-----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, Qi/a44p+CWiDcz4z/pEzLAQuo033o1Aqd+fIIDK7ryK4s8Kj0nuNjIQi2XhpuQZT mkNoVEw9uVOaQYNIR48zqw== 0000950134-03-010592.txt : 20030728 0000950134-03-010592.hdr.sgml : 20030728 20030728145608 ACCESSION NUMBER: 0000950134-03-010592 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030728 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: 03805922 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 d07634e10vq.txt FORM 10-Q - -------------------------------------------------------------------------------- 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, 2003 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) (325) 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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. 80,902,663 shares of common stock, $0.01 par value, as of July 21, 2003 - -------------------------------------------------------------------------------- PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES TABLE OF CONTENTS
PAGE ---- PART I - Financial Information ITEM 1. Financial Statements Unaudited condensed consolidated balance sheets................................. 3 Unaudited condensed consolidated statements of income........................... 4 Unaudited condensed consolidated statement of changes in stockholders' equity... 5 Unaudited condensed consolidated statements of changes in 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........................................................... 14 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk...................... 20 ITEM 4. Controls and Procedures......................................................... 20 Forward Looking Statements and Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995....................... 21 PART II - Other Information ITEM 4. Submission of Matters to a Vote of Security Holders............................. 22 ITEM 6. Exhibits and Reports on Form 8-K................................................ 23 Signatures..................................................................................... 25 Certifications................................................................................. 26
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, except share data)
JUNE 30, DECEMBER 31, 2003 2002 ------------ ------------ ASSETS Current assets: Cash and cash equivalents ....................................................... $ 87,456 $ 82,154 Accounts receivable, net of allowance for doubtful accounts of $2,635 at June 30, 2003 and $3,144 at December 31, 2002 ................................. 136,111 99,014 Federal and state income taxes receivable, net .................................. -- 24,719 Inventory ....................................................................... 15,620 15,323 Deferred tax assets ............................................................. 20,032 15,290 Other ........................................................................... 5,881 6,515 ------------ ------------ Total current assets ........................................................ 265,100 243,015 Property and equipment, at cost, net ................................................ 668,262 627,734 Goodwill and other intangible assets, net ........................................... 51,227 51,313 Investment in equity securities ..................................................... 19,673 17,707 Other ............................................................................... 2,446 2,740 ------------ ------------ Total assets ................................................................ $ 1,006,708 $ 942,509 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade ........................................................................ $ 37,454 $ 30,618 Accrued revenue distributions ................................................ 7,028 6,266 Other ........................................................................ 2,589 2,755 Federal and state income taxes payable, net ..................................... 563 -- Accrued expenses ................................................................ 45,558 35,513 ------------ ------------ Total current liabilities ................................................... 93,192 75,152 Deferred tax liabilities ............................................................ 130,585 127,006 Other 3,801 2,795 ------------ ------------ Total liabilities ........................................................... 227,578 204,953 ------------ ------------ Commitments and contingencies ....................................................... -- -- Stockholders' equity: Preferred stock, par value $.01; authorized 1,000,000 shares, no shares issued .. -- -- Common stock, par value $.01; authorized 200,000,000 shares with 82,407,800 and 81,576,674 issued and 80,901,252 and 80,070,126 outstanding at June 30, 2003 and December 31, 2002, respectively .......................... 824 816 Additional paid-in capital ...................................................... 504,673 489,201 Retained earnings ............................................................... 278,811 261,003 Accumulated other comprehensive income (loss) ................................... 6,477 (1,809) Treasury stock, at cost, 1,506,548 shares ....................................... (11,655) (11,655) ------------ ------------ Total stockholders' equity .................................................. 779,130 737,556 ------------ ------------ Total liabilities and stockholders' equity .................................. $ 1,006,708 $ 942,509 ============ ============
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 INCOME (UNAUDITED) (in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Operating revenues: Drilling ........................................... $ 163,951 $ 98,461 $ 299,532 $ 200,401 Drilling and completion fluids...................... 16,003 16,189 31,851 32,335 Pressure pumping ................................... 9,800 6,614 18,311 14,042 Oil and natural gas ................................ 5,870 4,099 11,169 6,808 ---------- ---------- ---------- ---------- 195,624 125,363 360,863 253,586 ---------- ---------- ---------- ---------- Operating costs and expenses: Drilling ........................................... 124,309 78,323 230,737 151,755 Drilling and completion fluids ..................... 13,922 13,849 28,303 28,572 Pressure pumping ................................... 5,800 4,352 10,806 8,509 Oil and natural gas ................................ 1,292 1,016 2,371 1,996 Depreciation, depletion and amortization ........... 24,973 23,090 49,109 45,292 General and administrative ......................... 6,813 6,610 13,707 12,953 Bad debt expense ................................... 82 30 162 30 Other .............................................. (720) 4,684 (3,329) 4,642 ---------- ---------- ---------- ---------- 176,471 131,954 331,866 253,749 ---------- ---------- ---------- ---------- Operating income (loss) ................................ 19,153 (6,591) 28,997 (163) ---------- ---------- ---------- ---------- Other income (expense): Interest income .................................... 285 268 545 493 Interest expense ................................... (76) (94) (148) (205) Other .............................................. 77 8 85 25 ---------- ---------- ---------- ---------- 286 182 482 313 ---------- ---------- ---------- ---------- Income (loss) before income taxes and cumulative effect of change in accounting principle ........... 19,439 (6,409) 29,479 150 ---------- ---------- ---------- ---------- Income tax expense (benefit): Current ............................................ 10,642 (6,794) 13,762 (11,351) Deferred ........................................... (3,255) 4,230 (2,560) 11,411 ---------- ---------- ---------- ---------- 7,387 (2,564) 11,202 60 ---------- ---------- ---------- ---------- Income (loss) before cumulative effect of change in accounting principle ............................... 12,052 (3,845) 18,277 90 Cumulative effect of change in accounting principle, net of related income tax benefit of approximately $287 ................................. -- -- (469) -- ---------- ---------- ---------- ---------- Net income (loss) ...................................... $ 12,052 $ (3,845) $ 17,808 $ 90 ========== ========== ========== ========== Net income (loss) per common share: Basic: Income (loss) before cumulative effect of change in accounting principle ............. $ 0.15 $ (0.05) $ 0.23 $ 0.00 Cumulative effect of change in accounting principle .................................. -- -- (0.01) -- ---------- ---------- ---------- ---------- Net income (loss) .............................. $ 0.15 $ (0.05) $ 0.22 $ 0.00 ========== ========== ========== ========== Diluted: Income (loss) before cumulative effect of change in accounting principle ............. $ 0.15 $ (0.05) $ 0.22 $ 0.00 Cumulative effect of change in accounting principle .................................. -- -- -- -- ---------- ---------- ---------- ---------- Net income (loss) .............................. $ 0.15 $ (0.05) $ 0.22 $ 0.00 ========== ========== ========== ========== Weighted average number of common shares outstanding: Basic .............................................. 80,529 78,742 80,347 78,080 ========== ========== ========== ========== Diluted ............................................ 82,457 78,742 82,109 80,684 ========== ========== ========== ==========
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 CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (in thousands)
Common Stock Accumulated ----------------------- Additional other Number of paid-in Retained comprehensive Treasury shares Amount capital earnings income (loss) stock Total ---------- ---------- ---------- ---------- ------------- ----------- ---------- Balance, December 31, 2002 .......... 81,577 $ 816 $ 489,201 $ 261,003 $ (1,809) $ (11,655) $ 737,556 Exercise of stock options and warrants ........................ 831 8 9,480 -- -- -- 9,488 Tax benefit related to exercise of stock options ................... -- -- 5,992 -- -- -- 5,992 Foreign currency translation adjustment ...................... -- -- -- -- 7,071 -- 7,071 Change in unrealized gain on equity securities, net of tax ... -- -- -- -- 1,215 -- 1,215 Net income .......................... -- -- -- 17,808 -- -- 17,808 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance, June 30, 2003 .............. 82,408 $ 824 $ 504,673 $ 278,811 $ 6,477 $ (11,655) $ 779,130 ========== ========== ========== ========== ========== ========== ==========
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 CHANGES IN CASH FLOWS (UNAUDITED) (in thousands)
SIX MONTHS ENDED JUNE 30, ---------------------------- 2003 2002 ------------ ------------ Cash flows from operating activities: Net income ................................................................. $ 17,808 $ 90 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization ........................... 49,109 45,292 Provision for bad debts ............................................ 162 30 Deferred income tax expense (benefit) .............................. (2,560) 11,411 Tax benefit related to exercise of stock options ................... 5,992 8,791 Other .............................................................. (877) (47) Changes in operating assets and liabilities: Accounts receivable ............................................ (36,457) 47,685 Inventory and other current assets ............................. 359 (108) Accrued federal income taxes receivable ........................ 25,708 (21,355) Accounts payable ............................................... 7,427 (18,192) Other liabilities .............................................. 10,692 (4,731) ------------ ------------ Net cash provided by operating activities .................. 77,363 68,866 ------------ ------------ Cash flows from investing activities: Acquisitions ............................................................... (32,783) -- Purchases of property and equipment ........................................ (51,651) (46,194) Proceeds from sales of property and equipment .............................. 1,859 632 Purchase of investment equity securities ................................... -- (12,659) Change in other assets ..................................................... 271 803 ------------ ------------ Net cash used in investing activities....................... (82,304) (57,418) ------------ ------------ Cash flows from financing activities: Proceeds from exercise of stock options and warrants ....................... 9,488 7,385 ------------ ------------ Net cash provided by financing activities .................. 9,488 7,385 ------------ ------------ Net increase in cash and cash equivalents .................. 4,547 18,833 Foreign currency translation adjustment .................... 755 452 Cash and cash equivalents at beginning of period ............................... 82,154 33,584 ------------ ------------ Cash and cash equivalents at end of period ..................................... $ 87,456 $ 52,869 ============ ============ Supplemental disclosure of cash flow information: Net cash received (paid) during the period for: Interest ............................................................... $ (145) $ (205) Income taxes ........................................................... $ 18,530 $ (218)
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 Energy, Inc. ("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, 2002, as presented herein, was derived from the audited balance sheet of the Company. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the annual report on Form 10-K for the year ended December 31, 2002. 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 (loss), which is a separate component of stockholders' equity (see Note 4). In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," ("SFAS No. 115"), investments in Available-for-Sale equity securities are recorded at fair value. Unrealized gains and losses of such investments, net of tax, are included in accumulated other comprehensive income (loss) in our consolidated balance sheet as of June 30, 2003 and are shown as 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 and six months ended June 30, 2003 and for the six months ended June 30, 2002, dilutive securities included in the calculation of Diluted EPS were 1.9 million shares, 1.8 million shares, and 2.6 million shares, respectively. 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 month periods ended June 30, 2003 and 2002, there were 15,000 and 55,000, respectively, potentially dilutive options and warrants which were excluded from the calculation of Diluted EPS as their exercise price was greater than the average market price for the period. The results of operations for the three and six months ended June 30, 2003, are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the 2002 consolidated financial statements in order for them to conform with the 2003 presentation. 2. RECENT ACQUISITIONS In January 2003, the Company acquired four land-based drilling rigs and related equipment from SEI Drilling Company for $6.0 million in cash. The purchase price was allocated among the assets acquired based on their estimated fair values. 7 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED 2. RECENT ACQUISITIONS - (CONTINUED) In February 2003, the Company acquired three land-based drilling rigs, a yard, and other related equipment from Mesa Drilling, Inc. and related entities for $10.5 million in cash. The purchase price was allocated among the assets acquired based on their estimated fair values. In April 2003, the Company acquired two land-based drilling rigs for $3.9 million in cash. The purchase price was allocated among the assets acquired based on their estimated fair values. In May 2003, the Company completed the acquisition of seven land-based drilling rigs and related equipment from Hexadyne Drilling Corporation for $10.1 million in cash. The purchase price was allocated among the assets acquired based on their estimated fair values. On May 26, 2003, the Company, Patterson-UTI Acquisition, LLC, a Texas limited liability company and wholly-owned subsidiary of the Company ("Sub"), and TMBR/Sharp Drilling, Inc., a Texas corporation ("TMBR"), entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which, upon the satisfaction and completion of the conditions to the merger contained in the Merger Agreement, including approval of the Merger Agreement by at least two-thirds of the shareholders of TMBR, TMBR will merge with and into Sub with Sub being the surviving company. If the merger is completed, each issued and outstanding share of common stock, $.10 par value per share, of TMBR not owned directly or indirectly by the Company or TMBR or held by TMBR shareholders who validly exercise their dissenters' rights under Texas law, will be converted into the right to receive $9.09 in cash from the Company and 0.312166 of a share of common stock, $0.01 par value per share, of the Company (the "Company Common Stock"), for a total of approximately $45.6 million in cash and approximately 1.57 million shares of Company Common Stock. The Company currently intends to pay the cash portion of the merger consideration to TMBR shareholders out of funds available on hand and existing financing facilities. In addition to the above mentioned acquisitions, the Company spent approximately $2.3 million on other acquisitions and costs associated with the acquisitions completed during the six months ended June 30, 2003. 3. STOCK-BASED COMPENSATION At June 30, 2003, the Company had seven stock-based employee compensation plans, of which three were active. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based employee compensation cost is reflected in net income (loss), as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net income (loss), as reported ......................... $ 12,052 $ (3,845) $ 17,808 $ 90 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects .. (4,348) (2,320) (8,000) (4,683) ---------- ---------- ---------- ---------- Pro forma net income (loss) ............................ $ 7,704 $ (6,165) $ 9,808 $ (4,593) ========== ========== ========== ========== Net income (loss) per common share: Basic, as reported ................................. $ 0.15 $ (0.05) $ 0.22 $ 0.00 ========== ========== ========== ========== Basic, pro forma ................................... $ 0.10 $ (0.08) $ 0.12 $ (0.06) ========== ========== ========== ========== Diluted, as reported ............................... $ 0.15 $ (0.05) $ 0.22 $ 0.00 ========== ========== ========== ========== Diluted, pro forma ................................. $ 0.09 $ (0.08) $ 0.12 $ (0.06) ========== ========== ========== ==========
8 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED 4. COMPREHENSIVE INCOME (LOSS) 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, 2003 and 2002 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net income (loss) ........................................ $ 12,052 $ (3,845) $ 17,808 $ 90 Other comprehensive income: Foreign currency translation adjustment related to our Canadian operations .......................... 4,170 2,180 7,071 2,079 Change in unrealized gain on equity securities, net of tax ........................................... 1,119 -- 1,215 -- ---------- ---------- ---------- ---------- Comprehensive income (loss) .............................. $ 17,341 $ (1,665) $ 26,094 $ 2,169 ========== ========== ========== ==========
5. SETTLEMENT OF MEXICO RECEIVABLE In March 2003, the Company received approximately $2.5 million in cash as settlement for contract drilling services previously provided in Mexico by Norton Drilling Company Mexico, Inc., a wholly-owned subsidiary. The Company has been party to a lawsuit for a number of years in an effort to collect the underlying receivable. As the collectibility of the receivable was not certain, a reserve for the full amount of the receivable was recorded at the time of the Company's acquisition of Norton Drilling Company Mexico, Inc. in 1999. The amount is reflected as a reduction of other expenses and included as a component of operating income (loss). 9 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 four industry segments: contract drilling of oil and natural gas wells, provision of drilling and completion fluid services and pressure pumping services to operators in the oil and natural gas industry, and the exploration, development, acquisition and production of oil and natural gas. Separate financial data for each of our four business segments is provided below (in thousands).
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Revenues: Drilling .................................... $ 163,951 $ 98,461 $ 299,532 $ 200,401 Drilling and completion fluids .............. 16,003 16,189 31,851 32,335 Pressure pumping ............................ 9,800 6,614 18,311 14,042 Oil and natural gas ......................... 5,870 4,099 11,169 6,808 ---------- ---------- ---------- ---------- Total operating revenues ........................ $ 195,624 $ 125,363 $ 360,863 $ 253,586 ========== ========== ========== ========== Income (loss) before income taxes: Drilling .................................... $ 17,571 $ (920) $ 25,083 $ 6,407 Drilling and completion fluids .............. (263) 23 (1,157) (819) Pressure pumping ............................ 1,897 613 3,082 2,094 Oil and natural gas ......................... 1,811 1,056 3,486 1,349 ---------- ---------- ---------- ---------- 21,016 772 30,494 9,031 Corporate and other ......................... (1,863) (7,363) (1,497) (9,194) Interest income ............................. 285 268 545 493 Interest expense ............................ (76) (94) (148) (205) Other ....................................... 77 8 85 25 ---------- ---------- ---------- ---------- Income (loss) before income taxes and cumulative effect of change in accounting principle ................................... $ 19,439 $ (6,409) $ 29,479 $ 150 ========== ========== ========== ==========
JUNE 30, DECEMBER 31, 2003 2002 ---------- ------------ Identifiable assets: Drilling ............................................................. $ 744,587 $ 694,020 Drilling and completion fluids........................................ 32,511 34,687 Pressure pumping...................................................... 38,859 35,084 Oil and natural gas................................................... 26,643 20,854 Corporate and other (a) .............................................. 164,108 157,864 ---------- ---------- $1,006,708 $ 942,509 ========== ==========
- ---------- (a) Corporate assets primarily include cash on hand managed by the parent corporation and certain deferred federal income tax assets. 7. RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," ("SFAS No. 143") in June 2001. SFAS No. 143 addresses financial accounting requirements for retirement obligations associated with tangible long-lived assets. The Company adopted SFAS No. 143 in January 2003. As a result, a charge of $469,000 (net of tax) was recorded as a cumulative effect of a change in accounting principle for the quarter ended March 31, 2003. The change relates to the cost associated with the future abandonment of oil and natural gas properties. The related effect to basic and 10 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED 7. RECENTLY ISSUED ACCOUNTING STANDARDS - (CONTINUED) diluted earnings per share as a result of the change in accounting principle was a decrease of $0.01 per share and $0.00 per share, respectively, for the six months ended June 30, 2003. The FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation," ("SFAS No. 148") in December 2002. SFAS No. 148 amends the disclosure requirements of Statement of Financial Accounting Standards No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of SFAS No. 148, which the Company adopted on January 1, 2003, did not have a material impact on the Company's consolidated financial statements (see Note 3). The FASB issued Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," ("SFAS No. 149") in April 2003. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for existing contracts and new contracts entered into after June 30, 2003. The provisions of SFAS No. 149 are not expected to have a material impact on the Company's consolidated financial statements. The FASB issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," ("SFAS No. 150") in May 2003. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003. The provisions of SFAS No. 150, which the Company adopted on June 1, 2003, did not have a material impact on the Company's consolidated financial statements. The FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements, Including Guarantees of Indebtedness of Others," ("FIN 45"), which the Company adopted effective January 1, 2003. FIN 45 requires that upon issuance of certain types of guarantees, a guarantor recognize and account for the fair value of the guarantee as a liability. FIN 45 contains exclusions to this requirement, including the exclusion of a parent's guarantee of its subsidiaries' debt to a third party. The adoption of FIN 45 had no material impact on the Company's consolidated financial position, results of operations or cash flows. The FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities," ("FIN 46"), which the Company adopted effective January 31, 2003. This statement addresses the consolidation of variable interest entities ("VIEs") by business enterprises that are the primary beneficiaries. A VIE is an entity that does not have sufficient equity investment at risk to permit it to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the enterprise that has the majority of the risks or rewards associated with the VIE. The Company believes it has no material interests in VIEs that will require disclosure or consolidation under FIN 46. 11 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED 8. GOODWILL AND OTHER INTANGIBLE ASSETS Intangible assets consist primarily of goodwill and covenants-not-to-compete arising from business combinations. In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," all of our intangible assets that have definite lives are being amortized on a straight-line basis over their estimated useful lives and goodwill is evaluated to determine if fair value of the asset has decreased below its carrying value. At December 31, 2002, we performed the annual goodwill evaluation and determined no adjustment to impair goodwill was necessary. Goodwill and other intangible assets as of June 30, 2003 and December 31, 2002 are as follows (in thousands):
JUNE 30, DECEMBER 31, 2003 2002 ---------- ------------ Goodwill ............................. $ 69,860 $ 69,860 Accumulated amortization ............. (19,661) (19,661) ---------- ---------- Goodwill, net ........................ 50,199 50,199 ---------- ---------- Covenants-not-to-compete and other ... 1,956 1,956 Accumulated amortization ............. (928) (842) ---------- ---------- Other intangible assets, net ......... 1,028 1,114 ---------- ---------- Intangible assets, net ............... $ 51,227 $ 51,313 ========== ==========
Change in the net carrying amount of goodwill for the six months ended June 30, 2003 is as follows (in thousands):
DRILLING & COMPLETION DRILLING FLUIDS TOTAL ---------- ---------- ---------- Balance at December 31, 2002 ... $ 40,265 $ 9,934 $ 50,199 Changes to goodwill ............ -- -- -- ---------- ---------- ---------- Balance at June 30, 2003 ....... $ 40,265 $ 9,934 $ 50,199 ========== ========== ==========
Amortization expense for the three and six months ended June 30, 2003 and 2002 consists of the following (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Goodwill ............................. $ -- $ -- $ -- $ -- Covenants-not-to-compete and other ... 43 98 86 225 ---------- ---------- ---------- ---------- $ 43 $ 98 $ 86 $ 225 ========== ========== ========== ==========
Our weighted average amortization period for other 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): 2004 ............... $ 97 2005 ............... $ 97 2006 ............... $ 97 2007 ............... $ 97 2008 ............... $ 97
12 PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED 9. INVESTMENT IN EQUITY SECURITIES In 2002, the Company purchased 1,058,673 shares of the common stock of TMBR, $.10 par value per share, for an aggregate cash purchase price of $17.6 million, or $16.60 per share plus approximately $84,000 of additional costs incurred to acquire the shares. The Company owns approximately 19.4% of the outstanding shares of TMBR based on its shares outstanding as reported in TMBR's Annual Report on Form 10-K for the twelve-month period ended March 31, 2003. The accounting treatment of shares representing the Company's investment in the common stock of TMBR is affected by the Company's ability to sell shares within one year. As of June 30, 2003, the Company has restrictions on its ability to sell 131,994 of the TMBR shares within one year. These shares are reflected in the balance sheet at cost under the cost method of accounting in accordance with Accounting Principles Board Opinion No. 18, "The Equity Method of Accounting for Investment in Common Stock," ("APB 18"). The remaining 926,679 TMBR shares are not restricted from sale within one year. These shares are classified as Available-for-Sale and are reflected in the balance sheet at fair value in accordance with SFAS No. 115. Fair value is determined from publicly quoted market prices as of the balance sheet date. In accordance with SFAS No. 115, unrealized gains and losses recorded as a result of the adjustment to fair value are reflected directly in stockholders' equity. The following table summarizes the Company's unrealized gain on its investment in equity securities as of June 30, 2003 (in thousands, except share amounts):
COMMON UNREALIZED SHARES COST GAIN TOTAL ---------- ---------- ---------- ---------- TMBR/Sharp Drilling, Inc.: Cost method .............. 131,994 $ 2,197 $ -- $ 2,197 Available-for-Sale ....... 926,679 15,484 1,992 17,476 ---------- ---------- ---------- ---------- 1,058,673 $ 17,681 $ 1,992 $ 19,673 ========== ========== ========== ==========
On May 26, 2003, the Company entered into a merger agreement with TMBR pursuant to which TMBR will merge with and into a wholly-owned subsidiary of the Company (see Note 2 of these Notes to Unaudited Condensed Consolidated Financial Statements). 10. LEGAL MATTER 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. The Westfort lawsuit has been dismissed without prejudice. Westfort filed for bankruptcy in May of 2003. The Company continues to assert claims against Westfort, including the monies owed Patterson Petroleum LP under the letter agreement in the amount of approximately $5,075,000. In its lawsuit, Westfort alleged breach of contract, fraud, and negligence causes of action. Westfort sought alleged monetary damages, the return of shares of Westfort stock, unspecified damages from alleged lost profits, lost use of income stream, and additional operating expenses, along with alleged punitive damages to be determined by the jury, but not less than 25% of Patterson's net worth. The Company intends to vigorously contest these claims if reasserted by Westfort. We are also party to various legal proceedings arising in the normal course of our business. We do not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES In addition to established accounting policies, our consolidated financial statements are impacted by certain estimates and assumptions made by management. The following is a discussion of our critical accounting policies pertaining to property and equipment, oil and natural gas properties, impairment, revenue recognition, and the use of estimates. Property and equipment -- Property and equipment, including betterments which extend the useful life of the asset, are stated at cost. Maintenance and repairs are charged to expense when incurred. We provide for the depreciation of our property and equipment using the straight-line method over the estimated useful lives. No provision for salvage value is considered in determining depreciation of our property and equipment. We review our assets, including intangible assets, for impairment when events or changes in circumstances indicate that the carrying values of certain assets either exceed their respective fair values or may not be recovered over their estimated remaining useful lives. Provisions for asset impairment are charged to income when estimated future cash flows, on an undiscounted basis, are less than the asset's net book value. Impairment charges are recorded based on discounted cash flows. There were no impairment charges during the periods ended June 30, 2003 or 2002. Oil and natural gas properties -- We follow the successful efforts method of accounting, using the field as the accumulation center, for our oil and natural gas properties. Exploration and development costs which result directly in the discovery of oil and natural gas reserves are capitalized. Exploration costs which do not result directly in the discovery of oil and natural gas reserves are charged to expense. Capitalized costs, consisting of lease and well equipment, lease acquisition costs, and intangible development costs, are depreciated, depleted, and amortized on the units-of-production method, based on petroleum engineer estimates of recoverable oil and natural gas reserves of each respective field. Impairment of proved oil and natural gas properties is periodically assessed based on estimated future net cash flows at a field level as determined by an independent reserve engineer. Impairment expense is included in depreciation, depletion and amortization in the accompanying financial statements. Revenue recognition -- Generally, revenues are recognized when services are performed. The Company follows the percentage-of-completion method of accounting for footage contract drilling arrangements. Under this method, drilling revenues and costs related to a well in progress are recognized proportionately over the time it takes to drill the well. Due to the nature of turnkey contract drilling arrangements and risks therein, the Company follows the completed contract method of accounting for such arrangements. Under this method, all drilling advances and costs (including maintenance and repairs) related to a well in progress are deferred and recognized as revenues and expenses in the period the well is completed. Provisions for losses on incomplete or in-process wells are made when estimated total costs are expected to exceed estimated total revenues. In accordance with Emerging Issues Task Force No. 00-14, the Company recognizes reimbursements received for out-of-pocket expenses incurred as revenues and accounts for out-of-pocket expenses as direct costs. Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. Actual results could differ from such estimates. Key estimates used by management include: o allowance for doubtful accounts, o depreciation, depletion, and amortization, o asset impairment, o reserves for self-insured levels of insurance coverages, and 14 o fair values of assets and liabilities assumed. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2003, we had working capital of approximately $171.9 million including cash and cash equivalents of $87.5 million. For the six months ended June 30, 2003, our significant sources of cash flow were: o $77.4 million provided by operations, o $9.5 million from the exercise of stock options and warrants, and o $1.9 million from the sale of certain property and equipment. Correspondingly, we used approximately $32.8 million to acquire 16 land-based drilling rigs and other related equipment (see Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements included as part of Item 1 to this report) and approximately $51.7 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 capital expenditures for our drilling and completion fluids and pressure pumping divisions, and o to fund leasehold acquisition and exploration and development of oil and natural gas properties. In January 2003, the Company acquired four land-based drilling rigs and related equipment from SEI Drilling Company for $6.0 million in cash. The purchase price was allocated among the assets acquired based on their estimated fair values. In February 2003, the Company acquired three land-based drilling rigs, a yard, and other related equipment from Mesa Drilling, Inc. and related entities for $10.5 million in cash. The purchase price was allocated among the assets acquired based on their estimated fair values. In April 2003, the Company acquired two land-based drilling rigs for $3.9 million in cash. The purchase price was allocated among the assets acquired based on their estimated fair values. In May 2003, the Company completed the acquisition of seven land-based drilling rigs and related equipment from Hexadyne Drilling Corporation for $10.1 million in cash. The purchase price was allocated among the assets acquired based on their estimated fair values. On May 26, 2003, the Company, Patterson-UTI Acquisition, LLC, a Texas limited liability company and wholly-owned subsidiary of the Company ("Sub"), and TMBR/Sharp Drilling, Inc., a Texas corporation ("TMBR"), entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which, upon the satisfaction and completion of the conditions to the merger contained in the Merger Agreement, including approval of the Merger Agreement by at least two-thirds of the shareholders of TMBR, TMBR will merge with and into Sub with Sub being the surviving company. If the merger is completed, each issued and outstanding share of common stock, $.10 par value per share, of TMBR not owned directly or indirectly by the Company or TMBR or held by TMBR shareholders who validly exercise their dissenters' rights under Texas law, will be converted into the right to receive $9.09 in cash from the Company and 0.312166 of a share of common stock, $0.01 par value per share, of the Company (the "Company Common Stock"), for a total of approximately $45.6 million in cash and approximately 1.57 million shares of Company Common Stock. The Company currently intends to pay the cash portion of the merger consideration to TMBR shareholders out of funds available on hand and existing financing facilities. Subsequent to the close of the acquisition, Patterson will consolidate 100% of the operations of TMBR in its statement of operations. In addition to the above mentioned acquisitions, the Company spent approximately $2.3 million on other acquisitions and costs associated with the acquisitions completed during the six months ended June 30, 2003. 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. 15 COMMITMENTS, CONTINGENCIES AND OTHER MATTERS The Company maintains letters of credit in the aggregate amount of $31.0 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. These letters of credit expire variously during each calendar year. No amounts have been drawn under the letters of credit. 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. The Westfort lawsuit has been dismissed without prejudice. Westfort filed for bankruptcy in May of 2003. The Company continues to assert claims against Westfort including the monies owed Patterson Petroleum LP under the letter agreement in the amount of approximately $5,075,000. In its lawsuit, Westfort alleged breach of contract, fraud, and negligence causes of action. Westfort sought alleged monetary damages, the return of shares of Westfort stock, unspecified damages from alleged lost profits, lost use of income stream, and additional operating expenses, along with alleged punitive damages to be determined by the jury, but not less than 25% of Patterson's net worth. The Company intends to vigorously contest these claims if reasserted by Westfort. We are also party to various legal proceedings arising in the normal course of our business. We do not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition. RESULTS OF OPERATIONS The following tables summarize operations by business segment for the three months ended June 30, 2003 and 2002:
CONTRACT DRILLING 2003 2002 % CHANGE - ----------------- ---------- ---------- -------- (DOLLARS IN THOUSANDS) Revenues .......................................... $ 163,951 $ 98,461 66.5% Direct operating costs ............................ $ 124,309 $ 78,323 58.7% Selling, general and administrative ............... $ 1,094 $ 974 12.3% Depreciation and amortization ..................... $ 20,977 $ 20,084 4.4% Operating income .................................. $ 17,571 $ (920) N/A% Operating days .................................... 17,742 10,846 63.6% Average revenue per operating day ................. $ 9.24 $ 9.08 1.8% Average direct operating cost per operating day ... $ 7.01 $ 7.22 (2.9)% Average margin per operating day .................. $ 2.23 $ 1.86 19.9% Number of owned rigs at end of period ............. 340 324 4.9% Average number of rigs owned during period ........ 334 324 3.1% Average rigs operating ............................ 195 119 63.9% Rig utilization percentage ........................ 58% 37% 56.8% Capital expenditures .............................. $ 27,400 $ 16,599 65.1%
Our rig count increased from 119 average rigs operating during the second quarter of 2002 to 195 average rigs operating in 2003 primarily as a result of higher natural gas prices. Average natural gas prices increased from $3.41 per Mcf in the second quarter of 2002 to $5.70 per Mcf in the second quarter of 2003. Increased operating results in 2003 were reflective of increased demand for our contract drilling services as evidenced by increases in the number of operating days and average rig utilization. Increased revenues and direct operating costs are attributable to increases in demand as noted above. Decreased operating costs per day resulted primarily from efficiencies in payroll expenses. Payroll expenses were high on a per day basis in 2002 as experienced field personnel were retained despite the low level of rig utilization. 16
DRILLING AND COMPLETION FLUIDS 2003 2002 % CHANGE - ------------------------------ ---------- ---------- --------- (DOLLARS IN THOUSANDS) Revenues ................................ $ 16,003 $ 16,189 (1.1)% Direct operating costs .................. $ 13,922 $ 13,849 0.5% Selling, general and administrative ..... $ 1,771 $ 1,761 0.6% Depreciation and amortization ........... $ 573 $ 556 3.1% Operating loss .......................... $ (263) $ 23 N/A% Total jobs .............................. 515 352 46.3% Average revenue per job ................. $ 31.07 $ 45.99 (32.4)% Average costs per job ................... $ 27.03 $ 39.34 (31.3)% Average margin per job .................. $ 4.04 $ 6.65 (39.2)% Capital expenditures .................... $ 146 $ 278 (47.5)%
Decreases in revenues despite a significant increase in total jobs for our drilling and completion fluids operations resulted from work on significantly smaller jobs in the 2003 quarter compared to the 2002 quarter. This is further evidenced by the reduced average revenue and costs per job for the 2003 quarter compared to the 2002 quarter. The slow-down of activity in the Gulf of Mexico was largely attributable to this shift in job mix for our drilling and completion fluids operations.
PRESSURE PUMPING 2003 2002 % CHANGE - ---------------- ---------- ---------- -------- (DOLLARS IN THOUSANDS) Revenues ................................ $ 9,800 $ 6,614 48.2% Direct operating costs .................. $ 5,800 $ 4,352 33.3% Selling, general and administrative ..... $ 1,245 $ 980 27.0% Depreciation ............................ $ 858 $ 669 28.3% Operating income ........................ $ 1,897 $ 613 209.5% Total jobs .............................. 1,246 777 60.4% Average revenue per job ................. $ 7.87 $ 8.51 (7.5)% Average costs per job ................... $ 4.65 $ 5.60 (17.0)% Average margin per job .................. $ 3.22 $ 2.91 10.7% Capital expenditures .................... $ 2,406 $ 1,438 67.3%
The increases in revenues and expenses for our pressure pumping operations were attributable to improved industry conditions, as discussed in Contract Drilling above, and expansion of our pressure pumping services into the Appalachian regions of Kentucky and West Virginia. This expansion also resulted in increased depreciation and capital expenditures in the 2003 quarter compared to the 2002 quarter. Selling, general and administrative expense increased as a result of the expansion in operations as well as increased payroll and related expenses during the second quarter of 2003. The decrease in average revenue per job was attributable to changes in our job mix as well as a more competitive pricing environment in the industry. Operating costs per job decreased as a result of the changes in our job mix, as well as an approximate 60% increase in total jobs and a portion of our operating costs being fixed in nature.
OIL AND NATURAL GAS PRODUCTION AND EXPLORATION 2003 2002 % CHANGE - ---------------------------------------------- ---------- ---------- -------- (IN THOUSANDS) Revenues ..................................... $ 5,870 $ 4,099 43.2% Direct operating costs ....................... $ 1,292 $ 1,016 27.2% Selling, general and administrative .......... $ 350 $ 394 (11.2)% Depreciation and depletion ................... $ 2,417 $ 1,633 48.0% Operating income ............................. $ 1,811 $ 1,056 71.5% Capital expenditures ......................... $ 2,166 $ 1,385 56.4% Average net daily oil production (Bbls) ...... 797 865 (7.9)% Average net daily gas production (Mcf) ....... 6,469 5,947 8.8% Average oil sales price (per Bbl) ............ $ 29.27 $ 25.19 16.2% Average gas sales price (per Mcf) ............ $ 5.52 $ 2.78 98.6%
Increased revenues and operating income are primarily attributable to increased prices received from sales of oil and natural gas as well as marginal increases in production. 17
CORPORATE AND OTHER 2003 2002 % CHANGE - ------------------- ---------- ---------- -------- (IN THOUSANDS) Selling, general and administrative ........ $ 2,353 $ 2,501 (5.9)% Bad debt expense ........................... $ 82 $ 30 173.3% Depreciation, depletion and amortization ... $ 148 $ 148 0.0% Other ...................................... $ (720) $ 4,684 N/A%
In the second quarter of 2002, Other reflects a $4.7 million charge due to the financial failure of a workers' compensation insurance carrier we used from 1992 until March of 2001. The following tables summarize operations by business segment for the six months ended June 30, 2003 and 2002:
CONTRACT DRILLING 2003 2002 % CHANGE - ----------------- ---------- ---------- -------- (DOLLARS IN THOUSANDS) Revenues .......................................... $ 299,532 $ 200,401 49.5% Direct operating costs ............................ $ 230,737 $ 151,755 52.0% Selling, general and administrative ............... $ 2,229 $ 2,157 3.3% Depreciation and amortization ..................... $ 41,483 $ 40,082 3.5% Operating income .................................. $ 25,083 $ 6,407 291.5% Operating days .................................... 33,611 21,396 57.1% Average revenue per operating day ................. $ 8.91 $ 9.36 (4.8)% Average direct operating cost per operating day ... $ 6.87 $ 7.09 (3.1)% Average margin per operating day .................. $ 2.04 $ 2.27 (10.1)% Number of owned rigs at end of period ............. 340 324 4.9% Average number of rigs owned during period ........ 331 322 2.8% Average rigs operating ............................ 186 118 57.6% Rig utilization percentage ........................ 56% 37% 51.4% Capital expenditures .............................. $ 40,939 $ 38,266 7.0%
Our rig count increased from 118 average rigs operating during the first six months of 2002 to 186 average rigs operating in 2003 primarily as a result of higher natural gas prices. Average natural gas prices increased from $2.99 per Mcf in the first six months of 2002 to $5.80 per Mcf in the first six months of 2003. Increased operating results in 2003 were reflective of increased demand for our contract drilling services as evidenced by increases in the number of operating days and average rig utilization. Decreased operating costs per day resulted primarily from efficiencies in payroll expenses. Payroll expenses were high on a per day basis in 2002 as experienced field personnel were retained despite the low level of rig utilization.
DRILLING AND COMPLETION FLUIDS 2003 2002 % CHANGE - ------------------------------ ---------- ---------- -------- (DOLLARS IN THOUSANDS) Revenues ................................ $ 31,851 $ 32,335 (1.5)% Direct operating costs .................. $ 28,303 $ 28,572 (0.9)% Selling, general and administrative ..... $ 3,548 $ 3,488 1.7% Depreciation and amortization ........... $ 1,157 $ 1,094 5.8% Operating loss .......................... $ (1,157) $ (819) N/A% Total jobs .............................. 1,001 673 48.7% Average revenue per job ................. $ 31.82 $ 48.05 (33.8)% Average costs per job ................... $ 28.27 $ 42.45 (33.4)% Average margin per job .................. $ 3.55 $ 5.60 (36.6)% Capital expenditures .................... $ 277 $ 941 (70.6)%
Decreases in revenues and expenses despite a significant increase in total jobs for our drilling and completion fluids operations resulted from work on significantly smaller jobs in the 2003 period compared to the 2002 period. 18 This is further evidenced by the reduced average revenue and costs per job for the 2003 period compared to the 2002 period. The continued slow-down of activity in the Gulf of Mexico was largely attributable to this shift in job mix for our drilling and completion fluids operations.
PRESSURE PUMPING 2003 2002 % CHANGE - ---------------- ---------- ---------- -------- (DOLLARS IN THOUSANDS) Revenues ................................ $ 18,311 $ 14,042 30.4% Direct operating costs .................. $ 10,806 $ 8,509 27.0% Selling, general and administrative ..... $ 2,756 $ 2,161 27.5% Depreciation ............................ $ 1,667 $ 1,278 30.4% Operating income ........................ $ 3,082 $ 2,094 47.2% Total jobs .............................. 2,307 1,616 42.8% Average revenue per job ................. $ 7.94 $ 8.69 (8.6)% Average costs per job ................... $ 4.68 $ 5.27 (11.2)% Average margin per job .................. $ 3.26 $ 3.42 (4.7)% Capital expenditures .................... $ 6,119 $ 2,374 157.8%
The increases in revenues and expenses for our pressure pumping operations were attributable to improved industry conditions, as discussed in Contract Drilling above, and expansion of our pressure pumping services into the Appalachian regions of Kentucky and West Virginia. This expansion also resulted in increased depreciation and capital expenditures in 2003 compared to 2002. Selling, general and administrative expense increased as a result of the expansion in operations as well as increased payroll and related expenses during the second quarter of 2003. The decrease in average revenue per job was attributable to changes in our job mix as well as a more competitive pricing environment in the industry. Operating costs per job decreased as a result of the changes in our job mix, as well as an approximate 43% increase in total jobs and a portion of our operating costs being fixed in nature.
OIL AND NATURAL GAS PRODUCTION AND EXPLORATION 2003 2002 % CHANGE - ---------------------------------------------- ---------- ---------- -------- (IN THOUSANDS) Revenues ..................................... $ 11,169 $ 6,808 64.1% Direct operating costs ....................... $ 2,371 $ 1,996 18.8% Selling, general and administrative .......... $ 732 $ 847 (13.6)% Depreciation and depletion ................... $ 4,580 $ 2,616 75.1% Operating income ............................. $ 3,486 $ 1,349 158.4% Capital expenditures ......................... $ 4,316 $ 4,427 (2.5)% Average net daily oil production (Bbls) ...... 776 796 (2.5)% Average net daily gas production (Mcf) ....... 5,943 5,811 2.3% Average oil sales price (per Bbl) ............ $ 31.36 $ 22.71 38.1% Average gas sales price (per Mcf) ............ $ 5.35 $ 2.50 114.0%
Increased revenues and operating income are primarily attributable to increased prices received from sales of oil and natural gas as well as marginal increases in production.
CORPORATE AND OTHER 2003 2002 % CHANGE - ------------------- ---------- ---------- -------- (IN THOUSANDS) Selling, general and administrative ........ $ 4,442 $ 4,300 3.3% Bad debt expense ........................... $ 162 $ 30 440.0% Depreciation, depletion and amortization ... $ 222 $ 222 0.0% Other ...................................... $ (3,329) $ 4,642 N/A%
In 2003, Other primarily reflects a payment received in the first quarter of 2003 of approximately $2.5 million as settlement for contract drilling services previously provided in Mexico by Norton Drilling Company Mexico, Inc., a wholly-owned subsidiary. The underlying accounts receivable balance had been reserved as uncollectible at the time of the Company's acquisition of Norton Drilling Company Mexico, Inc. in 1999. In 2002, Other primarily reflects 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 2001. 19 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. Any significant or extended decline in oil and/or natural gas prices would have a material adverse effect on our financial condition and results of operations. Over the last 10 years, the contract drilling business has experienced increased demand for drilling services from 1995 through most of 1997 and from mid-1999 through the second quarter of 2001. Generally, there have been substantially more drilling rigs available than necessary to meet demand in most operational and geographic segments of the North American land drilling industry. As a result, drilling contractors have had difficulty sustaining profit margins. 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 significant 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 exposure associated with the floating rate of the interest charged on that balance. The revolving credit facility calls for periodic interest payments at a floating rate ranging from LIBOR plus 1.75% to 2.75%. The applicable rate above LIBOR (1.75% at June 30, 2003) is based upon our trailing twelve-month EBITDA (earnings before interest expense, income taxes, and depreciation, depletion, and amortization expense). 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. ITEM 4. CONTROLS AND PROCEDURES Within 90 days before filing this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the information we must disclose in reports that we file with or submit to the SEC. Our disclosure controls and procedures include our internal accounting controls. Based on our evaluation, our disclosure controls and procedures were effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of our evaluation. 20 ---------- FORWARD LOOKING STATEMENTS AND CAUTIONARY STATEMENTS 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 "Forward Looking Statements and Cautionary Statements 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, 2002, 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. ---------- 21 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On April 30, 2003, the Company held its Annual Meeting of Stockholders. At the meeting, the stockholders voted on the following matters: 1. The election of nine persons to serve as directors of the Company. 2. An amendment to the Company's Amended and Restated 1997 Long-Term Incentive Plan to increase the number of shares available for issuance under such plan. 3. An amendment to the Company's Amended and Restated Non-Employee Director Stock Option Plan to increase the number of options that would be issued to new directors and the number of options that would be issued to directors annually. 4. Ratification of the appointment of PricewaterhouseCoopers LLP as the independent accountants of the Company for the fiscal year ending December 31, 2003. The nine nominees to the Board of Directors of the Company were elected at the meeting, and the other proposals received the affirmative vote required for approval. The number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, were as follows:
Votes For Votes Withheld --------- -------------- 1. Election of Directors Mark S. Siegel 58,945,299 10,873,995 Cloyce A. Talbott 59,117,573 10,701,721 A. Glenn Patterson 59,112,683 10,706,611 Kenneth N. Berns 59,110,963 10,708,331 Robert C. Gist 68,969,619 849,675 Curtis W. Huff 68,985,843 833,451 Terry H. Hunt 68,985,455 833,839 Kenneth R. Peak 68,971,628 847,666 Nadine C. Smith 68,978,047 841,247
Broker Votes For Votes Against Abstentions Non-votes --------- ------------- ----------- --------- 2. Amendment to the Company's Amended and Restated 1997 Long-Term Incentive Plan 57,567,192 11,773,302 478,800 0
Broker Votes For Votes Against Abstentions Non-votes --------- ------------- ----------- --------- 3. Amendment to the Company's Amended and Restated Non-Employee Director Stock Option Plan 67,054,913 2,285,276 479,105 0
Broker Votes For Votes Against Abstentions Non-votes --------- ------------- ----------- --------- 4. Ratification of PricewaterhouseCoopers LLP as the Company's Independent Accountants 67,512,386 2,305,170 1,738 0
22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. The following exhibits are filed herewith or incorporated by reference, as indicated: 2.1 Agreement and Plan of Merger dated March 10, 2002, among Patterson-UTI Energy, Inc., Patterson-UTI Drilling Company LP, LLLP and Odin Drilling, Inc.(1) 2.2 Stock Purchase Agreement dated as of June 11, 2002 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.(2) 2.3 Stock Purchase Agreement dated as of October 28, 2002 by and between Patterson-UTI Energy, Inc. and J. Mark Roper.(3) 2.4 Agreement and Plan of Merger, dated as of May 26, 2003, by and among Patterson-UTI Energy, Inc., Patterson-UTI Acquisition, LLC and TMBR/Sharp Drilling, Inc.(4) 3.1 Restated Certificate of Incorporation, as amended. 3.2 Amended and Restated Bylaws.(5) 4.1 Rights Agreement dated January 2, 1997, between Patterson Energy, Inc. and Continental Stock Transfer & Trust Company.(6) 4.2 Amendment to Rights Agreement dated as of October 23, 2001.(7) 4.3 Restated Certificate of Incorporation, as amended (see Exhibit 3.1). 4.4 Registration Rights Agreement with Bear, Stearns and Co. Inc., dated March 25, 1994, as assigned to REMY Capital Partners III, L.P.(5) 4.5 Patterson-UTI Energy, Inc. 1993 Stock Incentive Plan, as amended.(8)* 4.6 Patterson-UTI Energy, Inc. Non-Employee Directors' Stock Option Plan, as amended.(9)* 4.7 Patterson-UTI Energy, Inc. Amended and Restated 1997 Long-Term Incentive Plan.* 4.8 Amended and Restated Patterson-UTI Energy, Inc. Non-Employee Director Stock Option Plan.* 4.9 Amended and Restated Patterson-UTI Energy, Inc. 1996 Employee Stock Option Plan.(10)* 4.10 1997 Stock Option Plan of DSI Industries, Inc.(11)* 4.11 Stock Option Agreement dated July 20, 2001 between Patterson-UTI Energy, Inc. and Kenneth R. Peak (a non-employee director of Patterson-UTI Energy, Inc.).(5)* 10.1 For additional material contracts, see Exhibits 4.1, 4.2 and 4.4 through 4.11. 10.2 Amended and Restated Loan and Security Agreement, dated July 26, 2002.(8) 10.3 Revolving Loan Promissory Note, dated July 26, 2002.(12) 10.4 Amended and Restated Guaranty Agreement, dated July 26, 2002.(12) 23 10.5 Amended and Restated Pledge Agreement, dated July 26, 2002.(12) 10.6 Model Form Operating Agreement.(13) 10.7 Form of Drilling Bid Proposal and Footage Drilling Contract.(13) 10.8 Form of Turnkey Drilling Agreement.(13) 99.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - ---------- (1) 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. (2) Incorporated herein by reference to Item 7, "Material to be Filed as Exhibits" to Amendment No. 1 to Schedule 13D filed on October 31, 2002. (3) 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, 2002. (4) Incorporated herein by reference to Exhibit 2.1 to Form 8-K of TMBR/Sharp Drilling, Inc. filed on May 27, 2003. (5) Incorporated herein by reference to Item 14, "Exhibits, Financial Statement Schedules and Reports on Form 8-K" to Annual Report on Form 10-K for the fiscal year ended December 31, 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 September 30, 2001, filed on October 31, 2001. (8) Incorporated herein by reference to Item 8, "Exhibits" to Registration Statement on Form S-8 (File No. 33-39471) filed on March 13, 1998. (9) Incorporated herein by reference to Item 8, "Exhibits" to Registration Statement on Form S-8 (File No. 33-39471) filed on November 4, 1997. (10) Incorporated herein by reference to Item 8, "Exhibits" to Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (File No. 333-60466) filed on July 25, 2001. (11) Incorporated herein by reference to Item 8, "Exhibits" to Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (File No. 333-60470) filed on July 25, 2001. (12) 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. (13) Incorporated by reference to Item 27, "Exhibits" to Registration Statement on Form SB-2 (File No. 33-68058-FW) filed on August 30, 1993. * Management Contract or Compensatory Plan identified as required by Item 15(a)(3) of Form 10-K. (b) Reports on Form 8-K. (1) On May 1, 2003, the Company furnished a Current Report on Form 8-K, dated April 30, 2003, furnishing the Company's public announcement of its first quarter 2003 results from operations, including the Condensed Consolidated Statements of Income and Additional Financial and Operating Data. (2) On May 27, 2003, the Company filed a Current Report on Form 8-K, dated may 26, 2003, announcing the Company's definitive merger agreement with TMBR/Sharp Drilling, Inc. 24 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 28, 2003 25 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Cloyce A. Talbott, certify that: (1) I have reviewed this quarterly report on Form 10-Q of Patterson-UTI Energy, Inc.; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness. Date: July 28, 2003 /s/ Cloyce A. Talbott ---------------------------- Cloyce A. Talbott Chief Executive Officer 26 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Jonathan D. Nelson, certify that: (1) I have reviewed this quarterly report on Form 10-Q of Patterson-UTI Energy, Inc.; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness. Date: July 28, 2003 /s/ Jonathan D. Nelson ---------------------- Jonathan D. Nelson Vice President, Chief Financial Officer, Secretary and Treasurer 27 EXHIBIT INDEX 2.1 Agreement and Plan of Merger dated March 10, 2002, among Patterson-UTI Energy, Inc., Patterson-UTI Drilling Company LP, LLLP and Odin Drilling, Inc.(1) 2.2 Stock Purchase Agreement dated as of June 11, 2002 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.(2) 2.3 Stock Purchase Agreement dated as of October 28, 2002 by and between Patterson-UTI Energy, Inc. and J. Mark Roper.(3) 2.4 Agreement and Plan of Merger, dated as of May 26, 2003, by and among Patterson-UTI Energy, Inc., Patterson-UTI Acquisition, LLC and TMBR/Sharp Drilling, Inc.(4) 3.1 Restated Certificate of Incorporation, as amended. 3.2 Amended and Restated Bylaws.(5) 4.1 Rights Agreement dated January 2, 1997, between Patterson Energy, Inc. and Continental Stock Transfer & Trust Company.(6) 4.2 Amendment to Rights Agreement dated as of October 23, 2001.(7) 4.3 Restated Certificate of Incorporation, as amended (see Exhibit 3.1). 4.4 Registration Rights Agreement with Bear, Stearns and Co. Inc., dated March 25, 1994, as assigned to REMY Capital Partners III, L.P.(5) 4.5 Patterson-UTI Energy, Inc. 1993 Stock Incentive Plan, as amended.(8)* 4.6 Patterson-UTI Energy, Inc. Non-Employee Directors' Stock Option Plan, as amended.(9)* 4.7 Patterson-UTI Energy, Inc. Amended and Restated 1997 Long-Term Incentive Plan.* 4.8 Amended and Restated Patterson-UTI Energy, Inc. Non-Employee Director Stock Option Plan.* 4.9 Amended and Restated Patterson-UTI Energy, Inc. 1996 Employee Stock Option Plan.(10)* 4.10 1997 Stock Option Plan of DSI Industries, Inc.(11)* 4.11 Stock Option Agreement dated July 20, 2001 between Patterson-UTI Energy, Inc. and Kenneth R. Peak (a non-employee director of Patterson-UTI Energy, Inc.).(5)* 10.1 For additional material contracts, see Exhibits 4.1, 4.2 and 4.4 through 4.11. 10.2 Amended and Restated Loan and Security Agreement, dated July 26, 2002.(8) 10.3 Revolving Loan Promissory Note, dated July 26, 2002.(12) 10.4 Amended and Restated Guaranty Agreement, dated July 26, 2002.(12) 28 10.5 Amended and Restated Pledge Agreement, dated July 26, 2002.(12) 10.6 Model Form Operating Agreement.(13) 10.7 Form of Drilling Bid Proposal and Footage Drilling Contract.(13) 10.8 Form of Turnkey Drilling Agreement.(13) 99.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - ---------- (1) 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. (2) Incorporated herein by reference to Item 7, "Material to be Filed as Exhibits" to Amendment No. 1 to Schedule 13D filed on October 31, 2002. (3) 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, 2002. (4) Incorporated herein by reference to Exhibit 2.1 to Form 8-K of TMBR/Sharp Drilling, Inc. filed on May 27, 2003. (5) Incorporated herein by reference to Item 14, "Exhibits, Financial Statement Schedules and Reports on Form 8-K" to Annual Report on Form 10-K for the fiscal year ended December 31, 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 September 30, 2001, filed on October 31, 2001. (8) Incorporated herein by reference to Item 8, "Exhibits" to Registration Statement on Form S-8 (File No. 33-39471) filed on March 13, 1998. (9) Incorporated herein by reference to Item 8, "Exhibits" to Registration Statement on Form S-8 (File No. 33-39471) filed on November 4, 1997. (10) Incorporated herein by reference to Item 8, "Exhibits" to Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (file No. 333-60466) filed on July 25, 2001. (11) Incorporated herein by reference to Item 8, "Exhibits" to Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (file No. 333-60470) filed on July 25, 2001. (12) 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. (13) Incorporated by reference to Item 27, "Exhibits" to Registration Statement on Form SB-2 (File No. 33-68058-FW) filed on August 30, 1993. * Management Contract or Compensatory Plan identified as required by Item 15(a)(3) of Form 10-K. 29 EX-3.1 3 d07634exv3w1.txt RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF PATTERSON-UTI ENERGY, INC. (Originally incorporated on October 14, 1993 under the name Patterson Energy, Inc.) FIRST: The name of the Corporation is Patterson-UTI Energy, Inc. SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business or purposes to be conducted or promoted are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock that the Corporation shall have authority to issue is two hundred one million (201,000,000) shares, of which two hundred million (200,000,000) shares shall be Common Stock, having a par value of $0.01 per share, and one million (1,000,000) shares shall be Preferred Stock, having a par value of $0.01 per share. The shares of such classes of stock shall have the following express terms: Section 1. PREFERRED STOCK 1.1 Authority of the Board of Directors to Create Series. The Board of Directors is hereby expressly granted authority, to the full extent now or hereafter permitted herein and by the General Corporation Law of the State of Delaware, at any time or from time to time, by resolution or resolutions, to create one or more series of Preferred Stock, to fix the authorized number of shares of any series (which number of shares may vary as between series and be changed from time to time by like action), and to fix the terms of such series, including, but not limited to, the following: (a) the designation of such series, which may be by distinguishing number, letter, or title; (b) the rate or rates at which shares of such series shall be entitled to receive dividends; the periods in respect of which dividends are payable; the conditions upon, and times of payment of, such dividends; the relationship and preference, if any, of such dividends to dividends payable on any other class or classes or any other series of stock; whether such dividends shall be cumulative and, if cumulative, the date or dates from which such dividends shall accumulate; and the other terms and conditions applicable to dividends upon shares of such series; (c) the rights of the holders of the shares of such series in case the Corporation be liquidated, dissolved or wound up (which may vary depending upon the time, manner, or voluntary or involuntary nature or other circumstances of such liquidation, dissolution, or winding up) and the relationship and preference, if any, of such rights to rights of holders of shares of stock of any other class or classes or any other series of stock; (d) the right, if any, of the Corporation to redeem shares of such series at its option, including any limitation of such right, and the amount or amounts to be payable in respect of the shares of such series in case of such redemption (which may vary depending on the time, manner, or other circumstances of such redemption), and the manner, effect, and other terms and conditions of any such redemption; (e) the obligation, if any, of the Corporation to purchase, redeem, or retire shares of such series and/or to maintain a fund for such purpose, and the amount or amounts to be payable from time to time for such purpose or into such fund, or the number of shares to be purchased, redeemed, or retired, the per share purchase price or prices, and the other terms and conditions of any such obligation or obligations; (f) the voting rights, if any, which, if granted, may be full, special, or limited, to be given the shares of such series, including, without limiting the generality of the foregoing, the right, if any, as a series or in conjunction with other series or classes, to elect one or more members of the Board of Directors either generally or at certain times or under certain circumstances, and restrictions, if any, on particular corporate acts without a specified vote or consent of holders of such shares (such as, among others, restrictions on modifying the terms of such series or of the Preferred Stock, restricting the permissible terms of other series or the permissible variations between series of the Preferred Stock, authorizing or issuing additional shares of the Preferred Stock, creating debt, or creating any class of stock ranking prior to or on a parity with the Preferred Stock or any series thereof as to dividends, or assets remaining for distribution to the stockholders in the event of the liquidation, dissolution, or winding up of the Corporation); (g) the right, if any, to exchange or convert the shares into shares of any other series of the Preferred Stock or into shares of 2 any other class of stock of the Corporation or the securities of any other corporation, and the rate or basis, time, manner, terms, and conditions of exchange or conversion or the method by which the same shall be determined; and (h) the other special powers, preferences, or rights, if any, and the qualifications, limitations, or restrictions thereof, of the shares of such series. The Board of Directors shall fix the terms of each such series by resolution or resolutions adopted at any time prior to the issuance of the shares thereof, and the terms of each such series may, subject only to restrictions, if any, imposed by this Certificate of Incorporation or by applicable law, vary from the terms of other series to the extent determined by the Board of Directors from time to time and provided in the resolution or resolutions fixing the terms of the respective series of the Preferred Stock. 1.2 Status of Certain Shares. Shares of any series of the Preferred Stock, whether provided for herein or by resolution or resolutions of the Board of Directors, which have been redeemed (whether through the operation of a sinking fund or otherwise) or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes, or which have been purchased or otherwise acquired by the Corporation, shall have the status of authorized and unissued shares of the Preferred Stock of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of the Preferred Stock to be created by resolution or resolutions of the Board of Directors or as a part of any other series of the Preferred Stock, all subject to the conditions or restrictions on issuance set forth herein or in the resolution or resolutions adopted by the Board of Directors providing for the issue of any series of the Preferred Stock. Section 2. COMMON STOCK 2.1 Issuance, Consideration, and Terms. Any unissued shares of the Common Stock may be issued from time to time for such consideration, having a value of not less than the par value thereof, as may be fixed from time to time by the Board of Directors. Any treasury shares may be disposed of for such consideration as may be determined from time to time by the Board of Directors. The Common Stock shall be subject to the express terms of the Preferred Stock and any series thereof. Each share of Common Stock shall be of equal rank and shall be identical to every other share of Common Stock. Holders of Common Stock shall have such rights as are provided herein and by law. 2.2 Voting Rights. Except as expressly required by law or as provided in or fixed and determined pursuant to Section 1 of this Article FOURTH, the entire voting power and all voting rights shall be vested exclusively in the Common Stock. Each holder of shares of Common Stock shall be entitled to one (1) vote for each share standing in such holder's name on the books of the Corporation. 3 2.3 Dividends. Subject to Section 1 of this Article FOURTH, the holders of Common Stock shall be entitled to receive, and shall share equally share for share, when and as declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends or distributions payable in cash, in property, or in securities of the Corporation. FIFTH: The Board of Directors is authorized to make, alter, or repeal the Bylaws of the Corporation. SIXTH: Meetings of stockholders shall be held at such place, within or without the State of Delaware, as may be designated by or in the manner provided in the Bylaws, or, if not so designated, at the registered office of the Corporation in the State of Delaware. Elections of directors need not be by written ballot unless and to the extent that the Bylaws so provide. SEVENTH: Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors (or a majority of the members thereof) of the Corporation by action at a meeting, a majority of the members of the Board of Directors of the Corporation acting without a meeting, the Chief Executive Officer of the Corporation, the President of the Corporation or the holders of a majority of the issued and outstanding stock of the Corporation entitled to be voted at such special meeting. Such special meetings may not be called by any other person or persons or in any other manner. EIGHTH: The Corporation reserves the right to amend, alter, or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all rights of stockholders herein are subject to this reservation. NINTH: To the fullest extent permitted by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. TENTH: Any action required or permitted to be taken by the holders of the stock of the Corporation entitled to vote in the election of directors must be effected at a duly called annual meeting or special meeting of such holders and may not be effected by any consent in writing by such holders. ELEVENTH: Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of 4 stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. This Restated Certificate of Incorporation of Patterson-UTI Energy, Inc. (i) was duly adopted by the Board of Directors of Patterson-UTI Energy, Inc., without a vote of the stockholders, in accordance with Section 245 of the Delaware General Corporation Law, (ii) only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of Patterson-UTI Energy, Inc., as heretofore amended; and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. Dated this 8th day of May, 2001. /s/ A. Glenn Patterson ----------------------------- A. Glenn Patterson, President 5 CERTIFICATE OF CORRECTION OF RESTATED CERTIFICATE OF INCORPORATION OF PATTERSON-UTI ENERGY, INC. Pursuant to the provisions of Section 103(f) of the Delaware General Corporation Law, Patterson-UTI Energy, Inc., a Delaware corporation (the "Company"), adopts the following Certificate of Correction: FIRST: On May 8, 2001, the Company filed with the Secretary of State of the State of Delaware a Restated Certificate of Incorporation dated May 8, 2001 (the "Restated Certificate of Incorporation"). The Restated Certificate of Incorporation is an inaccurate record of the corporate action therein referenced, as Section 1 of Article FOURTH thereof captioned "Preferred Stock" failed to include a reference to the Series A Participating Preferred Stock created by the Board of Directors of the Company through the filing of a Certificate of Designation of the Company with the Secretary of State of the State of Delaware on January 13, 1997. SECOND: Subsection 1.1 of Section 1 of Article FOURTH is corrected by adding the following paragraph to the end of Subsection 1.1 thereof: Pursuant to authority conferred by this Article FOURTH upon the board of directors of the Corporation, the board of directors created a series of 100,000 shares of preferred stock designated Series A Participating Preferred Stock by filing a Certificate of Designation of the Corporation with the Secretary of State of the State of Delaware (the "Secretary of State") on January 13, 1997, and the voting powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the Corporation's Series A Participating Preferred Stock are set forth on Annex A hereto and are incorporated herein by reference. IN WITNESS WHEREOF, the Company has caused this Certificate of Correction to be signed by its duly authorized officer as of the 19th day of November, 2001. PATTERSON-UTI ENERGY, INC. By: /s/ Jonathan D. Nelson ------------------------------------------ Jonathan D. Nelson Vice President - Finance, Chief Financial Officer, Secretary and Treasurer 2 ANNEX A Certificate of Designation of Restated Certificate of Incorporation of Patterson Energy, Inc. It is hereby certified that: 1. The name of the corporation is Patterson Energy, Inc. (hereinafter called the "Corporation"); 2. The Restated Certificate of Incorporation of the Corporation (the "Restated Certificate of Incorporation"), is hereby amended so that the designation and number of shares of the class and series acted upon in the following resolution and the relative rights, preferences and limitations of such class and series, are as stated in such resolution; and 3. The following resolution was duly adopted by the Board of Directors of the Corporation as required by Section 151 of the Delaware General Corporation Law at a meeting duly called and held on January 2, 1997; RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation in accordance with the provisions of the Restated Certificate of Incorporation, the Board of Directors hereby creates a series of Series A Preferred Stock, $.01 par value, of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof (in addition to the provisions set forth in the Restated Certificate of Incorporation which are applicable to the Preferred Stock of all classes and series) as follows: Section 1. Designation, Par Value and Amount. The shares of such series shall be designated as "Series A Participating Preferred Stock" (hereinafter referred to as "Series A Participating Preferred Stock"), the shares of such series shall be without par value, and the number of shares constituting such series shall be 100,000; provided, however, that, if more than a total of 100,000 shares of Series A Participating Preferred Stock shall be issuable upon the exercise of Rights (the "Rights") issued pursuant to the Rights Agreement, dated as of January 2, 1997, between the Corporation and Continental Stock Transfer & Trust Company, a New York corporation, as Rights Agent (as amended from time to time) (the "Rights Agreement"), the Board of Directors of the Corporation, pursuant to Section 151 of the Delaware General Corporation Law, shall direct by resolution or resolutions that a certificate be properly executed, acknowledged and filed providing for the total number of shares of Series A Participating Preferred Stock authorized to be issued to be increased (to the extent that the Restated Certificate of Incorporation then permits) to the largest number of whole shares (rounded up to the nearest whole number) issuable upon exercise of the Rights. Section 2. Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to dividends, the holders of shares of Series A Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of assets legally available for the purpose, quarterly dividends payable in cash on the last business day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $.01 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions (other than a dividend payable in shares of Common Stock, par value $.01 per share, of the Corporation (the "Common Stock") or a subdivision of the outstanding shares of Common Stock by reclassification or otherwise) declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preferred Stock. (B) The Corporation shall declare a dividend or distribution on the Series A Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.01 per share on the Series A Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive payment of a dividend or distribution declared 2 thereon, which record date shall be not more than 15 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Participating Preferred Stock shall have the following voting rights: (A) Except as provided in paragraph C of this Section 3 and subject to the provision for adjustment hereinafter set forth, each share of Series A Participating Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If, on the date used to determine stockholders of record for any meeting of stockholders for the election of directors, a default in preference dividends (as defined in subparagraph (v) below) on the Series A Participating Preferred Stock shall exist, the holders of the Series A Participating Preferred Stock shall have the right, voting as a class as described in subparagraph (ii) below, to elect two directors (in addition to the directors elected by holders of Common Stock of the Corporation). Such right may be exercised (a) at any meeting of stockholders for the election of directors or (b) at a meeting of the holders of shares of Voting Preferred Stock (as hereinafter defined), called for the purpose in accordance with the By-laws of the Corporation, until all such cumulative dividends (referred to above) shall have been paid in full or until noncumulative dividends have been paid regularly for at least one year. (ii) The right of the holders of Series A Participating Preferred Stock to elect two directors, as described above, shall be exercised as a class concurrently with the rights of holders of any other series of Preferred Stock upon which voting rights to elect such directors have been conferred and are then exercisable. The Series A Participating Preferred Stock and any additional series of Preferred Stock which the Corporation may issue and which may provide for the right to vote with the foregoing series of Preferred Stock are collectively referred to herein as "Voting Preferred Stock." (iii) Each director elected by the holders of shares of Voting Preferred Stock shall be referred to herein as a "Preferred Director." A Preferred Director so elected shall continue to serve as such director for a term of one year, except that upon any termination of the right of all of such holders to vote as a class for Preferred Directors, the term of office of such directors shall terminate. Any Preferred Director may be removed by, and shall not be removed except by the vote of the holders of record of a majority of the outstanding shares of Voting Preferred Stock then entitled to vote for the election of directors. present (in person or by proxy) and voting together as a single class (a) at a meeting of the stockholders, or (b) at a meeting of the holders of shares of such Voting Preferred Stock, called for the purpose in accordance with the By-laws of the Corporation, or (c) by written consent signed by the holders of a majority of the then 3 outstanding shares of Voting Preferred Stock then entitled to vote for the election of directors, taken together as a single class. (iv) So long as a default in any preference dividends on the Series A Participating Preferred Stock shall exist or the holders of any other series of Voting Preferred Stock shall be entitled to elect Preferred Directors, (a) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (b)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (b) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote or written consent of the holders of a majority of the outstanding shares of Voting Preferred Stock then entitled to vote for the election of directors, present (in person or by proxy) and voting together as a single class, at such time as the removal shall be effected. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever (x) no default in preference dividends on the Series A Participating Preferred Stock shall exist and (y) the holders of other series of Voting Preferred Stock shall go longer be entitled to elect such Preferred Directors, then the number of directors constituting the Board of Directors of the Corporation shall be reduced by two. (v) For purposes hereof, a "default in preference dividends" on the Series A Participating Preferred Stock shall be deemed to have occurred whenever the amount of cumulative and unpaid dividends on the Series A Participating Preferred Stock shall be equivalent to six full quarterly dividends or more (whether or not consecutive), and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all cumulative dividends on all shares of the Series A Participating Preferred Stock then outstanding shall have been paid through the last Quarterly Dividend Payment Date or until, but only until, non-cumulative dividends have been paid regularly for at least one year. (E) Except as set forth herein (or as otherwise required by applicable law), holders of Series A Participating Preferred Stock shall have no general or special voting rights and their consent shall not be required for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution 4 or winding up) with the Series A Participating Preferred Stock, except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration (except as provided in (iv) below) shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Participating Preferred Stock; (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Participating Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall he retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Restated Certificate of Incorporation. in any other Certificate of Designation creating a series of Preferred Stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. (A) Subject to the prior and superior rights of holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to rights upon liquidation, dissolution or winding up (voluntary or otherwise), no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Participating Preferred Stock shall have received $1.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation 5 Preference, no additional distributions shall be made to the holders of shares of Series A Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Capital Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Capital Adjustment in respect of all outstanding shares of Series A Participating Preferred Stock and Common Stock, respectively, holders of Series A Participating Preferred Stock and holders of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series A Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of Series A Participating Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Capital Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. Section 8. No Redemption. The shares of Series A Participating Preferred Stock shall not be redeemable. Section 9. Ranking. The Series A Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Participating Preferred Stock, voting separately as a class. 6 IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation by its Chairman of the Board and attested by its Secretary as of January 10, 1997. /s/ Cloyce A. Talbott -------------------------------- Cloyce A. Talbott, Chairman and Chief Executive Officer Attest: /s/ James C. Brown - ----------------------------- James C. Brown Vice President - Finance 7 AMENDMENT TO CERTIFICATE OF DESIGNATION OF RESTATED CERTIFICATE OF INCORPORATION OF PATTERSON-UTI ENERGY, INC. It is hereby certified that pursuant to authority granted to and vested in the Board of Directors of the Corporation by the provisions of the Restated Certificate of Incorporation of the Corporation, the Board of Directors of the Corporation has duly adopted the following resolutions relating to an amendment to the Certificate of Designation filed with the Delaware Secretary of State on January 13, 1997 and subsequently filed as Annex A to the Certificate of Correction of the Restated Certificate of Incorporation of the Corporation filed on November 20, 2001: 1. RESOLVED, that the Certificate of Designation of the Corporation filed by the Corporation with the Secretary of State of the State of Delaware on January 13, 1997 and attached as Annex A to the Certificate of Correction of the Restated Certificate of Incorporation filed on November 20, 2001, relating to the Series A Participating Preferred Stock of the Corporation is hereby amended as follows: (A) The number "100" appearing in the tenth and eleventh lines of Section 2(A) is hereby changed in each instance to the number "1,000;" (B) The number "100" appearing in the third line of Section 3(A) is hereby changed to the number "1,000;" (C) The dollar number "$1.00" appearing in the seventh line of Section 6(A) is hereby changed to the dollar number "$100" and the number "100" appearing in the thirteenth line of Section 6(A) is hereby changed to the number "1,000." (D) The number "100" appearing in the sixth line of Section 7 is hereby changed to the number "1,000." 2. No shares of Series A Participating Preferred Stock of the Corporation have been issued or are outstanding. FURTHER RESOLVED, that the Certificate of Designation filed on January 13, 1997, as amended pursuant to the foregoing resolution, is hereby ratified and approved; AND BE IT FURTHER RESOLVED, that the proper officers of the Corporation be and each of them hereby is authorized to execute an amendment to the Certificate of Designation of Restated Certificate of Incorporation pursuant to the applicable section of the General Corporation Law of the State of Delaware and to take all appropriate action to cause that amendment to the certificate to be filed, recorded and become effective in accordance with Section 103 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, this Amendment to Certificate of Designation has been executed effective as of this 20th day of November, 2001. /s/ Jonathan D. Nelson ------------------------------------------ Jonathan D. Nelson Vice President - Finance, Chief Financial Officer, Secretary and Treasurer 2 EX-4.7 4 d07634exv4w7.txt AMENDED AND RESTATED 1997 LONG TERM INCENTIVE PLAN EXHIBIT 4.7 PATTERSON-UTI ENERGY, INC. AMENDED AND RESTATED 1997 LONG-TERM INCENTIVE PLAN ARTICLE I: GENERAL SECTION 1.1 Purpose of the Plan. This Amended and Restated 1997 Long-Term Incentive Plan (the "Plan") of Patterson-UTI Energy, Inc. (the "Company") is intended to advance the best interests of the Company, its subsidiaries and its stockholders in order to attract, retain and motivate key employees by providing them with additional incentives through (i) the grant of options ("Options") to purchase shares of Common Stock, par value $.01 per share, of the Company ("Common Stock"), (ii) the grant of stock appreciation rights ("Stock Appreciation Rights"), (iii) the award of shares of restricted Common Stock ("Restricted Stock") and (iv) the award of units payable in cash or shares of Common Stock based on performance ("Performance Awards"), thereby increasing the personal stake of such key employees in the continued success and growth of the Company. SECTION 1.2 Administration of the Plan. (a) The Plan shall be administered either by the full Board of Directors of the Company (the "Board of Directors") or by the Compensation Committee or other designated committee of the Board of Directors. The Board of Directors or such committee is referred to herein as the "Committee". The Committee shall have authority to interpret conclusively the provisions of the Plan, to adopt such rules and regulations for carrying out the Plan as it may deem advisable, to decide conclusively all questions of fact arising in the application of the Plan, to establish performance criteria in respect of Awards (as defined herein) under the Plan, to certify that Plan requirements have been met for any participant in the Plan, to submit such matters as it may deem advisable to the Company's stockholders for their approval, and to make all other determinations and take all other actions necessary or desirable for the administration of the Plan. The Committee is expressly authorized to adopt rules and regulations limiting or eliminating its discretion in respect of certain matters as it may deem advisable to comply with or obtain preferential treatment under any applicable tax or other law rule, or regulation. All decisions and acts of the Committee shall be final and binding upon all affected Plan participants. (b) The Committee shall designate the eligible employees, if any, to be granted Awards and the type and amount of such Awards and the time when Awards will be granted. All Awards granted under the Plan shall be on the terms and subject to the conditions determined by the Committee consistent with the Plan. 1 SECTION 1.3 Eligible Participants. Key employees, including officers and directors, of the Company and its subsidiaries (all such subsidiaries being referred to as "Subsidiaries") shall be eligible for Awards under the Plan. SECTION 1.4 Awards Under the Plan. Awards to key employees may be in the form of (i) Options, (ii) Stock Appreciation Rights, which may be issued independent of or in tandem with Options, (iii) shares of Restricted Stock, (iv) Performance Awards, or (v) any combination of the foregoing (collectively, "Awards"). SECTION 1.5 Shares Subject to the Plan. Initially, the aggregate number of shares of Common Stock that may be issued under the Plan shall be 8,250,000, subject to adjustment as provided in Section 5.2 of the Plan. Shares distributed pursuant to the Plan may consist of authorized but unissued shares or treasury shares of the Company, as shall be determined from time to time by the Board of Directors. If any Award under the Plan shall expire, terminate or be canceled (including cancellation upon an Option holder's exercise of a related Stock Appreciation Right) for any reason without having been exercised in full, or if any Award shall be forfeited to the Company, the unexercised or forfeited Award shall not count against the above limits and shall again become available for Awards under the Plan (unless the holder of such Award received dividends or other economic benefits with respect to such Award, which dividends or other economic benefits are not forfeited, in which case the Award shall count against the above limits). Shares of Common Stock equal in number to the shares surrendered in payment of the option price, and shares of Common Stock which are withheld in order to satisfy Federal, state or local tax liability, shall count against the above limits. Only the number of shares of Common Stock actually issued upon exercise of a Stock Appreciation Right shall count against the above limits, and any shares which were estimated to be used for such purposes and were not in fact so used shall again become available for Awards under the Plan. Cash exercises of Stock Appreciation Rights and cash settlement of other Awards will not count against the above limits. The aggregate number of shares of Common Stock subject to Options or Stock Appreciation Rights that may be granted to any one participant in any one year under the Plan shall be 600,000, subject to adjustment as provided in Section 5.2 of the Plan. The aggregate number of shares of Common Stock that may be granted to any one participant in any one year in respect of Restricted Stock shall be 600,000, subject to adjustment as provided in Section 5.2 of the Plan. The aggregate number of shares of Common Stock that may be received by any one participant in any one year in respect of a Performance Award shall be 600,000, subject to adjustment as provided in Section 5.2 of the Plan, and the aggregate amount of cash that may be received by any one participant in any one year in respect to a Performance Award shall be $500,000. The total number of Awards (or portions thereof) settled in cash under the Plan, based on the number of shares covered by such Awards (e.g., 100 shares for a Stock Appreciation Right with respect to 100 shares), shall not exceed a number equal to (i) the number of shares initially available for issuance under the Plan plus (ii) the number of shares that have become available for issuance under the Plan pursuant to the first paragraph of this Section 1.5. 2 The aggregate number of shares of Common Stock that are available under the Plan for Options granted in accordance with Section 2.4(i) ("ISOs") is 600,000, subject to adjustment as provided in Section 5.2 of the Plan. SECTION 1.6 Other Compensation Programs. Nothing contained in the Plan shall be construed to preempt or limit the authority of the Board of Directors to exercise its corporate rights and powers, including, but not by way of limitation, the right of the Board of Directors (i) to grant incentive awards for proper corporate purposes otherwise than under the Plan to any employee, officer, director or other person or entity or (ii) to grant incentive awards to, or assume incentive awards of, any person or entity in connection with the acquisition (whether by purchase, lease, merger, consolidation or otherwise) of the business or assets (in whole or in part) of any person or entity. ARTICLE II: STOCK OPTIONS AND STOCK APPRECIATION RIGHTS SECTION 2.1 Terms and Conditions of Options. Subject to the following provisions, all Options granted under the Plan to employees of the Company and its Subsidiaries shall be in such form and shall have such terms and conditions as the Committee, in its discretion, may from time to time determine consistent with the Plan. (a) Option Price. The option price per share shall be determined by the Committee, except that in the case of an Option granted in accordance with Section 2.4(i) the option price per share shall not be less than the fair market value of a share of Common Stock (as determined by the Committee) on the date the Option is granted (other than in the case of substitute or assumed Options to the extent required to qualify such Options for preferential tax treatment under the Code as in effect at the time of such grant). (b) Term of Option. The term of an Option shall be determined by the Committee, except that the term of an Option shall not exceed ten years from the date of grant, and, notwithstanding any other provision of this Plan, no Option shall be exercised after the expiration of its term. (c) Exercise of Options. Options shall be exercisable at such time or times and subject to such terms and conditions as the Committee shall specify in the Option grant. Unless the Option grant specifies otherwise, the Committee shall have discretion at any time to accelerate such time or times and otherwise waive or amend any conditions in respect of all or any portion of the Options held by any optionee. An Option may be exercised in accordance with its terms as to any or all shares purchasable thereunder. (d) Payment for Shares. The Committee may authorize payment for shares as to which an Option is exercised to be made in cash, shares of Common Stock, a combination thereof, by "cashless exercise" or in such other manner as the Committee in its discretion may provide. (e) Stockholder Rights. The holder of an Option shall, as such, have none of the rights of a stockholder. 3 (f) Termination of Employment. The Committee shall have discretion to specify in the Option grant, or, with the consent of the optionee, an amendment thereof, provisions with respect to the period, not extending beyond the term of the Option, during which the Option may be exercised following the optionee's termination of employment. SECTION 2.2 Stock Appreciation Rights in Tandem with Options. (a) The Committee may, either at the time of grant of an Option or at any time during the term of the Option, grant Stock Appreciation Rights ("Tandem SARs") with respect to all or any portion of the shares of Common Stock covered by such Option. A Tandem SAR may be exercised at any time the Option to which it relates is then exercisable, but only to the extent the Option to which it relates is exercisable, and shall be subject to the conditions applicable to such Option. When a Tandem SAR is exercised, the Option to which it relates shall cease to be exercisable to the extent of the number of shares with respect to which the Tandem SAR is exercised. Similarly, when an Option is exercised, the Tandem SARs relating to the shares covered by such Option exercise shall terminate. Any Tandem SAR which is outstanding on the last day of the term of the related Option (as determined pursuant to Section 2.1(b)) shall be automatically exercised on such date for cash without any action by the optionee. (b) Upon exercise of a Tandem SAR, the holder shall receive, for each share with respect to which the Tandem SAR is exercised, an amount (the "Appreciation") equal to the difference between the option price per share of the Option to which the Tandem SAR relates and the fair market value (as determined by the Committee) of a share of Common Stock on the date of exercise of the Tandem SAR. The Appreciation shall be payable in cash, Common Stock, or a combination of both, at the option of the Committee, and shall be paid within 30 days of the exercise of the Tandem SAR. SECTION 2.3 Stock Appreciation Rights Independent of Options. Subject to the following provisions, all Stock Appreciation Rights granted independent of Options ("Independent SARs") under the Plan to employees of the Company and its Subsidiaries shall be in such form and shall have such terms and conditions as the Committee, in its discretion, may from time to time determine consistent with the Plan. (a) Exercise Price. The exercise price per share shall be determined by the Committee on the date the Independent SAR is granted. (b) Term of Independent SAR. The term of an Independent SAR shall be determined by the Committee, and, notwithstanding any other provision of this Plan, no Independent SAR shall be exercised after the expiration of its term. (c) Exercise of Independent SARs. Independent SARs shall be exercisable at such time or times and subject to such terms and conditions as the Committee shall specify in the Independent SAR grant. Unless the Independent SAR grant specifies otherwise, the Committee shall have discretion at any time to accelerate such time or times and otherwise waive or amend any conditions in respect of all or any portion of the Independent SARs held by any participant. Upon exercise of an Independent SAR, the holder shall receive, for each share specified in the Independent SAR grant, an amount (the "Appreciation") equal to the difference between the 4 exercise price per share specified in the Independent SAR grant and the fair market value (as determined by the Committee) of a share of Common Stock on the date of exercise of the Independent SAR. The Appreciation shall be payable in cash, Common Stock, or a combination of both, at the option of the Committee, and shall be paid within 30 days of the exercise of the Independent SAR. (d) Stockholder Rights. The holder of an Independent SAR shall, as such, have none of the rights of a stockholder. (e) Termination of Employment. The Committee shall have discretion to specify in the Independent SAR grant, or, with the consent of the holder, an amendment thereof, provisions with respect to the period, not extending beyond the term of the Independent SAR, during which the Independent SAR may be exercised following the holder's termination of employment. SECTION 2.4 Statutory Options. Subject to the limitations on Option terms set forth in Section 2.1, the Committee shall have the authority to grant (i) ISOs within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) Options containing such terms and conditions as shall be required to qualify such Options for preferential tax treatment under the Code as in effect at the time of such grant, including, if then applicable, limits with respect to minimum exercise price, duration and amounts and special limitations applicable to any individual who, at the time the Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any affiliate. Options granted pursuant to this Section 2.4 may contain such other terms and conditions permitted by Article II of this Plan as the Committee, in its discretion, may from time to time determine (including, without limitation, provision for Stock Appreciation Rights), to the extent that such terms and conditions do not cause the Options to lose their preferential tax treatment. If an Option intended to be an ISO ceases or is otherwise not eligible to be an ISO, such Option (or portion thereof necessary to maintain the status of the remaining portion of the Option as an ISO) shall remain valid but be treated as an Option other than an ISO. SECTION 2.5 Change of Control. Notwithstanding the exercisability schedule governing any Option or Stock Appreciation Right, upon the occurrence of a Change of Control (as defined in Section 5.8) all Options and Stock Appreciation Rights outstanding at the time of such Change of Control and held by participants who are employees of the Company or its subsidiaries at the time of such Change of Control shall (unless specifically provided otherwise in the grant thereof) become immediately exercisable and, unless the participant agrees otherwise in writing, remain exercisable for three years (but not beyond the term of the Option or Stock Appreciation Right) after the employee's termination of employment for any reason other than termination by the Company or a subsidiary of the Company for dishonesty, conviction of a felony, willful unauthorized disclosure of confidential information or willful refusal to perform the duties of such employee's position or positions with the Company or such subsidiary (termination for "cause"); provided that this Section 2.5 shall not apply to Awards granted to a participant if, in connection with a Change of Control pursuant to clause (1) of Section 5.8, such participant is the Person or forms part of the Person specified in such clause (1). 5 ARTICLE III: RESTRICTED STOCK SECTION 3.1 Terms and Conditions of Restricted Stock Awards. Subject to the following provisions, all Awards of Restricted Stock under the Plan to employees of the Company and its Subsidiaries shall be in such form and shall have such terms and conditions as the Committee, in its discretion, may from time to time determine consistent with the Plan. (a) Restricted Stock Award. The Restricted Stock Award shall specify the number of shares of Restricted Stock to be awarded, the price, if any, to be paid by the recipient of the Restricted Stock, and the date or dates on which the Restricted Stock will vest. The vesting and number of shares of Restricted Stock may be conditioned upon the completion of a specified period of service with the Company or its Subsidiaries, upon the attainment of specified performance objectives, or upon such other criteria as the Committee may determine in accordance with the provisions hereof. Performance objectives will be based on increases in share prices, operating income, net income or cash flow thresholds on a company wide, subsidiary or division or group basis, rig utilization, safety records, return on common equity or any combination of the foregoing. (b) Restrictions on Transfer. Stock certificates representing the Restricted Stock granted to an employee shall be registered in the employee's name. Such certificates shall either be held by the Company on behalf of the employee, or delivered to the employee bearing a legend to restrict transfer of the certificate until the Restricted Stock has vested, as determined by the Committee. The Committee shall determine whether the employee shall have the right to vote and/or receive dividends on the Restricted Stock before it has vested. No share of Restricted Stock may be sold, transferred, assigned, or pledged by the employee until such share has vested in accordance with the terms of the Restricted Stock Award. Unless the grant of a Restricted Stock Award specifies otherwise, in the event of an employee's termination of employment before all the employee's Restricted Stock has vested, or in the event other conditions to the vesting of Restricted Stock have not been satisfied prior to any deadline for the satisfaction of such conditions set forth in the Award, the shares of Restricted Stock that have not vested shall be forfeited and any purchase price paid by the employee shall be returned to the employee. At the time Restricted Stock vests (and, if the employee has been issued legended certificates of Restricted Stock, upon the return of such certificates to the Company), a certificate for such vested shares shall be delivered to the employee or the employee's estate, free of all restrictions. (c) Accelerated Vesting. Notwithstanding the vesting conditions set forth in the Restricted Stock Award, (i) unless the Restricted Stock grant specifies otherwise, the Committee may in its discretion at any time accelerate the vesting of Restricted Stock or otherwise waive or amend any conditions of a grant of Restricted Stock, and (ii) all shares of Restricted Stock shall vest upon a Change of Control of the Company; provided that clause (ii) above shall not apply to Awards granted to a participant if, in connection with a Change of Control pursuant to clause (1) of Section 5.8, such participant is the Person or forms part of the Person specified in such clause (1). (d) Maximum Number. The maximum aggregate number of shares of Restricted Stock which may be awarded under the Plan shall be 500,000 shares. ARTICLE IV: PERFORMANCE AWARDS SECTION 4.1 Terms and Conditions of Performance Awards. The Committee shall be authorized to grant Performance Awards, which are payable in stock, cash or a combination thereof, at the discretion of the Committee. 6 (a) Performance Period. The Committee shall establish with respect to each Performance Award a performance period over which the performance goal of such Performance Award shall be measured. The performance period for a Performance Award shall be established prior to the time such Performance Award is granted and may overlap with performance periods relating to other Performance Awards granted hereunder to the same employee. (b) Performance Objectives. The Committee shall establish a minimum level of acceptable achievement for the holder at the time of each Award. Each Performance Award shall be contingent upon future performances and achievement of objectives described either in terms of Company-wide performance or in terms that are related to performance of the employee or of the division, subsidiary, department or function within the Company in which the employee is employed. The Committee shall have the authority to establish the specific performance objectives and measures applicable to such objectives. Such objectives, however, shall be based on increases in share prices, operating income, net income or cash flow thresholds on a company wide, subsidiary or division or group, rig utilization, safety records, return on common equity or any combination of the foregoing. (c) Size, Frequency and Vesting. The Committee shall have the authority to determine at the time of the Award the maximum value of a Performance Award, the frequency of Awards and the date or dates when Awards vest. (d) Payment. Following the end of each performance period, the holder of each Performance Award will be entitled to receive payment of an amount, not exceeding the maximum value of the Performance Award, based on the achievement of the performance measures for such performance period, as determined by the Committee. If at the end of the performance period the specified objectives have been attained, the employee shall be deemed to have fully earned the Performance Award. If the employee exceeds the specified minimum level of acceptable achievement but does not fully attain such objectives, the employee shall be deemed to have partly earned the Performance Award, and shall become entitled to receive a portion of the total Award, as determined by the Committee. If a Performance Award is granted after the start of a performance period, the Award shall be reduced to reflect the portion of the performance period during which the Award was in effect. Unless the Award specifies otherwise, including restrictions in order to satisfy the conditions under Section 162(m) of the Code, the Committee may adjust the payment of Awards or the performance objectives if events occur or circumstances arise which would cause a particular payment or set of performance objectives to be inappropriate, as determined by the Committee. (e) Termination of Employment. A recipient of a Performance Award who, by reason of death, disability or retirement, terminates employment before the end of the applicable performance period shall be entitled to receive, to the extent earned, a portion of the Award which is proportional to the portion of the performance period during which the employee was employed. A recipient of a Performance Award who terminates employment for any other reason shall not be entitled to any part of the Award unless the Committee determines otherwise; 7 however, the Committee may in no event pay the employee more than that portion of the Award which is proportional to his or her period of actual service. (f) Accelerated Vesting. Notwithstanding the vesting conditions set forth in a Performance Award, (i) unless the Award specifies otherwise, the Committee may in its discretion at any time accelerate vesting of the Award or otherwise waive or amend any conditions (including but not limited to performance objectives) in respect of a Performance Award, and (ii) all Performance Awards shall vest upon a Change of Control of the Company. In addition, each participant in the Plan shall receive the maximum Performance Award he or she could have earned for the proportionate part of the performance period prior to the Change of Control, and shall retain the right to earn any additional portion of his or her Award if he or she remains in the Company's employ. However, clause (ii) above shall not apply to Awards granted to a participant if, in connection with a Change of Control pursuant to clause (1) of Section 5.8, such participant is the Person or forms part of the Person specified in such clause (1). (g) Stockholder Rights. The holder of a Performance Award shall, as such, have none of the rights of a stockholder. ARTICLE V: ADDITIONAL PROVISIONS SECTION 5.1 General Restrictions. Each Award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or Federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the recipient of an Award with respect to the disposition of shares of Common Stock, is necessary or desirable (in connection with any requirement or interpretation of any Federal or state securities law, rule or regulation) as a condition of, or in connection with, the granting of such Award or the issuance, purchase or delivery of shares of Common Stock thereunder, such Award may not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. SECTION 5.2 Adjustments for Changes in Capitalization. In the event of any stock dividends, stock splits, recapitalizations, combinations, exchanges of shares, mergers, consolidation, liquidations, split-ups, split-offs, spin- offs, or other similar changes in capitalization, or any distribution to stockholders, including a rights offering, other than regular cash dividends, changes in the outstanding stock of the Company by reason of any increase or decrease in the number of issued shares of Common Stock resulting from a split-up or consolidation of shares or any similar capital adjustment or the payment of any stock dividend, any share repurchase at a price in excess of the market price of the Common Stock at the time such repurchase is announced or other increase or decrease in the number of such shares, the Committee shall make appropriate adjustment in the number and kind of shares authorized by the Plan (including shares available for ISOs), in the number, price or kind of shares covered by the Awards and in any outstanding Awards under the Plan; provided, however, that no such adjustment shall increase the aggregate value of any outstanding Award. 8 In the event of any adjustment in the number of shares covered by any Award, any fractional shares resulting from such adjustment shall be disregarded and each such Award shall cover only the number of full shares resulting from such adjustment. SECTION 5.3 Amendments. (a) The Board of Directors may at any time and from time to time and in any respect amend or modify the Plan. (b) The Committee shall have the authority to amend any Award to include any provision which, at the time of such amendment, is authorized under the terms of the Plan; however, no outstanding Award may be revoked or altered in a manner unfavorable to the holder without the written consent of the holder. SECTION 5.4 Withholding. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the holder to pay an amount in cash or to retain or sell without notice, or demand surrender of, shares of Common Stock in value sufficient to satisfy any Federal, state or local withholding tax liability ("Withholding Tax") prior to the delivery of any certificate for such shares (or remainder of shares if Common Stock is retained to satisfy such tax liability). Whenever under the Plan payments are to be made in cash, such payments shall be net of an amount sufficient to satisfy any Federal, state or local withholding tax liability. An Award may also provide the holder with the right to satisfy the Withholding Tax with previously owned shares of Common Stock or shares of Common Stock otherwise issuable to the holder. Whenever Common Stock is so retained or surrendered to satisfy Withholding Tax, the value of shares of Common Stock so retained or surrendered shall be determined by the Committee, and the value of shares of Common Stock so sold shall be the net proceeds (after deduction of commissions) received by the Company from such sale, as determined by the Committee. SECTION 5.5 Non-assignability. Except as expressly provided in the Plan or in any agreements, no Award under the Plan shall be assignable or transferable by the holder thereof except by will or by the laws of descent and distribution. During the life of the holder, Awards under the Plan shall be exercisable only by such holder or by the guardian or legal representative of such holder. SECTION 5.6 Non-uniform Determinations. Determinations by the Committee under the Plan (including, without limitation, determinations of the persons to receive Awards; the form, amount and timing of such Awards; the terms and provisions of such Awards and the agreements evidencing same; and provisions with respect to termination of employment) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated. 9 SECTION 5.7 No Guarantee of Employment. The grant of an Award under the Plan shall not constitute an assurance of continued employment for any period or any obligation of the Board of Directors to nominate any director for reelection by the Company's stockholders. SECTION 5.8 Change of Control. A "Change of Control" shall be deemed to have occurred if: (1) any Person (as defined below), other than a Designated Person, is or becomes the Beneficial Owner (as defined below) of securities of the Company representing 35% or more of the Voting Power (as defined below); (2) there shall occur a change in the composition of a majority of the Board of Directors within any period of four consecutive years which change shall not have been approved by a majority of the Board of Directors as constituted immediately prior to the commencement of such period; (3) at any meeting of the stockholders of the Company called for the purpose of electing directors, more than one of the persons nominated by the Board of Directors for election as directors shall fail to be elected; or (4) a merger, consolidation, sale of substantially all assets or other reorganization of the Company, other than a reincorporation, in which the Company does not survive, shall occur. For purposes of this Section 5.8, (i) "Person" shall have the meaning set forth in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"), as in effect on May 1, 1997, (ii) "Beneficial Owner" shall have the meaning set forth in Rules 13d-3 and 13d-5 promulgated under the Exchange Act on May 1, 1997; (iii) "Voting Power" shall mean the voting power of the outstanding securities of the Company having the right under ordinary circumstances to vote at an election of the Board of Directors; and (iv) "Designated Person" shall mean any Person whose Beneficial Ownership of securities is solely the result of such Person acquiring securities as an underwriter in an underwritten public offering of such securities. Notwithstanding anything contained herein to the contrary, a Change in Control shall not be deemed to have occurred due to the Voting Power of Remy Capital Partners III, L.P. or any of its affiliates (collectively "Remy") falling below 35% or subsequently increasing over 35%. SECTION 5.9 Duration and Termination. (a) The Plan shall be of unlimited duration. Notwithstanding the foregoing, no ISO (within the meaning of Section 422 of the Code) shall be granted under the Plan ten (10) years after the effective date of the Plan, but Awards granted prior to such date may extend beyond such date, and the terms of this Plan shall continue to apply to all Awards granted hereunder. (b) The Board of Directors may suspend, discontinue or terminate the Plan at any time. Such action shall not impair any of the rights of any holder of any Award outstanding on the date of the Plan's suspension, discontinuance or termination without the holder's written consent. 10 SECTION 5.10 Deferred Compensation and Trust Agreements. The Committee may authorize and establish deferred compensation agreements and arrangements in connection with Awards under the Plan and may establish trusts and other arrangements including "rabbi trusts", with respect to such agreements and appoint one or more trustees for such trusts. Shares of Common Stock under the Plan may also be acquired by one or more trustees from the Company, in the open market or otherwise. SECTION 5.11 Effective Date. The Plan is effective as of July 23, 1997, the effective date of the Long-Term Incentive Plan prior to amendment. 11 EX-4.8 5 d07634exv4w8.txt AMENDED/RESTATED NON-EMPLOYEE DIRECTOR STOCK PLAN EXHIBIT 4.8 AMENDED AND RESTATED PATTERSON-UTI ENERGY, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1. Purpose. This Amended and Restated Non-Employee Director Stock Option Plan (the "Plan") of Patterson-UTI Energy, Inc. (the "Company") was adopted for the benefit of the directors of the Company who at the time of their service are not employees of the Company or any of its subsidiaries ("Non-Employee Directors"), and is intended to advance the interests of the Company by providing the Non- Employee Directors with additional incentive to serve the Company by increasing their proprietary interest in the success of the Company. 2. Administration. The Plan shall be administered by a committee of the Board of Directors of the Company (the "Committee"), the members of which shall consist solely of directors who are employees of the Company. For the purposes of the Plan, a majority of the members of the Committee shall constitute a quorum for the transaction of business, and the vote of a majority of those members present at any meeting shall decide any question brought before that meeting. In addition, the Committee may take any action otherwise proper under the Plan by the affirmative vote, taken without a meeting, of a majority of its members. No member of the Committee shall be liable for any act or omission of any other member of the Committee or for any act or omission on his own part, including but not limited to the exercise of any power or discretion given to him under the Plan, except those resulting from his own gross negligence or willful misconduct. Except as otherwise expressly provided for herein, all questions of interpretation and application of the Plan, or as to options granted hereunder (the "Options"), shall be subject to the determination, which shall be final and binding, of a majority of the whole Committee. Notwithstanding the above, the selection of Non-Employee Directors to whom Options are to be granted, the number of shares subject to any Option, the exercise price of any Option and the term of any Option shall be as hereinafter provided and the Committee shall have no discretion as to such matters. 3. Option Shares. The stock subject to the Options and other provisions of the Plan shall be shares of the Company's Common Stock, $.01 par value (or such other par value as may be designated by act of the Company's stockholders) (the "Common Stock"). The total amount of the Common Stock with respect to which Options may be granted shall not exceed in the aggregate 600,000 shares; provided, that the class and aggregate number of shares which may be subject to the Options granted hereunder shall be subject to adjustment in accordance with the provisions of Paragraph 12 hereof. Such shares may be treasury shares or authorized but unissued shares. In the event that any outstanding Option for any reason shall expire or terminate by reason of the death of the optionee or the fact that the optionee ceases to be a director, the surrender of any such Option, or any other cause, the shares of Common Stock allocable to the unexercised portion of such Option may again be subject to an Option under the Plan. 4. Grant of Options. Subject to the provisions of Paragraph 16 and the availability under the Plan of a sufficient number of shares of Common Stock that may be issuable upon the exercise of outstanding Options, there shall be granted the following Options: (a) To each Non-Employee Director as of the date he is first elected as a director of the Company, an Option to purchase 20,000 shares, subject to adjustment as provided in Paragraph 12 hereof, of Common Stock at a purchase price per share of Common Stock (the "Option Price") equal to the fair market value of the Common Stock as defined in Paragraph 7 hereof as of the date of grant; and (b) Each Non-Employee Director who has served as a non-employee director for a period of at least one year shall receive on each December 31 on which such person is a Non-Employee Director, an Option to purchase 10,000 shares, subject to adjustment as provided in Paragraph 12 hereof, of Common Stock at an Option Price equal to the fair market value of the Common Stock as defined in Paragraph 7 hereof as of the date of grant. No Option shall be granted pursuant to the Plan after December 18, 2005. 5. Duration of Options. Each Option granted under the Plan shall be exercisable for a term of five years from the date of grant, subject to earlier termination as provided in Paragraph 9 hereof. 6. Amount Exercisable. Each Option granted pursuant to the Plan shall not be exercisable for a period of one year from the date of grant. After such time, such Option shall be fully vested and exercisable throughout the term of the Option. Notwithstanding the foregoing, no Option granted by virtue of the amendments effected by this Plan shall be exercisable for a period of six months following stockholder approval. 7. Exercise of Options. An optionee may exercise such optionee's Option by delivering to the Company a written notice stating (i) that such optionee wishes to exercise such Option on the date such notice is so delivered, (ii) the number of shares of stock with respect to which such Option is to be exercised, (iii) the address to which the certificate representing such shares of stock should be mailed, and (iv) the social security number of such optionee. In order to be effective, such written notice shall be accompanied by (i) payment of the Option Price of such shares of stock and (ii) if applicable, payment of an amount of money necessary to satisfy any withholding tax liability that may result from the exercise of such Option. Each such payment shall be made by check drawn on a national banking association and payable to the order of the Company in United States dollars. If, at the time of receipt by the Company of such written notice, (i) the Company has unrestricted surplus in an amount not less than the Option Price of such shares of stock, (ii) all accrued cumulative preferential dividends and other current preferential dividends on all outstanding shares of preferred stock of the Company have been fully paid, (iii) the acquisition by the Company of its own shares of stock for the purpose of enabling such optionee to exercise - -------------------------------------------------------------------------------- Page 2 such Option is otherwise permitted by applicable law and without any vote or consent of any stockholder of the Company, and (iv) there shall have been adopted, and there shall be in full force and effect, a resolution of the Board of Directors of the Company authorizing the acquisition by the Company of its own shares of stock for such purpose, then such optionee may deliver to the Company, in payment of the Option Price of the shares of stock with respect to which such Option is exercised, (x) certificates registered in the name of such optionee that represent a number of shares of stock legally and beneficially owned by such optionee (free of all liens, claims and encumbrances of every kind) and having a fair market value on the date of receipt by the Company of such written notice that is not greater than the Option Price of the shares of stock with respect to which such Option is to be exercised, such certificates to be accompanied by stock powers duly endorsed in blank by the record holder of the shares of stock represented by such certificates, with the signature of such record holder guaranteed by a national banking association (or, in lieu of such certificates, other arrangements for the transfer of such shares to the Company which are satisfactory to the Company) and (y) if the Option Price of the shares of stock with respect to which such Options are to be exercised exceeds such fair market value, a check drawn on a national banking association and payable to the order of the Company in an amount, in United States dollars, equal to the amount of such excess plus the amount of money necessary to satisfy any withholding tax liability that may result from the exercise of such Option. Notwithstanding the provisions of the immediately preceding sentence, the Committee, in its sole discretion, may refuse to accept shares of stock in payment of the Option Price of the shares of stock with respect to which such Option is to be exercised and, in that event, any certificates representing shares of stock that were received by the Company with such written notice shall be returned to such optionee, together with notice by the Company to such optionee of the refusal of the Committee to accept such shares of stock. The Company may, at its option and upon approval by the Board of Directors of the Company, retain shares of Common Stock which would otherwise be issued upon exercise of an Option to satisfy any withholding tax liability that may result from the exercise of such Option, which shares shall be valued for such purpose at their then fair market value. If, at the expiration of seven business days after the delivery to such optionee of such written notice from the Company, such optionee shall not have delivered to the Company a check drawn on a national banking association and payable to the order of the Company in an amount, in United States dollars, equal to the Option Price of the shares of stock with respect to which such Option is to be exercised, such written notice from the optionee to the Company shall be ineffective to exercise such Option. As promptly as practicable after the receipt by the Company of (i) such written notice from the optionee, (ii) payment, in the form required by the foregoing provisions of this Paragraph 7, of the Option Price of the shares of stock with respect to which such Option is to be exercised, and (iii) payment, if required, in the form required by the foregoing provisions of this Paragraph 7, of an amount necessary to satisfy any withholding tax liability that may result from the exercise of such Option, a certificate representing the number of shares of stock with respect to which such Option has been so exercised, reduced, to the extent applicable by the number of shares retained by the Company to pay any required withholding tax, such certificate to be registered in the name of such optionee, provided that such delivery shall be considered to have been made when such certificate shall have been mailed, postage prepaid, to such optionee at the address specified for such purpose in such written notice from the optionee to the Company. - -------------------------------------------------------------------------------- Page 3 For purposes of this Paragraph 7, the "fair market value" of a share of stock as of any particular date shall mean the closing sale price of a share of Common Stock on that date as reported by the principal national securities exchange on which the Common Stock is listed if the Common Stock is then listed on a national securities exchange, or if the Common Stock is not so listed, the average of the bid and asked price of a share of Common Stock on that date and reported in the National Association of Securities Dealers Automated Quotation system (the "NASDAQ System"); provided that if no such closing price or quotes are so reported on that date or if in the discretion of the Committee another means of determining the fair market value of a share of stock at such date shall be necessary or advisable, the Committee may provide for another means for determining such fair market value. 8. Transferability of Options. Options shall not be transferable by the optionee otherwise than by will or under the laws of descent and distribution, and shall be exercisable, during his lifetime, only by him. 9. Termination. Except as may be otherwise expressly provided herein, each Option, to the extent it shall not previously have been exercised, shall terminate on the earlier of the following: (a) On the last day within the three month period commencing on the date on which the optionee ceases to be a member of the Company's Board of Directors, for any reason other than the death, disability or retirement of the optionee, during which period the optionee shall be entitled to exercise all Options fully vested as described in Paragraph 6 by the optionee on which the optionee ceased on the date on which the optionee ceased be a member of the Company's Board of Directors; (b) On the last day within the one year period commencing on the date on which the optionee ceases to be a member of the Company's Board of Directors because of permanent disability, during which period the optionee shall be entitled to exercise all Options fully vested as described in Paragraph 6 by the optionee on the date on which the optionee ceased to be a member of the Company's Board of Directors because of such disability; (c) On the last day within the one year period commencing on the date of the optionee's death while serving as a member of the Company's Board of Directors, during which period the executor or administrator of the optionee's estate or the person or persons to whom the optionee's Option shall have been transferred by will or the laws of descent or distribution, shall be entitled to exercise all Options in respect of the number of shares that the optionee would have been entitled to purchase had the optionee exercised such Options on the date of his death; (d) On the last day within the one year period commencing on the date an optionee who has had at least five years of service on the Board of Directors of the Company retires from the Board of Directors of the Company, during which period the optionee, or the executor or administrator of the optionee's estate or the person or persons to whom such Option shall have been transferred by the will or the laws of descent or distribution in the event of the optionee's death within such one year period, as the case may be, shall be entitled to exercise all Options in respect of the number of shares that the optionee would have been - -------------------------------------------------------------------------------- Page 4 entitled to purchase had the optionee exercised such Options on the date of such retirement; and (e) Five years after the date of grant of such Option. 10. Requirements of Law. The Company shall not be required to sell or issue any shares under any Option if the issuance of such shares shall constitute a violation by the optionee or the Company of any provisions of any law or regulation of any governmental authority. Each Option granted under the Plan shall be subject to the requirements that, if at any time the Board of Directors of the Company or the Committee shall determine that the listing, registration or qualification of the shares subject thereto upon any securities exchange or under any state or federal law of the United States or of any other country or governmental subdivision thereof, or the consent or approval of any governmental regulatory body, or investment or other representations, are necessary or desirable in connection with the issue or purchase of shares subject thereto, no such Option may be exercised in whole or in part unless such listing, registration, qualification, consent, approval or representation shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. If required at any time by the Board of Directors or the Committee, an Option may not be exercised until the optionee has delivered an investment letter to the Company. In addition, specifically in connection with the Securities Act of 1933 (as now in effect or hereafter amended), upon exercise of any Option, the Company shall not be required to issue the underlying shares unless the Committee has received evidence satisfactory to it to the effect that the holder of such Option will not transfer such shares except pursuant to a registration statement in effect under such Act or unless an opinion of counsel satisfactory to the Company has been received by the Committee to the effect that such registration is not required. Any determination in this connection by the Committee shall be final, binding and conclusive. In the event the shares issuable on exercise of an Option are not registered under the Securities Act of 1933, the Company may imprint on the certificate for such shares the following legend or any other legend which counsel for the Company considers necessary or advisable to comply with the Securities Act of 1933: "The shares of stock represented by this certificate have not been registered under the Securities Act of 1933 or under the securities laws of any state and may not be sold or transferred except upon such registration or upon receipt by the Corporation of an opinion of counsel satisfactory, in form and substance to the Corporation, that registration is not required for such sale or transfer." The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) and, in the event any shares are so registered, the Company may remove any legend on certificates representing such shares. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. 11. No Rights as Stockholder. No optionee shall have rights as a stockholder with respect to shares covered by his Option until the date of issuance of a stock certificate for such shares; and, - -------------------------------------------------------------------------------- Page 5 except as otherwise provided in Paragraph 12 hereof, no adjustment for dividends, or otherwise, shall be made if the record date therefor is prior to the date of issuance of such certificate. 12. Changes in the Company's Capital Structure. The existence of outstanding Options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. If the Company shall effect a subdivision or consolidation of shares or other capital adjustment of, or the payment of a dividend in capital stock or other equity securities of the Company on, its Common Stock, or other increase or reduction of the number of shares of the Common Stock without receiving consideration therefor in money, services, or property, or the reclassification of its Common Stock, in whole or in part, into other equity securities of the Company, then (a) the number, class and per share price of shares of stock subject to outstanding Options hereunder shall be appropriately adjusted (or in the case of the issuance of equity securities as a dividend on, or in a reclassification of, the Common Stock, the Options shall extend to such other securities) in such a manner as to entitle an optionee to receive, upon exercise of an Option, for the same aggregate cash compensation, the same total number and class or classes of shares (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) he would have held after such adjustment if he had exercised his Option in full immediately prior to the event requiring the adjustment, or, if applicable, the record date for determining stockholders to be affected by such adjustment; and (b) the number and class of shares then reserved for issuance under the Plan (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) shall be adjusted by substituting for the total number and class of shares of stock then received, the number and class or classes of shares of stock (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) that would have been received by the owner of an equal number of outstanding shares of Common Stock as the result of the event requiring the adjustment. Comparable rights shall accrue to each optionee in the event of successive subdivisions, consolidations, capital adjustment, dividends or reclassifications of the character described above. If the Company shall distribute to all holders of its shares of Common Stock (including any such distribution made to non-dissenting stockholders in connection with a consolidation or merger in which the Company is the surviving corporation and in which holders of shares of Common Stock continue to hold shares of Common Stock after such merger or consolidation) evidences of indebtedness or cash or other assets (other than cash dividends payable out of consolidated retained earnings not in excess of, in any one year period, the greater of (a) $.10 per share of Common Stock and (b) two times the aggregate amount of dividends per share paid during the preceding calendar year and dividends or distributions payable in shares of Common Stock or other equity securities of the Company described in the immediately preceding paragraph), then in each case the Option Price shall be adjusted by reducing the Option Price in - -------------------------------------------------------------------------------- Page 6 effect immediately prior to the record date for the determination of stockholders entitled to receive such distribution by the fair market value, as determined in good faith by the Board of Directors of the Company (whose determination shall be described in a statement filed in the Company's corporate records and be available for inspection by any holder of an Option) of the portion of the evidence of indebtedness or cash or other assets so to be distributed applicable to one share of Common Stock; provided that in no event shall the Option Price be less than the par value of a share of Common Stock. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of the distribution retroactive to the record date for the determination of the stockholders entitled to receive such distribution. Comparable adjustments shall be made in the event of successive distributions of the character described above. After the Company shall make a tender offer for, or grant to all of its holders of its shares of Common Stock the right to require the Company to acquire from such stockholders shares of, Common Stock, at a price in excess of the Current Market Price (a "Put Right") or the Company shall grant to all of its holders of its shares of Common Stock the right to acquire shares of Common Stock for less than the Current Market Price (a "Purchase Right") then, in the case of a Put Right, the Option Price shall be adjusted by multiplying the Option Price in effect immediately prior to the record date for the determination of stockholders entitled to receive such Put Right by a fraction, the numerator of which shall be the number of shares of Common Stock then outstanding minus the number of shares of Common Stock which could be purchased at the Current Market Price for the aggregate amount which would be paid if all Put Rights are exercised and the denominator of which is the number of shares of Common Stock which would be outstanding if all Put Rights are exercised; and, in the case of a Purchase Right, the Option Price shall be adjusted by multiplying the Option Price in effect immediately prior to the record date for the determination of the stockholders entitled to receive such Purchase Right by a fraction, the numerator of which shall be the number of shares of Common Stock then outstanding plus the number of shares of Common Stock which could be purchased at the Current Market Price for the aggregate amount which would be paid if all Purchase Rights are exercised and the denominator of which is the number of shares of Common Stock which would be outstanding if all Purchase Rights are exercised. In addition, the number of shares subject to the Option shall be increased by multiplying the number of shares then subject to the Option by a fraction which is the inverse of the fraction used to adjust the Option Price. Notwithstanding the foregoing if any such Put Rights or Purchase Rights shall terminate without being exercised, the Option Price and number of shares subject to Option shall be appropriately readjusted to reflect the Option Price and number of shares subject to the Option which would have been in effect if such unexercised Rights had never existed. Comparable adjustments shall be made in the event of successive transactions of the character described above. After the merger of one or more corporations into the Company, after any consolidation of the Company and one or more corporations, or after any other corporate transaction described in Section 424(a) of the Internal Revenue Code of 1986, as amended (the "Code") in which the Company shall be the surviving corporation, each optionee, at no additional cost, shall be entitled to receive, upon any exercise of his Option, in lieu of the number of shares as to which the Option shall then be so exercised, the number and class of shares of stock or other equity securities to which the optionee would have been entitled pursuant to the terms of the agreement - -------------------------------------------------------------------------------- Page 7 of merger or consolidation if at the time of such merger or consolidation such optionee had been a holder of a number of shares of Common Stock equal to the number of shares as to which the Option shall then be so exercised and, if as a result of such merger, consolidation or other transaction, the holders of Common Stock are not entitled to receive any shares of Common Stock pursuant to the terms thereof, each optionee, at no additional cost, shall be entitled to receive, upon exercise of his Option, such other assets and property, including cash, to which he would have been entitled if at the time of such merger, consolidation or other transaction he had been the holder of the number of shares of Common Stock equal to the number of shares as to which the Option shall then be so exercised. Comparable rights shall accrue to each optionee in the event of successive mergers or consolidations of the character described above. After a merger of the Company into one or more corporations, after any consolidation of the Company and any one or more corporations, or after any other corporate transaction described in Section 424(a) of the Code in which the Company is not the surviving corporation, each optionee shall, at no additional cost, be entitled at the option of the surviving corporation, (i) to have his then existing Option assumed or to have a new option substituted for the existing Option by the surviving corporation to the transaction which is then employing him, or a parent or subsidiary of such corporation, on a basis where the excess of the aggregate fair market value of the shares subject to the option immediately after the substitution or assumption over the aggregate option price of such option is equal to the excess of the aggregate fair market value of all shares subject to the option immediately before such substitution or assumption over the aggregate option price of such shares, provided that the shares subject to the new option must be traded on the New York Stock Exchange or the American Stock Exchange or quoted on the NASDAQ, or (ii) to receive upon any exercise of his Option, in lieu of the number of shares as to which the Option shall then be so exercised, the securities, property and other assets, including cash, to which the Optionee would have been entitled pursuant to the terms of the agreement of merger or consolidation or the agreement giving rise to the other corporate transaction if at the time of such merger, consolidation or other transaction such optionee had been the holder of the number of shares of Common Stock equal to the number of shares as to which the Option shall then be so exercised. If a corporate transaction described in Section 424(a) of the Code which involves the Company is to take place and there is to be no surviving corporation while an Option remains in whole or in part unexercised, it shall be cancelled by the Board of Directors as of the effective date of any such corporate transaction but before the date each optionee shall be provided with a notice of such cancellation and each optionee shall have the right to exercise such Option in full (without regard to any limitations set forth in or imposed pursuant to Paragraph 9 of the Plan) to the extent it is then still unexercised during a 30-day period preceding the effective date of such corporate transaction. For purposes of this Paragraph 12, "Current Market Price per share of Common Stock" shall mean the closing price of a share of Common Stock on the principal national securities exchange on which the Common Stock is listed or, if the Common Stock is not so listed, the average bid and asked price of a share of Common Stock as reported in the NASDAQ System, in each case on the trading day immediately preceding the first trading day on which, as a result of the establishment of a record date or otherwise, the trading price reflects that an acquiror of - -------------------------------------------------------------------------------- Page 8 Common Stock in the public market will not participate in or receive the payment of any applicable dividend or distribution. Except a hereinbefore expressly provided, the issue by the Company of shares of Common Stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock then subject to outstanding Options. 13. Amendment or Termination of Plan. The Board of Directors may modify, revise or terminate the Plan at any time and from time to time; provided, however, that without the further approval of the holders of a majority of the shares of voting stock present in person or by proxy at a meeting of stockholders, or if the provisions of the corporate charter, by-laws or applicable state law prescribes a greater degree of stockholder approval for this action, without the degree of stockholder approval thus required, the Board of Directors may not (a) change the aggregate number of shares which may be issued under Options pursuant to the provisions of the Plan; (b) reduce the option price permitted for the Options; (c) extend the term during which an option may be exercised or the termination date of the Plan; or (d) materially increase any other benefits accruing to directors under the Plan or materially modify the requirements as to eligibility for participation in the Plan unless, in each such case, the Board of Directors of the Company shall have obtained an opinion of legal counsel to the effect that stockholder approval of the amendment is not required (i) by law, (ii) by the applicable rules and regulations of, or any agreement with, any national securities exchange that the Common Stock is then listed on or if the Common Stock is not so listed, the rules and regulations, or any agreement with, the National Association of Securities Dealers, Inc., and (iii) in order to make available to the optionee with respect to any option granted under the Plan, the benefits of Rule 16b-3 of the Rules and Regulations under the Securities Exchange Act of 1934, or any similar or successor rule. In addition, the terms of the Plan relating to the number of shares that may be subject to an Option, the times at which Options shall be granted, and the means by which the Option Price for Options granted is to be determined shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act or the rules thereunder. 14. Written Agreement. Each Option granted hereunder shall be embodied in a written option agreement, which shall be subject to the terms and conditions prescribed above, and shall be signed by the optionee and by the appropriate officer of the Company for and in the name and on behalf of the Company. Such an option agreement shall contain such other provisions as the Committee in its discretion shall deem advisable. 15. Indemnification of Committee. The Company shall indemnify each present and future member of the Committee against, and each member of the Committee shall be entitled without further act on his part to indemnity from the Company for, all expenses (including the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in - -------------------------------------------------------------------------------- Page 9 connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his being or having been a member of the Committee, whether or not he continues to be such member of the Committee at the time of incurring such expenses; provided, however, that such indemnity shall not include any expenses incurred by any such member of the Committee (a) in respect of matters as to which he shall be finally adjudged in any such action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duty as such member of the Committee, or (b) in respect of any matter in which any settlement is effected, to an amount in excess of the amount approved by the Company on the advice of its legal counsel; and provided further, that no right of indemnification under the provisions set forth herein shall be available to or enforceable by any such member of the Committee unless, within sixty (60) days after institution of any such action, suit or proceeding, he shall have offered the Company, in writing, the opportunity to handle and defend same at its own expense. The foregoing right of indemnification shall inure to the benefit of the heirs, executors or administrators of each such member of the Committee and shall be in addition to all other rights to which such member of the Committee may be entitled to as a matter of law, contract, or otherwise. Nothing in this Section 15 shall be construed to limit or otherwise affect any right to indemnification, or payment of expense, or any provisions limiting the liability of any officer or director of the Company or any member of the Committee, provided by law, the Certificate of Incorporation of the Company or otherwise. 16. Effective Date of Plan. The Plan shall be deemed to have been adopted and effective on December 19, 1995. - -------------------------------------------------------------------------------- Page 10 EX-99.1 6 d07634exv99w1.txt CERTIFICATION OF CEO AND CFO PURSUANT TO SEC. 906 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 NOT FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934 In connection with the Quarterly Report of Patterson-UTI Energy, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Cloyce A. Talbott, Chief Executive Officer, and Jonathan D. Nelson, Chief Financial Officer, of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. /s/ Cloyce A. Talbott - --------------------------------- Cloyce A. Talbott Chief Executive Officer July 28, 2003 /s/ Jonathan D. Nelson - --------------------------------- Jonathan D. Nelson Chief Financial Officer July 28, 2003 -----END PRIVACY-ENHANCED MESSAGE-----