Sellers hereby grant to the Purchaser an option (the "Option") to purchase, subject to the immediately following sentence, up to an additional 195,000 shares of Common Stock (the "Option Securities") at any time, from time to time, in whole or in part (as determined by Purchaser), on or after October 26, 2002 at a price per share of $16.60. The Option expires at the earlier of the termination of this Agreement and 5:00 p.m., Central Time, on December 16, 2002. The Sellers shall sell, and the Purchaser shall purchase with immediately available funds, any Option Securities as to which the Purchaser has notified the Sellers that it elects to purchase under the Option within two business days of the Sellers' receipt of the Purchaser's written notice of intent to exercise. For purposes of this Agreement, the Option Securities shall include (a) any stock, securities or assets into which or for which the shares of Common Stock initially constituting the Option Securities shall have been converted or exchanged and (b) any cash, shares of capital stock, other securities or assets of the Company which have been declared and issued as a dividend or other distribution in respect of the Option Securities. Time is of the essence with regard to this Section 4.1. -3- 4.2 Put. At any time, from time to time, on or after October 26, 2002, the Sellers may request that the Purchaser, and the Purchaser shall purchase at a price per share of $16.60 all or a portion (as determined by the Sellers) of the Option Securities (the "Put"). The Put expires at 5:00 p.m., Central Time, on December 16, 2002. The Purchaser shall purchase the Option Securities under the Put and deliver payment of the applicable purchase price therefor in immediately available funds to the Sellers within two business days of receipt of the Sellers written notice of intent to exercise the Put. Time is of the essence with regard to this Section 4.2. 4.3 Voting Agreement; Irrevocable Proxy. (a) Sellers. If Closing occurs, then from the Closing Date until 5:00 p.m., Central Time, on December 16, 2002, the Sellers (i) shall vote, and shall cause any holder of record of the Option Securities to vote on any matter in which the holders of the Option Securities are entitled to vote the total number of Option Securities then remaining exercisable under the Option as directed by the Purchaser or (ii), at the option of the Purchaser, shall deliver to John E. Vollmer, III and Mark S. Siegel, Senior Vice President and Chairman of the Board, respectively, of the Purchaser, a proxy in substantially the form attached to this Agreement as Exhibit A, which proxy shall be irrevocable to the extent permitted by law, with the total number of Option Securities correctly indicated thereon. (b) J. Mark Roper. If the Closing occurs, then at the Closing, J. Mark Roper shall deliver to John E. Vollmer, III and Mark S. Siegel, Senior Vice President and Chairman of the Board, respectively, of the Purchaser, an irrevocable proxy in the form attached to this Agreement as Exhibit B with a number of shares of Common Stock correctly indicated thereon as shall be requested by the Purchaser on or before the Closing Date, up to a maximum of 101,000 shares. 4.4 Agreement not to Transfer or Encumber Option Securities. Each of the Sellers agrees that, from the date of this Agreement until the earlier of the termination and December 16, 2002, such Seller will not, and will not permit any entity controlled by such Seller to, (a) contract to sell, sell or otherwise transfer or dispose of any of the Option Securities or any interest therein or any voting rights with respect thereto, other than with the Purchaser's prior written consent or (b) encumber any of the Option Securities. Within five business days after the Closing Date, the Sellers shall cause to be placed on each certificate representing the Option Securities a legend reflecting the option granted pursuant to Section 4.1 of this Agreement and the voting agreement and irrevocable proxy granted pursuant to Section 4.3(a) of this Agreement. If any Option Securities remain unexercised upon expiration of the Option and the Put, the Purchaser shall cooperate with the Sellers to cause to be removed the legend referenced in the immediately preceding sentence. -4- 4.5 No Change in Purchase Price. The Sellers acknowledge and agree that notwithstanding any future purchases of shares of Common Stock by the Purchaser from other holders after the date of this Agreement at a price per share that is different than the per share Purchase Price or the per share purchase price under the Option or the per share price under the Put, none of the Purchase Price, the per share purchase price under the Option or the per share purchase price under the Put shall change. 5. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers represent and warrant to the Purchaser as of the date hereof and as of the Closing Date that: 5.1 Existence. The Partnership is a limited partnership duly formed, validly existing, and in good standing under the laws of the State of Texas. Roper Operations, Inc. is the sole general partner of the Partnership and is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. J. Mark Roper is the sole independent executor of the Estate of Joe G. Roper. 5.2 Power and Authority. The Partnership has the requisite limited partnership power and authority and each of the other Sellers has the authority to execute, deliver, and perform their respective obligations under this Agreement and to consummate the transactions contemplated hereby. All action on the part of the Partnership and the Estate of Joe G. Roper requisite for the sale and delivery, against payment therefor, of the Securities and for the due execution, delivery, and performance of this Agreement has been duly and effectively taken. 5.3 Binding Obligations. This Agreement is a legal, valid and binding obligation of the Sellers enforceable in accordance with its terms (except that enforcement may be subject to (a) any applicable bankruptcy, insolvency or similar laws generally affecting the enforcement of creditors' rights (b) general principles in equity regardless of whether such enforcement is sought in a proceeding in equity or at law). 5.4 Title to Securities and Option Securities. Each of the Sellers owns the Securities listed opposite his, her or its name in Schedule 1 to this Agreement, and the Option Securities set forth opposite his, her or its name in Schedule 1 to this Agreement and that are the subject of the Option and the Put, free and clear of any pledge, hypothecation, assignment, lien, charge, claim, security interest, option, preference, restriction (except under securities laws and as contemplated by Section 7.1 of this Agreement), priority or other preferential arrangement of any kind or nature whatsoever thereon or affecting the title thereto. Each of the Sellers has owned the Securities for at least one year (except that 10,000 of the Securities were acquired on January 25, 2002 and 62,000 of the Securities were acquired on October 25, 2001) and the Option Securities were acquired on October 25, 2001. 5.5 No Adverse Action or Decision. To the current actual knowledge of any of the Sellers, there is no action, suit, investigation or proceeding pending or threatened against or affecting any of the Sellers or the Company or any of -5- their respective properties or rights, or any of their respective affiliates, officers or directors, before any court, arbitrator, administrative or governmental body which (a) seeks to restrain, enjoin or prevent the consummation of the transactions contemplated by this Agreement or (b) questions the validity or legality of any such transaction or seeks to recover damages or to obtain other relief in connection with any such transaction; provided, however, that with respect to the representation in this Section 5.5 as to a Seller's current actual knowledge of any action, suit, investigation or proceeding pending or threatened against or affecting the Company, such representation is made severally as to such Seller. 5.6 No Other Representations and Warranties. Except as set forth in this Agreement, the Sellers make no other representations or warranties to the Purchaser. 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF J. MARK ROPER. 6.1 Title to Roper Proxy Shares. J. Mark Roper represents and warrants to the Purchaser that he is the record holder of at least 101,000 shares of Common Stock, all or a portion of which will be the subject of the irrevocable proxy to be delivered by him pursuant to Section 2.4 of this Agreement (the "Roper Proxy Shares"), that he owns such shares free and clear of any pledge, hypothecation, assignment, lien, charge, claim, security interest, option, preference, restriction (except under securities laws and as contemplated by Section 7.1 of this Agreement), priority or other preferential arrangement of any kind or nature whatsoever thereon or affecting the title thereto and that he has owned such shares for at least one year. 6.2 Authority; Binding Agreement. J. Mark Roper represents and warrants to the Purchaser that he has the requisite authority to execute, deliver, and perform his obligations under this Agreement and to deliver the irrevocable proxy in respect of the Roper Proxy Shares hereunder and that this Agreement is a legal, valid and binding obligation of his enforceable in accordance with its terms (except that enforcement may be subject to (a) any applicable bankruptcy, insolvency or similar laws generally affecting the enforcement of creditors' rights (b) general principles in equity regardless of whether such enforcement is sought in a proceeding in equity or at law). 6.3 Agreement not to Transfer or Encumber Option Securities. J. Mark Roper agrees that, from the date of this Agreement until the earlier of the termination of this Agreement and December 16, 2002, he will not, and will not permit any entity controlled by him to, (a) contract to sell, sell or otherwise transfer or dispose of any of the Roper Proxy Shares or any interest therein or any voting rights with respect thereto, other than those shares that are released from the irrevocable proxy pursuant to the terms thereof or with the Purchaser's prior written consent or (b) encumber any of the Roper Proxy Shares. Within five business days after the Closing Date, J. Mark Roper shall cause to be placed on each certificate representing 70,000 of the Roper Proxy Shares a legend reflecting the irrevocable proxy granted pursuant to this Agreement. At the earlier of the termination of this Agreement and the expiration of the irrevocable proxy in -6- respect of the Roper Proxy Shares, the Purchaser shall cooperate with J. Mark Roper to cause to be removed the legend referenced in the immediately preceding sentence. 6.4 No Rights Plan; No Reduction in Outstanding Stock. J. Mark Roper represents and warrants to the Purchaser that to his actual knowledge the Company has not adopted a Rights Plan and the number of shares of Common Stock outstanding at present equals or exceeds the number reported as outstanding in the last quarterly report on Form 10-Q filed by the Company with the Securities and Exchange Commission. 6.5 No Other Representations and Warranties. Except as set forth in this Agreement, J. Mark Roper makes no other representations or warranties to the Purchaser. 7. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Purchaser represents and warrants to the Sellers that: 7.1 Purchase for Investment. (a) The Purchaser is acquiring the Securities for its own account and not with a view to the public resale or distribution of all or any part thereof in any transaction which would constitute a "distribution" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) The Purchaser acknowledges that the Securities have not been registered under the Securities Act. (c) The Purchaser is an "accredited investor" within the meaning of Rule 501 under Regulation D promulgated under the Securities Act, is experienced in evaluating investments in companies such as the Company, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the entire economic risk of his investment. (d) The Purchaser acknowledges that the Securities may not be sold, transferred, pledged, hypothecated, or otherwise disposed of without registration under the Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Securities or an available exemption from registration under the Securities Act, the Securities must be held indefinitely. (e) The Purchaser agrees that the Shares shall bear legends in substantially the following form or such other form as may be required by applicable law: -7- "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE LAW, AND NO INTEREST THEREIN MAY BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION WITHOUT AN OPINION OF LEGAL COUNSEL FOR THE HOLDER THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO LEGAL COUNSEL FOR THE COMPANY." 7.2 Power and Authority; Binding Obligation. The Purchaser has all requisite capacity and authority to enter into this Agreement and to carry out and perform its obligations under the terms of this Agreement. This Agreement is a legal, valid and binding obligation of the Purchaser enforceable in accordance with its terms (except that enforcement may be subject to (a) any applicable bankruptcy, insolvency or similar laws generally affecting the enforcement of creditors' rights (b) general principles in equity regardless of whether such enforcement is sought in a proceeding in equity or at law, and except to the extent enforceability of the indemnification provisions may be limited under applicable securities laws). 7.3 No Adverse Action or Decision. To the current actual knowledge of the Purchaser, there is no action, suit, investigation or proceeding pending or threatened against or affecting either the Purchaser or the Company or any of their respective properties or rights, or any of their respective affiliates, officers or directors, before any court, arbitrator, administrative or governmental body which (a) seeks to restrain, enjoin or prevent the consummation of the transactions contemplated by this Agreement or (b) questions the validity or legality of any such transaction or seeks to recover damages or to obtain other relief in connection with any such transaction. 7.4 No Other Representations or Warranties. Except as set forth in this Agreement, the Purchaser makes no other representations or warranties to the Sellers. 8. TERMINATION, AMENDMENT AND WAIVER. 8.1 Termination. This Agreement may be terminated at any time prior to the Closing Date: (a) by mutual written consent of the Purchaser and the Sellers; (b) by either the Purchaser or the Sellers; -8- (i) if the Closing shall not have occurred on or before June 21, 2002, unless the failure to consummate the transaction contemplated by this Agreement is the result of a material breach of this Agreement by the party seeking to terminate this Agreement; provided, that such date shall be July 10, 2002 only if the failure to consummate the transaction contemplated by this Agreement is a result of a condition in Section 2.6 or 3.4 not being met; and provided, further, that with respect to this Section 8.1(b)(i), time is of the essence; (ii) if any permanent injunction or other order of a court or other competent authority preventing the consummation of the transactions contemplated by this Agreement shall have become final and nonappealable; or (iii) if the Board of Directors of the Purchaser shall not have approved this Agreement in its entirety by 6:00 p.m., Central Time, on the second business day following the date first written above and the secretary or assistant secretary of the Purchaser shall not have delivered to the Sellers on or before the third business day following the date first written above a certificate certifying to the resolutions adopted by the Board of Directors of the Purchaser in respect of such approval; provided that with respect to this Section 8.1(b)(iii), time is of the essence. (c) by the Purchaser, if any of the Sellers breaches any of their representations or warranties herein or fails to perform in any material respect any of their covenants, agreements or obligations under this Agreement; (d) by the Sellers, if the Purchaser breaches any of its representations or warranties herein or fails to perform in any material respect any of its covenants, agreements or obligations under this Agreement; and (e) by the Sellers, by written notice to the Purchaser, if the Closing has not occurred because the condition set forth in Section 2.6 has not been satisfied as a result of the Purchaser being aware of an oral threat as set forth in Section 2.6 and such oral -9- threat is not made in writing within seven days after the Purchaser first became aware of such oral threat. 8.2 Effect of Termination. In the event of termination of this Agreement by either the Sellers or the Purchaser, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of the Purchaser or the Sellers. 9. MISCELLANEOUS. 9.1 Amendment. This Agreement may be amended in writing by the parties hereto at any time. No party to this Agreement shall have any authority to amend this Agreement unless such amendment is in an instrument in writing signed on behalf of each of the parties. 9.2 Spousal Consent. The spouses of each Seller who is married also are executing this Agreement. By executing this Agreement, each of such spouses (a) acknowledges that he or she knows of the contents of this Agreement, (b) consents to the entering into of this Agreement by his or her spouse and (c) agrees that this Agreement shall be binding upon such spouse to the extent of his or her community property interest, if any. 9.3 Extension; Waiver. At any time prior to the Closing Date, the parties may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or the other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (c) waive compliance of the other parties with any of the agreements or conditions contained herein. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. 9.4 Assignment. This Agreement shall not be assigned by operation of law or otherwise, and any attempt at assignment shall be void; provided, however, that the Purchaser may transfer or assign, in whole or from time to time in part, to one or more of its Affiliates, its rights under this Agreement, but no such transfer or assignment will relieve the Purchaser of its obligations under this Agreement. For purposes of this Section 9.4, the term "Affiliate" means, with respect to the Purchaser, any other individual, corporation, partnership, limited liability company, association, trust or other entity or organization directly or indirectly controlling, controlled by or under common control with the Purchaser. 9.5 Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by or on behalf of any party to this Agreement in connection herewith shall survive the execution and delivery of this Agreement. -10- 9.6 Successors and Assigns; No Third Party. All covenants and agreements in this Agreement contained by or on behalf of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto and, to the extent provided in this Agreement. Subject to the foregoing, nothing in this Agreement shall confer upon any person or entity not a party to this Agreement, or the legal representatives of such person or entity, any rights or remedies of any nature or kind whatsoever under or by reason of this Agreement. 9.7 Notices. All communications provided for hereunder shall be (a) in writing, (b) effective (i) upon receipt if delivered personally, (ii) three business days after the date of postmark by the United States Postal Service when mailed by registered or certified mail, return receipt requested, postage paid, (iii) the next business day following delivery to a reputable overnight courier service, or (iv) upon receipt if sent by facsimile transmission and confirmed, and (c) addressed as follows: If to the Purchaser: Patterson-UTI Energy, Inc. 4510 West Highway 180 (La Mesa Highway) Snyder, Texas 79459 Facsimile No.: 915/574-6307 Confirmation No.: 915/574-6300 Attention: Chief Executive Officer With a copy to: Fulbright & Jaworski L.L.P. 1301 McKinney, Suite 5100 Houston, Texas 77010 Facsimile No.: 713/651-5246 Confirmation No.: 713/651-5427 Attention: Michael W. Conlon If to the Sellers, to: c/o Roper Operations, Inc. 2409 Never Bend Cove Austin, Texas 78746 Facsimile No.: 512/306-1615 Confirmation No.: 512/342-8811 Attention: J. Mark Roper With a copy to: Armbrust & Brown, L.L.P. 100 Congress Avenue, Suite 1300 Austin, Texas 78701 Facsimile No.: 512/435-2360 Confirmation No.: 512/435-2302 Attention: Frank B. Brown -11- or to such other address with respect to any party as such party shall notify the other in writing. Within 5 days after the date of such mailing (save for any postal interruption) such communication shall be deemed to have been received. 9.8 Descriptive Headings. The descriptive headings of the several Paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 9.9 Governing Law; Consent to Jurisdiction. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Texas without giving effect to the choice of law or conflicts principles thereof. Any legal action or proceeding with respect to this Agreement may be brought in the courts of the State of Texas or of the United States of America for the Northern District of Texas, and, by execution and delivery of this Agreement, the Company hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Purchaser and each of the Sellers irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to its address set forth herein, such service to become effect 30 days after such mailing. Nothing herein shall affect the right of the Sellers or the Purchaser to serve process in any other manner permitted by law. 9.10 Remedies. In case any one or more of the covenants or agreements set forth in this Agreement shall have been breached by the Sellers or the Purchaser, the Sellers or the Purchaser, as applicable, may proceed to protect and enforce its or their rights either by suit in equity or by action at law or both, including, without limitation, specific performance. 9.11 Entire Agreement. This Agreement and the other writings referred to herein or delivered pursuant hereto contain the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 9.12 Severability. Any provisions of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.13 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but which together shall constitute a single agreement. -12- 9.14 Brokerage. Each party hereto will indemnify and hold harmless the others against and in respect of any claim for brokerage or other commissions relative to this Agreement or to the transactions contemplated hereby, based in any way on agreements, arrangements or understandings made or claimed to have been made by such party with any third party. 9.15 Attorneys' Fees. Each party shall be responsible for his, her or its own attorneys' fees with respect to (a) the negotiation and preparation of this Agreement and the consummation of the transactions contemplated hereby and (b) claims, if any, made by any third party with respect to any consummation of or performance of this Agreement, except for the costs and expenses, including attorneys' fees, of enforcing a party's rights or otherwise obtaining a remedy under this Agreement for breach of this Agreement by the other party. -13- IN WITNESS WHEREOF, the parties hereto caused this Agreement to be duly executed and delivered as of the date first above written. SELLERS Roper Family Properties, Ltd. By Roper Operations, Inc., its general partner By: /s/ J. MARK ROPER ------------------------------------------- Name: J. Mark Roper ----------------------------------------- Title: President ---------------------------------------- Estate of Joe G. Roper By: /s/ J. MARK ROPER ------------------------------------------- J. Mark Roper, Independent Executor /s/ PATRICIA R. ELLEDGE ---------------------------------------------- Patricia R. Elledge /s/ JUDY KATHLEEN ROPER DAVIS ---------------------------------------------- Judy Kathleen Roper Davis /s/ JEANIE ELISABETH CORNELIUS ---------------------------------------------- Jeanie Elisabeth Cornelius -14- SPOUSES: /s/ MARK W. ELLEDGE ---------------------------------------------- Mark W. Elledge /s/ MICHAEL L. DAVIS ---------------------------------------------- Michael L. Davis /s/ KERRY L. CORNELIUS ---------------------------------------------- Kerry L. Cornelius /s/ J. MARK ROPER ---------------------------------------------- J. Mark Roper, in his individual capacity for purposes of Sections 2.4, 4.3(b), 6 and 9. -15- PURCHASER Patterson-UTI Energy Inc. By: /s/ JOHN E. VOLLMER III ------------------------------------------- Name: John E. Vollmer III Title: Senior Vice President -16- EXHIBIT A FORM OF IRREVOCABLE PROXY The undersigned, for consideration received, hereby appoints John E. Vollmer, III, Senior Vice President of Patterson-UTI Energy Inc. (the "Purchaser") and Mark S. Siegel, the Chairman of the Board of the Purchaser, and each of them, the undersigned's proxy, with power of substitution, to vote _________ shares of common stock, par value $.10 per share (the "Common Stock"), of TMBR/Sharp Drilling, Inc. (the "Company") on any matter coming before the holders of Common Stock of the Company. This proxy (a) expires December 16, 2002 and (b) is entered into in connection with that certain Stock Purchase Agreement, dated June __, 2002 between the Purchaser and the undersigned and the other Sellers named therein and is coupled with an interest and is irrevocable. For purposes of this irrevocable proxy, the Common Stock shall be deemed to include any stock or securities into or for which the Common Stock may be converted or exchanged. Dated this ________ day of _________, 2002. ---------------------------------------------- (Signature of Shareholder) -17- EXHIBIT B FORM OF IRREVOCABLE PROXY The undersigned, for consideration received, hereby appoints John E. Vollmer, III, Senior Vice President of Patterson-UTI Energy Inc. (the "Purchaser") and Mark S. Siegel, the Chairman of the Board of the Purchaser, and each of them, the undersigned's proxy, with power of substitution, to vote up to _________ shares of common stock, par value $.10 per share (the "Common Stock"), of TMBR/Sharp Drilling, Inc. (the "Company") on any matter coming before the holders of Common Stock of the Company. This proxy (a) expires December 16, 2002 and (b) is entered into in connection with that certain Stock Purchase Agreement, dated June 11, 2002 between the Purchaser and the undersigned and the Sellers named therein and is coupled with an interest and is irrevocable. In addition, (a) up to 31,000 shares of the Common Stock subject to this irrevocable proxy shall automatically be released from this proxy if and when such shares are sold in unsolicited brokers transactions within the meaning of rule 144 of the rules and regulations of the Securities and Exchange Commission, (b) any shares of Common Stock subject to this irrevocable proxy that shall have been converted into or exchanged for securities of the Purchaser shall automatically be released from this proxy and (c) in the event that the Purchaser tenders all of its voting securities of the Company to a third party, all shares of Common Stock subject to this irrevocable proxy shall automatically be released. The number of shares of Common Stock subject to this irrevocable proxy may be reduced at any time, from time to time, by either Mr. Vollmer or Mr. Siegel, by written notice to the undersigned. For purposes of this irrevocable proxy, the Common Stock shall be deemed to include any stock or securities into or for which the Common Stock may be converted or exchanged. Dated this ________ day of June, 2002. ---------------------------------------------- J. Mark Roper -18- SCHEDULE 1 SECURITIES OWNED BY SELLERS
Name of Seller Number of Securities Number of Option Securities Total - -------------- -------------------- --------------------------- ----- Roper Family Properties, Ltd. 657,854 -- 657,854 Estate of Joe G. Roper 72,000 195,000 267,000 Patricia R. Elledge 29,397 -- 29,397 Judy Kathleen Roper Davis 1,173 -- 1,173 Jeanie Elisabeth Cornelius 2,173 -- 2,173 ------- ------- ------- Total 762,597 195,000 957,597
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