AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 2003
REGISTRATION NO. 333-107298
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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PATTERSON-UTI ENERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1381 75-2504748
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
4510 LAMESA HIGHWAY
SNYDER, TEXAS 79549
(325) 574-6300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
MR. CLOYCE A. TALBOTT
PATTERSON-UTI ENERGY, INC.
4510 LAMESA HIGHWAY
SNYDER, TEXAS 79549
(325) 574-6300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------------
COPIES TO:
MICHAEL W. CONLON, ESQ. W. SCOTT WALLACE, ESQ. THOMAS W. ORTLOFF, ESQ.
LAURA J. MCMAHON, ESQ. HAYNES AND BOONE, LLP LYNCH, CHAPPELL & ALSUP, P.C.
FULBRIGHT & JAWORSKI L.L.P. 901 MAIN STREET, SUITE 3100 THE SUMMIT
1301 MCKINNEY, SUITE 5100 DALLAS, TEXAS 75202 300 MARIENFELD, SUITE 700
HOUSTON, TEXAS 77010 (214) 651-5000 MIDLAND, TEXAS 79701
(713) 651-5151 (432) 683-3351
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effectiveness of this registration
statement and all other conditions to the merger contemplated by the merger
agreement described in the proxy statement/prospectus included in this
registration statement have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 2003
(TMBR/SHARP DRILLING, INC. LOGO)
TMBR/SHARP DRILLING, INC.
PROXY STATEMENT
(PATTERSON-UTI ENERGY, INC. LOGO)
PATTERSON-UTI ENERGY, INC.
PROSPECTUS
PROPOSED MERGER -- YOUR VOTE IS VERY IMPORTANT
This proxy statement/prospectus relates to a transaction in which TMBR/Sharp
Drilling, Inc. will be merged with and into Patterson-UTI Acquisition, LLC, a
wholly owned subsidiary of Patterson-UTI Energy, Inc. In the merger, each
TMBR/Sharp shareholder will be entitled to receive 0.312166 shares of
Patterson-UTI common stock and $9.09 in cash for each share of TMBR/Sharp common
stock owned by that shareholder, except for shares owned directly or indirectly
by Patterson-UTI or TMBR/Sharp and shares held by TMBR/Sharp shareholders who
validly exercise their dissenters' rights under Texas law.
In order to complete the merger, TMBR/Sharp shareholders must vote to
approve the merger agreement. TMBR/Sharp has scheduled a special meeting of its
shareholders to be held at a.m., local time on , 2003, at the Midland
Petroleum Club, 501 West Wall, Midland, Texas 79701 to consider the approval of
the merger agreement. Only TMBR/Sharp shareholders of record on the close of
business on , 2003 will be entitled to notice of, and to vote at, the
special meeting. The affirmative vote of the holders of at least two-thirds of
the outstanding shares of TMBR/Sharp common stock entitled to vote at the
special meeting is required to approve the merger agreement. The merger does not
require the vote of Patterson-UTI stockholders.
TMBR/Sharp's board of directors has unanimously determined that the merger
agreement, including the merger and the transactions contemplated thereby, are
fair to and in the best interests of the TMBR/Sharp shareholders, and it
unanimously recommends that TMBR/Sharp shareholders approve the merger.
Patterson-UTI's common stock is traded on the Nasdaq National Market under
the symbol "PTEN". TMBR/Sharp's common stock is traded on the Nasdaq National
Market under the symbol "TBDI".
This proxy statement/prospectus provides detailed information about the
proposed merger. We urge you to read carefully this entire document and the
documents incorporated in this document by reference.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF RISKS THAT
SHOULD BE CONSIDERED BY TMBR/SHARP SHAREHOLDERS WITH RESPECT TO THE MERGER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF PATTERSON-UTI COMMON STOCK
TO BE ISSUED IN THE MERGER OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS IS DATED , 2003, AND IS FIRST BEING
MAILED TO TMBR/SHARP SHAREHOLDERS ON OR ABOUT , 2003.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT PATTERSON-UTI AND TMBR/SHARP FROM DOCUMENTS FILED
WITH THE SEC THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT. THIS
INFORMATION IS AVAILABLE AT THE WEBSITE THE SEC MAINTAINS AT WWW.SEC.GOV, AS
WELL AS FROM OTHER SOURCES. SEE "WHERE YOU CAN FIND MORE INFORMATION" BEGINNING
ON PAGE 78. YOU ALSO MAY REQUEST COPIES OF THESE DOCUMENTS FROM US, WITHOUT
CHARGE, UPON WRITTEN OR ORAL REQUEST TO THE APPROPRIATE COMPANY AT THE FOLLOWING
ADDRESSES:
Patterson-UTI Energy, Inc. TMBR/Sharp Drilling, Inc.
P.O. Box 1416 4607 West Industrial Boulevard
Snyder, Texas 79550 Midland, Texas 79703
Attention: Jonathan D. Nelson Attention: Patricia R. Elledge
(325) 574-6300 (432) 699-5050
IF YOU WOULD LIKE TO REQUEST ANY DOCUMENTS INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT/PROSPECTUS, YOU MUST DO SO BY , 2003 IN ORDER TO
RECEIVE THEM BEFORE THE SPECIAL MEETING OF TMBR/SHARP SHAREHOLDERS. THE EXHIBITS
TO THOSE DOCUMENTS WILL GENERALLY NOT BE MADE AVAILABLE UNLESS THE EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE IN THOSE DOCUMENTS.
TMBR/SHARP DRILLING, INC.
4607 WEST INDUSTRIAL BOULEVARD
MIDLAND, TEXAS 79703
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 2003
---------------------
To The Shareholders of
TMBR/Sharp Drilling, Inc.:
A Special Meeting of the Shareholders of TMBR/Sharp Drilling, Inc. will be
held at : a.m., local time, on , 2003, at the Midland Petroleum
Club, 501 West Wall, Midland, Texas 79701 for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger dated May 26, 2003, by and among TMBR/Sharp Drilling, Inc.,
Patterson-UTI Energy, Inc. and Patterson-UTI Acquisition, LLC, a
wholly-owned subsidiary of Patterson-UTI Energy, Inc., whereby (a)
TMBR/Sharp Drilling, Inc. will be merged with and into Patterson-UTI
Acquisition, LLC, and (b) each issued and outstanding share of common stock,
$.10 par value per share, of TMBR/Sharp (singularly, "TMBR/Sharp Share,"
and more than one TMBR/Sharp Share being referred to herein as "TMBR/Sharp
Shares") not owned directly or indirectly by Patterson-UTI Energy, Inc. or
TMBR/Sharp Drilling, Inc. or held by TMBR/Sharp shareholders who validly
exercise their dissenters' rights under Texas law, will be converted into
the right to receive $9.09 in cash and 0.312166 of a share of common stock,
$0.01 par value per share, of Patterson-UTI Energy, Inc.
2. To consider and vote upon a proposal to permit us to adjourn the
special meeting to a date not later than , 2003 to permit further
solicitation of proxies if there are not sufficient votes at the time of the
meeting to approve the merger proposal.
A copy of the merger agreement is attached as Annex A to the accompanying
proxy statement/prospectus.
Only those TMBR/Sharp shareholders who were holders of record of TMBR/Sharp
Shares at the close of business on , 2003 will be entitled to notice
of, and to vote at, the special meeting and any adjournment or postponement of
the meeting. A list of those shareholders will be available for review at
TMBR/Sharp's principal executive office during normal business hours for a
period of ten days before the special meeting.
TMBR/Sharp cannot complete the merger unless it obtains the affirmative vote
of the holders of at least two-thirds of the outstanding shares of its common
stock entitled to vote at the special meeting to approve the merger agreement.
TMBR/Sharp shareholders who do not vote in favor of approval of the merger
agreement will have the right to seek appraisal of the fair value of their
TMBR/Sharp Shares if the merger is completed, but only if they submit a written
demand for an appraisal before TMBR/Sharp takes the vote on the merger
agreement, and if they comply with Texas law as explained in the accompanying
proxy statement/prospectus.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF TMBR/SHARP SHARES THAT YOU
OWN, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN
THE ENCLOSED PRE-ADDRESSED POSTAGE-PAID ENVELOPE.
IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE REGISTERED
IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED, SIGNED,
DATED AND RETURNED TO ENSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR VOTE AT THE SPECIAL
MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE APPROVAL OF THE MERGER
AGREEMENT BUT, ASSUMING A QUORUM IS PRESENT, WILL HAVE NO EFFECT ON THE
ADJOURNMENT PROPOSAL.
Your proxy is revocable and will not affect your right to vote in person if
you decide to attend the special meeting. Simply attending the special meeting,
however, will not revoke your proxy. For an explanation of the procedures for
revoking your proxy, see the section of the accompanying proxy
statement/prospectus captioned "The Special Meeting -- Voting." Returning your
proxy card without indicating how you want to vote will have the same effect as
a vote FOR the approval of the merger agreement and FOR the approval of the
adjournment proposal.
IF THE MERGER IS COMPLETED, YOU WILL RECEIVE INSTRUCTIONS FOR SURRENDERING
YOUR TMBR/SHARP DRILLING, INC. STOCK CERTIFICATES IN EXCHANGE FOR YOUR RIGHT TO
RECEIVE $9.09 IN CASH AND 0.312166 OF A SHARE OF COMMON STOCK, $0.01 PAR VALUE
PER SHARE, OF PATTERSON-UTI ENERGY, INC. YOU SHOULD NOT SUBMIT YOUR STOCK
CERTIFICATES FOR EXCHANGE UNTIL YOU HAVE RECEIVED THE INSTRUCTIONS AND THE
LETTER OF TRANSMITTAL.
By Order of the Board of Directors,
James M. Alsup
Secretary
Midland, Texas
, 2003
TABLE OF CONTENTS
PAGE
NO.
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... iv
Frequently Used Terms..................................... iv
Special Meeting; Votes Required........................... iv
The Merger................................................ vi
General................................................... viii
SUMMARY..................................................... 1
Information about Patterson-UTI........................... 1
Information about TMBR/Sharp.............................. 1
Information about the Merger.............................. 2
Opinion of TMBR/Sharp's Financial Advisor................. 2
Board of Directors of Patterson-UTI Following the
Merger................................................. 2
Termination of the Merger................................. 3
Expenses.................................................. 3
No Solicitation by TMBR/Sharp............................. 3
Accounting Treatment...................................... 3
Material United States Federal Income Tax Consequences.... 4
Certain Differences in the Rights of Shareholders......... 4
Comparative Per Share Market Price Information............ 5
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL
DATA...................................................... 6
Selected Historical Consolidated Financial Data of
Patterson-UTI.......................................... 6
Selected Historical Financial Data of TMBR/Sharp.......... 7
Selected Unaudited Condensed Combined Pro Forma Financial
Data of Patterson-UTI.................................. 8
COMPARATIVE PER SHARE INFORMATION........................... 9
RISK FACTORS................................................ 10
FORWARD-LOOKING STATEMENTS.................................. 12
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION............................................... 13
THE SPECIAL MEETING......................................... 14
General................................................... 14
Solicitation.............................................. 14
Quorum.................................................... 14
Meeting Proposals......................................... 14
Voting.................................................... 15
Appraisal Rights.......................................... 16
Stock Certificates........................................ 16
THE MERGER.................................................. 17
Background of the Merger.................................. 17
TMBR/Sharp's Reasons for the Merger....................... 24
Recommendations of TMBR/Sharp's Board of Directors........ 26
Opinion of TMBR/Sharp's Financial Advisor................. 26
Source of Funds for Cash Portion of Merger
Consideration.......................................... 37
Interests of Certain Persons in the Merger................ 37
Accounting Treatment...................................... 40
PAGE
NO.
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Opinions that the Merger Constitutes a Reorganization
under Section 368(a) of the Internal Revenue Code...... 40
Regulatory Matters........................................ 41
Interested Shareholder Transactions Under Texas Law....... 41
Federal Securities Laws Consequences; Resale
Restrictions........................................... 41
Dissenters' Rights of Appraisal........................... 42
THE MERGER AGREEMENT........................................ 45
Structure of the Merger................................... 45
When the Merger Becomes Effective......................... 45
Conversion of Stock and Stock Options..................... 45
Exchange Procedures....................................... 46
Covenants and Other Agreements............................ 49
Conditions Precedent...................................... 52
No Solicitation........................................... 53
Termination............................................... 55
Fees and Expenses......................................... 56
Amendment................................................. 56
Extension; Waiver......................................... 56
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES...... 57
Tax Consequences of the Merger to U.S. Holders............ 58
Tax Consequences of the Merger to Non-U.S. Holders........ 60
DESCRIPTION OF PATTERSON-UTI CAPITAL STOCK.................. 62
General................................................... 62
Common Stock.............................................. 62
Preferred Stock........................................... 62
Stockholder Rights Plan................................... 63
Other Provisions Having a Possible Anti-Takeover Effect... 63
COMPARISON OF THE RIGHTS OF PATTERSON-UTI STOCKHOLDERS AND
TMBR/SHARP SHAREHOLDERS................................... 64
Authorized Capital Stock.................................. 64
Board of Directors........................................ 64
Cumulative Voting......................................... 65
Preemptive Rights......................................... 65
Removal of Directors...................................... 65
Committees of the Board of Directors...................... 65
Special Meetings of Stockholders.......................... 66
Quorum at Stockholder Meetings............................ 66
Stockholder Action by Written Consent..................... 66
Stockholder Proposals at Annual Meetings.................. 66
Business Combination with an Interested Stockholder....... 67
Dissenters' Appraisal Rights.............................. 68
Dividends................................................. 68
Liquidation Rights........................................ 69
Rights Plan............................................... 69
ii
PAGE
NO.
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Amendment of Governing Documents.......................... 70
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL DATA OF
PATTERSON-UTI............................................. 71
LEGAL MATTERS............................................... 77
EXPERTS..................................................... 77
WHERE YOU CAN FIND MORE INFORMATION......................... 78
ANNEX A -- MERGER AGREEMENT................................. A-1
ANNEX B -- ENERGY CAPITAL SOLUTIONS, LLC FAIRNESS OPINION... B-1
ANNEX C -- PROVISIONS OF TEXAS BUSINESS CORPORATION ACT
REGARDING DISSENTERS' RIGHTS.............................. C-1
ANNEX D-1 -- FORM OF CLOSING TAX OPINION OF FULBRIGHT &
JAWORSKI L.L.P............................................ D1-1
ANNEX D-2 -- FORM OF CLOSING TAX OPINION OF HAYNES AND
BOONE, LLP................................................ D2-1
iii
QUESTIONS AND ANSWERS ABOUT THE MERGER
THE FOLLOWING QUESTIONS AND ANSWERS BRIEFLY ADDRESS SOME COMMONLY ASKED
QUESTIONS ABOUT THE SPECIAL MEETING AND THE MERGER. THEY MAY NOT INCLUDE ALL THE
INFORMATION THAT IS IMPORTANT TO YOU. WE URGE YOU TO READ CAREFULLY THIS ENTIRE
PROXY STATEMENT/PROSPECTUS, INCLUDING THE ANNEXES AND THE OTHER DOCUMENTS WE
REFER TO IN THIS PROXY STATEMENT/PROSPECTUS.
FREQUENTLY USED TERMS
We have generally avoided the use of technical defined terms in this proxy
statement/prospectus but a few frequently used terms may be helpful for you to
have in mind at the outset. We refer to:
- Patterson-UTI Energy, Inc., a Delaware corporation, as "Patterson-UTI";
- TMBR/Sharp Drilling, Inc., a Texas corporation, as "TMBR/Sharp";
- Patterson-UTI Acquisition, LLC, a newly formed Texas limited liability
company and a wholly owned subsidiary of Patterson-UTI, as "Sub";
- the merger of TMBR/Sharp into Sub and the conversion of TMBR/Sharp Shares
into the right to receive cash and Patterson-UTI Shares as "the merger";
- the agreement and plan of merger among Patterson-UTI, Sub and TMBR/Sharp
as "the merger agreement";
- the special meeting of holders of TMBR/Sharp Shares described on page 14
as "the special meeting";
- the common stock, par value $0.01 per share, of Patterson-UTI as
"Patterson-UTI Shares";
- the common stock, par value $0.10 per share, of TMBR/Sharp as "TMBR/Sharp
Shares";
- the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as
the "HSR Act"; and
- the Texas Business Corporation Act as "the TBCA".
SPECIAL MEETING; VOTES REQUIRED
Q: When and where is the special meeting?
A: The special meeting of TMBR/Sharp shareholders will be held at : a.m.,
local time, on , 2003, at the Midland Petroleum Club, 501 West
Wall, Midland, Texas.
Q: Who can vote on the proposals being presented at the special meeting?
A: Holders of TMBR/Sharp Shares outstanding at the close of business on
, 2003, the record date for the special meeting, may vote in
person or by proxy on the proposal to approve the merger agreement and on the
adjournment proposal. The vote of Patterson-UTI stockholders is not required
and will not be taken to approve the merger agreement or the adjournment
proposal.
Q: What are TMBR/Sharp shareholders being asked to vote upon?
A: TMBR/Sharp shareholders are being asked to approve the merger agreement that
provides for TMBR/Sharp to be merged with and into Sub. If the merger is
completed, TMBR/Sharp will no longer be a publicly traded corporation and its
shareholders will no longer own TMBR/Sharp Shares. In addition, TMBR/Sharp
shareholders are being asked to approve the adjournment proposal to permit
TMBR/Sharp to adjourn the special meeting to a date not later than
, 2003 to permit the further solicitation of proxies if there are
not sufficient votes at the time of the special meeting to approve the merger
agreement.
Q: What vote is required to approve the merger agreement and to approve the
adjournment proposal?
A: The merger cannot be completed unless the holders of at least two-thirds of
the outstanding TMBR/Sharp Shares entitled to vote at the special meeting
vote in favor of the merger. Even if the vote set
iv
forth above is obtained at the special meeting, we cannot assure you that the
merger will be completed because the completion of the merger is subject to
the satisfaction or waiver of other conditions discussed in this proxy
statement/prospectus.
The affirmative vote of the holders of a majority of the TMBR/Sharp Shares,
entitled to vote at the special meeting and present in person or by proxy, is
required to approve the adjournment proposal.
Q: What happens if I vote against the merger agreement proposal?
A: If you vote against the merger agreement but the required vote is obtained,
the merger may be completed and, if completed, you will be entitled to
receive the merger consideration for your shares unless you have perfected
your dissenters' rights in accordance with Texas law.
Q: What effect does a failure to return a properly executed proxy card, a
failure to vote in person at the special meeting, or an abstention from the
vote have on the merger agreement proposal and the adjournment proposal?
A: Failure to return a properly executed proxy card or to vote at the special
meeting, or an abstention from the vote, will have the same effect as a vote
against the approval of the merger agreement. Assuming a quorum is present at
the special meeting, the failure to return a properly executed proxy card or
to vote at the special meeting will have no effect on the adjournment
proposal, and an abstention from the vote on the adjournment proposal will
have the same effect as a vote against the adjournment proposal.
Q: Have any shareholders agreed to vote in favor of the approval of the merger
agreement?
A: TMBR/Sharp has represented to Patterson-UTI that each director and officer of
TMBR/Sharp has represented to TMBR/Sharp his or her intention to vote in
favor of the approval of the merger agreement. Patterson-UTI intends to vote
in favor of the merger proposal and the adjournment proposal. At November 1,
2003, the officers and directors of TMBR/Sharp collectively owned 262,250
TMBR/Sharp Shares, which represented the right to vote or direct the vote of
approximately 4.76% of the outstanding TMBR/Sharp Shares on November 1, 2003.
At that same date, Patterson-UTI owned 1,058,673 TMBR/Sharp Shares, which
represented the right to vote approximately 19.23% of the outstanding
TMBR/Sharp Shares.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: TMBR/Sharp Shares will be voted for or against the merger proposal and for or
against the adjournment proposal only if TMBR/Sharp shareholders provide
written instructions to their broker as to how to vote their shares. If you
want your broker to vote your shares in favor of the merger proposal and the
adjournment proposal, you should follow the directions provided by your
broker regarding how to instruct your broker to vote your TMBR/Sharp Shares.
Without instructions, your TMBR/Sharp Shares will not be voted by your broker
and the failure to vote will have the same effect as a vote AGAINST the
approval of the merger agreement but, assuming a quorum is present at the
special meeting, will have no effect on the adjournment proposal.
Q: Can I change my vote after I have mailed a signed proxy card?
A: Yes. You can change your vote at any time before the vote is taken at the
special meeting. If you hold your TMBR/Sharp Shares in "street name" and have
instructed a broker to vote your TMBR/Sharp Shares, you must follow the
directions received from your broker as to how to change your vote. If you
are the record holder of your TMBR/Sharp Shares, you can do this in one of
the following three ways:
- you can send a written notice to TMBR/Sharp's secretary dated later than
your proxy card stating that you would like to revoke your current proxy;
- you can complete and submit a new proxy card dated later than your original
proxy card; or
- you can attend the special meeting and vote in person.
v
If you choose to submit a notice of revocation or a new proxy card you must
send it to the Secretary of TMBR/Sharp at 4607 West Industrial Blvd.,
Midland, Texas 79703. TMBR/Sharp must receive the notice or new proxy card
before the vote is taken at the special meeting.
THE MERGER
Q: Why are Patterson-UTI and TMBR/Sharp proposing the merger?
A: Our companies are proposing the merger because we believe that the
combination of the operations and resources of our two companies will result
in a combined company that is stronger than either company operating alone.
We also believe that the merger will result in improved shareholder liquidity
for TMBR/Sharp shareholders, including the opportunity to receive a cash
payment and to continue as a shareholder of a larger and more competitive
combined company.
Q: What will I receive for my TMBR/Sharp Shares if the merger is completed?
A: If the merger is completed, each TMBR/Sharp Share (except those shares owned
directly or indirectly by TMBR/Sharp or Patterson-UTI, and those shares held
by dissenting shareholders) will be converted into the right to receive $9.09
in cash and 0.312166 of a Patterson-UTI Share. TMBR/Sharp Shares directly or
indirectly owned or held by Patterson-UTI or TMBR/Sharp will be canceled.
Patterson-UTI will not issue fractional shares to TMBR/Sharp shareholders.
Instead, Patterson-UTI will pay cash for any fractional shares.
Based on the closing price of Patterson-UTI Shares and TMBR/Sharp Shares on
the trading day immediately preceding the execution of the merger agreement,
the cash and stock consideration to be received in the merger by TMBR/Sharp
shareholders is $20.20 per TMBR/Sharp Share, which represented on that
trading day a 4.12% premium. Because the exchange ratio is a fixed ratio
that will not be adjusted as a result of any increase or decrease in the
price of Patterson-UTI Shares or TMBR/Sharp Shares, the value of the cash
and stock consideration actually received in the merger by TMBR/Sharp
shareholders may be more or less than $20.20 per share.
Q: What if there is a reclassification, recapitalization, stock combination,
stock split, stock dividend or share exchange of Patterson-UTI Shares or
TMBR/Sharp Shares before the merger is completed?
A: If, before the effective time of the merger, the issued and outstanding
Patterson-UTI Shares or TMBR/Sharp Shares are changed into a different
number of shares as a result of a reclassification, recapitalization, stock
split, stock combination, stock dividend or share exchange, we will make an
appropriate and proportionate adjustment to the number of Patterson-UTI
Shares to be received by the TMBR/Sharp shareholders.
Q: What will I receive in connection with the merger if I hold stock options to
acquire TMBR/Sharp Shares?
A: If the TMBR/Sharp shareholders approve the merger agreement, after the
special meeting but before the completion of the merger, TMBR/Sharp will make
a cash payment to each holder of a stock option granted under a TMBR/Sharp
benefit plan in exchange for the cancellation and termination of the option.
The cash amount to be paid for each TMBR/Sharp Share subject to the option
will equal the difference between $20.20 and the exercise price per
TMBR/Sharp Share subject to the option, less applicable withholding taxes.
All stock options to purchase TMBR/Sharp Shares will vest after the merger is
approved at the special meeting and before the completion of the merger.
Q: What does the TMBR/Sharp board of directors recommend regarding the merger
agreement and the adjournment proposal?
A: The TMBR/Sharp board of directors has unanimously determined that the
proposed merger is fair to and in the best interests of TMBR/Sharp and its
shareholders, and it has unanimously recommended that the TMBR/Sharp
shareholders approve the merger agreement and the adjournment proposal. The
TMBR/Sharp board of directors adopted a resolution approving and authorizing
the merger agreement
vi
and the adjournment proposal. THE BOARD OF DIRECTORS OF TMBR/SHARP RECOMMENDS
THAT THE TMBR/ SHARP SHAREHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT AND
THE ADJOURNMENT PROPOSAL.
Q: Do any members of the board of directors or management of TMBR/Sharp have
interests in the merger that are different from my interests as a
shareholder?
A: Some TMBR/Sharp directors and officers have interests in the merger that are
different from, or in addition to, the interests of TMBR/Sharp shareholders
generally. In addition to consideration to be received for their TMBR/Sharp
Shares, eight officers and directors of TMBR/Sharp will receive compensatory
payments as a result of the merger. These additional interests include a
retention payment of $700,800 payable to Thomas C. Brown, the chairman of the
board and chief executive officer of TMBR/Sharp. As of November 1, 2003, Mr.
Brown also will receive approximately $3,482,625 in exchange for the
cancellation and termination of his stock options to purchase TMBR/Sharp
Shares. For additional information regarding these interests, we urge you to
read carefully the section of this proxy statement/prospectus titled "The
Merger -- Interests of Certain Persons in the Merger".
Q: Are there conditions to the completion of the merger?
A: Yes, completion of the merger depends on a number of conditions being
satisfied or waived. In addition to customary conditions relating to the
accuracy of representations and warranties and the performance of obligations
under the merger agreement, these conditions include the following:
- approval of the merger agreement and the related transactions by the
holders of at least two-thirds of the outstanding TMBR/Sharp Shares
entitled to vote at the special meeting;
- expiration or termination of the waiting period under the HSR Act (which
has occurred) and the filing, occurrence or receipt of other
authorizations, consents, orders, or approvals required to consummate the
transactions contemplated by the merger agreement;
- absence of any legal restraint or prohibition preventing the consummation
of the merger;
- absence of a material adverse change in TMBR/Sharp's business, operations
or financial condition;
- holders of no more than five percent (5%) of the outstanding TMBR/Sharp
Shares entitled to vote at the special meeting shall have properly
perfected their dissenters' rights;
- receipt of opinions of counsel to Patterson-UTI and TMBR/Sharp that the
merger will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended; and
- effectiveness of a registration statement covering the Patterson-UTI
Shares, absence of an effective stop order suspending the effectiveness
of the registration statement and receipt of all necessary state
securities or "Blue Sky" authorizations.
If these conditions are not satisfied or waived, the merger will not be
completed even if the TMBR/Sharp shareholders vote to approve the merger
agreement. Neither Patterson-UTI nor TMBR/Sharp will waive the condition to
closing requiring receipt of opinions of counsel to Patterson-UTI and
TMBR/Sharp that the merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code. If the opinions of counsel are not
delivered, the parties will not proceed with the merger described in this
proxy statement/prospectus. See "The Merger Agreement-Conditions Precedent"
and "Material United States Federal Income Tax Consequences".
Q: When do you expect the merger to be completed?
A: Patterson-UTI and TMBR/Sharp expect that, assuming the conditions to the
merger are satisfied or waived and TMBR/Sharp receives the requisite
shareholder vote at the special meeting, the merger will be completed within
two business days after the special meeting.
vii
Q: Will I owe any U.S. federal income tax as a result of the merger?
A: Generally, a U.S. holder who receives the merger consideration will recognize
gain (but not loss) in an amount equal to the lesser of (1) the amount of
cash received pursuant to the merger, and (2) the amount, if any, that (a)
the sum of the fair market value of the Patterson-UTI Shares as of the
effective time of the merger and the amount of cash received pursuant to the
merger exceeds (b) the U.S. holder's adjusted tax basis in the shares.
Provided that the U.S. holder holds the TMBR/Sharp Shares as a capital asset,
gain recognized upon the exchange generally will be capital gain, and any
recognized capital gain will be long-term capital gain if the U.S. holder has
held the TMBR/Sharp Shares for more than one year. See "Material United
States Federal Income Tax Consequences".
Q: What if the merger proposal is not approved?
A: If the merger agreement is not approved by TMBR/Sharp's shareholders or if
the merger is not otherwise completed, TMBR/Sharp intends to hold an annual
meeting to elect directors and to conduct other business that may properly
come before the meeting, as soon as practicable after the special meeting.
Q: Is TMBR/Sharp required to pay a break-up fee if its shareholders do not
approve the merger agreement?
A: Yes, in certain circumstances surrounding the termination of the merger
agreement, TMBR/Sharp must pay Patterson-UTI a termination fee of $3.5
million. See "The Merger Agreement -- Termination; -- Fees and Expenses".
Q: What rights do I have to dissent from the merger?
A: You may dissent from the merger and seek an appraisal of the fair value of
your TMBR/Sharp Shares, but only if you comply with the requirements of the
TBCA that are attached as Annex C to this proxy statement/prospectus and that
are summarized in the section of this proxy statement/prospectus titled "The
Merger -- Dissenters' Rights of Appraisal". Those requirements include filing
a written objection to the merger prior to the special meeting, not voting in
favor of approval of the merger agreement and making a demand for
compensation. The appraised fair value of your TMBR/Sharp Shares, which will
be paid if you properly perfect the appraisal rights available under Texas
law, may be more than, less than or equal to the per share price to be paid
by Patterson-UTI in the merger. If you contemplate exercising your
dissenter's rights, you are urged to read carefully the provisions of the
TBCA relating to dissenters' rights that are attached as Annex C to this
proxy statement/prospectus.
GENERAL
Q: What do TMBR/Sharp shareholders need to do now?
A: TMBR/Sharp shareholders should mark their vote on the accompanying proxy card
and sign and mail it in the enclosed return envelope as soon as possible. If
your shares are held in "street name" by your broker, you should provide
written instructions to your broker, as directed by your broker, on how the
broker should vote your shares. These actions will ensure that your shares
will be represented at the special meeting. If you sign and send in the proxy
card and do not indicate how you want to vote, your proxy will be voted FOR
the approval of the merger agreement and FOR the approval of the adjournment
proposal. If you do not vote by sending in your proxy card, voting in person
at the special meeting or properly instructing your broker how to vote your
shares, it will have the same effect as a vote AGAINST the approval of the
merger agreement but, assuming a quorum is present at the special meeting,
will have no effect on the adjournment proposal. We urge you to read
carefully this proxy statement/prospectus before marking your vote on the
accompanying proxy card, instructing your broker how to vote or voting in
person.
Q: Should TMBR/Sharp shareholders send in their stock certificates now?
A: No. If the merger is completed, you will be sent written instructions for
sending in stock certificates in exchange for the right to receive $9.09 in
cash and 0.312166 of a Patterson-UTI Share for each TMBR/Sharp Share you
hold.
viii
Q: What should I do if I receive more than one set of voting materials?
A: You may receive more than one set of voting materials, including multiple
copies of this proxy statement/prospectus and multiple proxy cards or voting
instruction cards. For example, if you hold your shares in more than one
brokerage account, you will receive a separate voting instruction card for
each brokerage account in which you hold shares. If you are a holder of
record and your shares are registered in more than one name, you will receive
more than one proxy card. Please complete, sign, date and return each proxy
card and voting instructions that you receive.
Q: Who can help answer my questions?
A: The information provided above in the "Question and Answer" format is a
summary of the information contained in this proxy statement/prospectus. You
are urged to read carefully this entire proxy statement/prospectus,
including the attached annexes and the documents we refer to in this proxy
statement/prospectus. If you have any questions, or need additional
material, please feel free to contact either:
TMBR/Sharp Drilling, Inc.
4607 West Boulevard
Midland, Texas 79703
Attention: Patricia R. Elledge
(432) 699-5050
or the proxy solicitor retained by TMBR/Sharp:
D. F. King & Co., Inc.
48 Wall Street
New York, New York 10005
(212) 269-5550
ix
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, WE URGE YOU TO READ CAREFULLY THIS
ENTIRE DOCUMENT AND THE DOCUMENTS TO WHICH WE REFER YOU. SEE "WHERE YOU CAN FIND
MORE INFORMATION" ON PAGE 78.
INFORMATION ABOUT PATTERSON-UTI
Based on publicly available information, Patterson-UTI believes it is the
second largest owner of land-based drilling rigs in North America. Patterson-UTI
primarily conducts its contract drilling operations in:
- Texas;
- New Mexico;
- Oklahoma;
- Louisiana;
- Mississippi;
- Utah; and
- Western Canada (Alberta, British Columbia and Saskatchewan).
As of November 17, 2003, Patterson-UTI had a drilling fleet of 343 drilling
rigs. A drilling rig includes the structure, power source and machinery
necessary to cause a drill bit to penetrate earth to a depth desired by the
customer. Patterson-UTI provides drilling fluids, completion fluids and related
services to oil and natural gas operators in West Texas, Southeast New Mexico,
South Texas, East Texas, Oklahoma, the Gulf Coast regions of Texas and
Louisiana, and the Gulf of Mexico. Drilling and completion fluids are used by
oil and natural gas operators during the drilling process to control pressure
when drilling oil and natural gas wells. Patterson-UTI provides pressure pumping
services to oil and natural gas operators in the Appalachian Basin. These
services consist primarily of well stimulation and cementing for completion of
new wells and remedial work on existing wells. Patterson-UTI is also engaged in
the development, exploration, acquisition and production of oil and natural gas.
Patterson-UTI's oil and natural gas operations are focused in producing regions
in West Texas, Southeast New Mexico and South Texas.
Patterson Energy, Inc. and UTI Energy Corp. consummated a merger on May 8,
2001. The transaction was treated as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and accounted
for as a pooling of interests for financial accounting purposes. Historical
financial statements and related financial and statistical data included or
incorporated in this proxy statement/prospectus by reference have been restated
to provide for the retroactive effect of the merger.
Patterson-UTI was formed in 1978 and reincorporated in 1993 as a Delaware
corporation. Its principal offices are located at 4510 Lamesa Highway, Snyder,
Texas 79549 and its telephone number is (325) 574-6300.
INFORMATION ABOUT TMBR/SHARP
TMBR/Sharp is engaged in the following two lines of business:
- the domestic onshore contract drilling of oil and gas wells; and
- the acquisition, exploration for, development, production and sale of oil
and natural gas.
TMBR/Sharp provides domestic onshore contract drilling to major and
independent oil and gas companies. TMBR/Sharp's drilling operations are focused
in the Permian Basin of West Texas and Eastern New Mexico. In addition to
drilling rigs, TMBR/Sharp provides the crews and most of the
1
ancillary equipment used in the operation of its drilling rigs. TMBR Sharp owns
a fleet of 18 drilling rigs with a depth capacity ranging from 8,500 feet to
30,000 feet.
TMBR/Sharp's oil and gas exploration and production operations complement
its onshore drilling operations. These activities are focused in mature
producing regions in the Permian Basin of West Texas and Eastern New Mexico. At
March 31, 2003, TMBR/Sharp's total proved oil and gas revenues were estimated to
have a standardized measure of discounted cash flows of $37.8 million.
TMBR/Sharp was incorporated under the laws of Texas in October 1982 under
the name TMBR Drilling, Inc. In August 1986, the company changed its name to
TMBR/Sharp Drilling, Inc. TMBR/Sharp's principal executive offices are located
at 4607 West Industrial Blvd., Midland, Texas 79703 and its telephone number is
(432) 699-5050.
INFORMATION ABOUT THE MERGER
The following summary highlights selected information about the merger that
was not discussed in "Questions and Answers about the Merger" beginning on page
iv.
On May 26, 2003, the TMBR/Sharp board of directors agreed to the
acquisition of TMBR/Sharp by a wholly owned subsidiary of Patterson-UTI under
the terms of the merger agreement described in this proxy statement/prospectus
and attached as Annex A. The merger agreement is the legal document that governs
the merger, and we urge you to read carefully that agreement.
At the effective time of the merger, TMBR/Sharp will merge with and into
Sub. Sub will be the surviving company under the name TMBR/Sharp Drilling, LLC,
and will be a wholly owned subsidiary of Patterson-UTI. The separate corporate
existence of TMBR/Sharp will cease at the effective time of the merger.
OPINION OF TMBR/SHARP'S FINANCIAL ADVISOR (PAGE 26)
TMBR/Sharp's board of directors received a written opinion from its
financial advisor, Energy Capital Solutions, LLC, to the effect that as of the
date of the merger agreement, the consideration described in the merger
agreement to be received by TMBR/Sharp shareholders was fair from a financial
point of view. We urge you to read carefully this opinion, which is attached as
Annex B to this proxy statement/prospectus. The assumptions made, procedures
followed, matters considered and limitations of the scope of review undertaken
in rendering the opinion are described in detail beginning on page 26 of this
proxy statement/prospectus.
ECS' opinion is addressed to the TMBR/Sharp board of directors and does not
constitute a recommendation to any TMBR/Sharp shareholder as to how any
shareholder should vote in connection with the merger proposal and the
adjournment proposal.
BOARD OF DIRECTORS OF PATTERSON-UTI FOLLOWING THE MERGER (PAGE 39)
None of the directors or officers of TMBR/Sharp will become a director or
officer of Patterson-UTI in connection with the merger. Patterson-UTI currently
has no arrangements or agreements with any of the officers of TMBR/Sharp
regarding employment following completion of the merger. Patterson-UTI and
Messrs. Brown, Phillips and Lawson, however, may consider employment or
consulting arrangements in the future.
2
TERMINATION OF THE MERGER (PAGE 55)
Patterson-UTI and TMBR/Sharp can agree at any time to terminate the merger
agreement by mutual written consent. Also, the merger agreement can be
terminated under different circumstances, including, but not limited to, the
following:
- by either Patterson-UTI or TMBR/Sharp, if:
- the affirmative vote of the holders of two-thirds of the outstanding
TMBR/Sharp Shares entitled to vote on the approval of the merger
agreement and the related transactions is not obtained upon a vote at
the special meeting or an adjournment thereof; or
- the effective time of the merger has failed to occur on or before
December 31, 2003, unless the failure is the result of a material breach
of the merger agreement by the party seeking the termination;
- by Patterson-UTI, if:
- TMBR/Sharp fails to call and hold the special meeting by December 31,
2003;
- TMBR/Sharp breaches any of its representations or warranties in, or
fails to materially perform any of its covenants, agreements or
obligations under, the merger agreement, subject to certain conditions;
or
- TMBR/Sharp's board of directors (i) withdraws or modifies, in any manner
adverse to Patterson-UTI, its recommendation or approval of the merger
agreement or the related transactions, or (ii) recommends or resolves to
recommend to the TMBR/Sharp shareholders an acquisition proposal;
- by TMBR/Sharp, if:
- its shareholders have not approved the merger agreement, it has notified
Patterson-UTI of its receipt of a superior proposal, it has not received
a timely offer from Patterson-UTI that is no less favorable than the
superior proposal, and it has paid a $3.5 million termination fee to
Patterson-UTI; or
- Patterson-UTI or Sub breaches any of its representations or warranties
in, or fails to materially perform any of its covenants, agreements or
obligations under, the merger agreement, subject to certain conditions.
EXPENSES (PAGE 56)
Each of Patterson-UTI, Sub and TMBR/Sharp will bear its own expenses in
connection with the merger agreement and the related transactions, except that
Patterson-UTI and TMBR/Sharp will share equally costs and expenses related to
filings and other matters under the HSR Act.
NO SOLICITATION BY TMBR/SHARP (PAGE 53)
The merger agreement restricts the ability of TMBR/Sharp to solicit or
engage in discussions or negotiations with a third party regarding a proposal to
acquire a significant interest in TMBR/Sharp. However, if TMBR/Sharp receives an
acquisition proposal from a third party that is more favorable to TMBR/Sharp
shareholders, from a financial point of view, than the terms of the merger
agreement and TMBR/Sharp complies with certain procedures contained in the
merger agreement, TMBR/Sharp may furnish nonpublic information to that third
party and engage in negotiations regarding an acquisition proposal with that
third party, subject to certain conditions.
ACCOUNTING TREATMENT (PAGE 40)
Patterson-UTI will account for the merger under the purchase method of
accounting for business combinations under generally accepted accounting
principles in the United States.
3
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (PAGE 57)
Patterson-UTI and TMBR/Sharp have made representations to both tax
counsels, including a representation that holders of TMBR/Sharp Shares will
receive in the merger an amount of Patterson-UTI Shares with a value equal to at
least forty percent (40%) of the total consideration. The total consideration
takes into account the amount of cash paid or deemed to be paid to holders of
TMBR/Sharp Shares in connection with the merger, cash paid to holders of
TMBR/Sharp Shares who perfect their dissenters' rights and cash paid by
Patterson-UTI to acquire TMBR/Sharp Shares within twelve (12) months of the date
of the merger agreement. Based in part on such representations, it is the
opinion of Fulbright & Jaworski L.L.P., tax counsel for Patterson-UTI, and
Haynes and Boone, LLP, tax counsel for TMBR/Sharp, that the merger when effected
in accordance with the terms of the merger agreement, will be treated for United
States federal income tax purposes as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code.
It is a condition to the closing of the merger that tax counsel for each of
Patterson-UTI and TMBR/Sharp deliver opinions in the form attached to this proxy
statement/prospectus as Annexes D-1 and D-2, respectively. If the facts in the
representations described in the immediately preceding paragraph change as of
the proposed closing of the merger, tax counsel may not be able to deliver those
opinions at closing of the merger. For example, if the market price of
Patterson-UTI Shares declines between the date hereof and the proposed closing
of the merger or if holders of TMBR/Sharp Shares perfect their dissenters'
rights, each tax counsel may not be able to deliver the required opinions at the
closing of the merger.
If these opinions are unable to be delivered at the closing of the merger,
Patterson-UTI and TMBR/Sharp will not proceed with the merger on the terms
described in this proxy statement/prospectus. If Patterson-UTI and TMBR/Sharp
desire to proceed with a merger other than as a "reorganization" within the
meaning of Section 368(a) of the Code, they will do so only after revising the
structure of the transaction. In such case, an amended proxy
statement/prospectus with revised disclosure regarding the new structure and the
material United States federal income tax consequences will be mailed to you at
least 20 days prior to the special meeting. If the shareholders have already
voted to approve the merger, TMBR/Sharp would hold another special meeting to
vote on the revised merger proposal after the amended proxy statement/prospectus
had been mailed.
The discussion of material United States federal income tax consequences
contained in this proxy statement/prospectus is not a substitute for an
individual analysis of the tax consequences of the merger to you. You are urged
to consult a tax advisor regarding the particular federal, state, local and
foreign tax consequences of the merger in light of your own situation.
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (PAGE 64)
As a result of the merger, the holders of TMBR/Sharp Shares will become
holders of Patterson-UTI Shares. The rights of TMBR/Sharp shareholders are
currently governed by the TBCA and the articles of incorporation and bylaws of
TMBR/Sharp. The rights of Patterson-UTI stockholders are governed by the
Delaware General Corporation Law and the restated certificate of incorporation
and amended and restated bylaws of Patterson-UTI.
Because TMBR/Sharp is a Texas corporation and Patterson-UTI is a Delaware
corporation, certain material differences arise between the rights of TMBR/Sharp
shareholders and Patterson-UTI stockholders. See page 64 for summaries of
material differences between the rights of TMBR/Sharp shareholders and
Patterson-UTI stockholders.
4
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 13)
Patterson-UTI Shares are traded on the Nasdaq National Market under the
ticker symbol "PTEN", and TMBR/Sharp Shares are traded on the Nasdaq National
Market under the ticker symbol "TBDI". On May 23, 2003, the last full trading
day prior to public announcement of the merger, Patterson-UTI Shares closed at
$35.59 per share and TMBR/Sharp Shares closed at $19.40 per share. On
, 2003, the most recent practicable date prior to the date of this
proxy statement/prospectus, the closing prices of the Patterson-UTI Shares and
the TMBR/Sharp Shares were $ and $ , respectively. Although the exchange
ratio is fixed, the market price of Patterson-UTI Shares will fluctuate prior to
and after the merger. We urge you to obtain current market quotations prior to
making any decision with respect to the merger.
5
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF PATTERSON-UTI
The following table presents selected historical consolidated financial
data of Patterson-UTI as of and for each of the years in the five-year period
ended December 31, 2002 and as of and for the nine-month periods ended September
30, 2003 and 2002. This information is only a summary and has been derived from,
and you should read it carefully together with, Patterson-UTI's historical
financial statements and related notes contained in the annual reports and other
information that Patterson-UTI has filed with the SEC and incorporated by
reference in this proxy statement/prospectus. See "Where You Can Find More
Information" on page 78.
(UNAUDITED)
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- ---------------------
2002 2001 2000 1999 1998 2003 2002
-------- -------- -------- -------- -------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Drilling........................................ $410,295 $839,931 $512,998 $266,212 $329,003 $ 468,609 $300,668
Drilling and completion fluids.................. 69,943 94,456 32,053 11,686 13,397 51,431 52,049
Pressure pumping................................ 32,996 39,600 21,465 20,721 23,365 31,509 23,691
Oil and natural gas............................. 14,723 15,988 15,806 8,747 7,362 16,329 10,673
-------- -------- -------- -------- -------- ---------- --------
527,957 989,975 582,322 307,366 373,127 567,878 387,081
-------- -------- -------- -------- -------- ---------- --------
Operating costs and expenses:
Drilling........................................ 318,201 487,343 384,840 224,590 253,768 353,893 232,129
Drilling and completion fluids.................. 60,762 80,034 26,545 9,864 10,205 45,483 44,965
Pressure pumping................................ 19,802 21,146 13,403 12,219 14,041 18,032 14,127
Oil and natural gas............................. 3,956 5,190 4,872 2,500 3,696 3,509 2,985
Depreciation, depletion and amortization........ 91,216 86,159 61,464 52,553 51,436 73,825 68,470
General and administrative...................... 26,140 28,561 22,190 17,735 20,004 20,560 19,139
Bad debt expense................................ 320 2,045 570 282 1,233 259 195
Merger costs.................................... -- 5,943 -- -- -- -- --
Restructuring and other charges................. 4,700 7,202 -- -- -- (2,452) 4,700
Other........................................... (538) (820) (147) (2,927) (335) (1,582) (149)
-------- -------- -------- -------- -------- ---------- --------
524,559 722,803 513,737 316,816 354,048 511,527 386,561
-------- -------- -------- -------- -------- ---------- --------
Operating income (loss)........................... 3,398 267,172 68,585 (9,450) 19,079 56,351 520
Other income (expense)............................ 441 (677) (8,481) (7,053) (5,953) 729 346
-------- -------- -------- -------- -------- ---------- --------
Income (loss) before income taxes and cumulative
effect of change in accounting principle........ 3,839 266,495 60,104 (16,503) 13,126 57,080 866
Income tax expense (benefit)...................... 1,670 102,333 22,878 (4,766) 5,328 21,690 527
-------- -------- -------- -------- -------- ---------- --------
Income (loss) before cumulative effect of change
in accounting principle......................... 2,169 164,162 37,226 (11,737) 7,798 35,390 339
Cumulative effect of change in accounting
principle, net of related income tax benefit of
approximately $287.............................. -- -- -- -- -- (469) --
-------- -------- -------- -------- -------- ---------- --------
Net income (loss)................................. $ 2,169 $164,162 $ 37,226 $(11,737) $ 7,798 $ 34,921 $ 339
======== ======== ======== ======== ======== ========== ========
Net income (loss) per common share:
Basic:
Income (loss) before cumulative effect of
change in accounting principle.............. $ 0.03 $ 2.15 $ 0.52 $ (0.18) $ 0.12 $ 0.44 $ 0.00
Cumulative effect of change in accounting
principle................................... -- -- -- -- -- (0.01) --
-------- -------- -------- -------- -------- ---------- --------
Net income (loss)............................. $ 0.03 $ 2.15 $ 0.52 $ (0.18) $ 0.12 $ 0.43 $ 0.00
======== ======== ======== ======== ======== ========== ========
Diluted:
Income (loss) before cumulative effect of
change in accounting principle.............. $ 0.03 $ 2.07 $ 0.50 $ (0.18) $ 0.12 $ 0.43 $ 0.00
Cumulative effect of change in accounting
principle................................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- ---------- --------
Net income (loss)............................. $ 0.03 $ 2.07 $ 0.50 $ (0.18) $ 0.12 $ 0.43 $ 0.00
======== ======== ======== ======== ======== ========== ========
Weighted average number of common shares
outstanding:
Basic........................................... 78,705 76,407 71,207 66,483 63,785 80,535 78,378
======== ======== ======== ======== ======== ========== ========
Diluted......................................... 81,252 79,197 74,841 66,483 65,757 82,261 80,782
======== ======== ======== ======== ======== ========== ========
BALANCE SHEET DATA:
Current assets.................................. $243,015 $199,458 $237,742 $106,091 $ 94,708 $ 293,140 $216,912
Total assets.................................... 942,509 869,642 739,898 496,715 468,554 1,040,847 912,704
Current liabilities............................. 75,152 89,286 110,443 60,930 46,871 111,078 70,690
Long-term debt.................................. -- -- 79,416 82,196 87,435 -- --
Stockholders' equity............................ 737,556 687,142 481,299 309,695 300,881 795,155 717,869
Working capital................................. 167,863 110,172 127,299 45,161 47,837 182,062 146,222
6
SELECTED HISTORICAL FINANCIAL DATA OF TMBR/SHARP
The following table presents selected historical financial data of
TMBR/Sharp as of and for each of the years in the five-year period ended March
31, 2003 and as of and for the six-month periods ended September 30, 2003 and
2002. This information is only a summary and has been derived from, and you
should read it carefully together with, TMBR/Sharp's historical financial
statements and related notes contained in the annual reports and other
information that TMBR/Sharp has filed with the SEC and incorporated by reference
in this proxy statement/prospectus. See "Where You Can Find More Information" on
page 78.
(UNAUDITED)
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------- -----------------
2003 2002 2001 2000 1999 2003 2002
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Drilling................................... $31,310 $46,712 $36,023 $15,394 $12,948 $17,555 $15,780
Oil and natural gas........................ 6,891 5,508 5,454 3,169 1,476 5,249 3,395
------- ------- ------- ------- ------- ------- -------
38,201 52,220 41,477 18,563 14,424 22,804 19,175
------- ------- ------- ------- ------- ------- -------
Operating costs and expenses:
Drilling................................... 21,563 26,761 22,767 12,486 10,027 12,016 10,550
Oil and natural gas........................ 2,618 3,438 2,348 1,435 1,749 1,473 1,213
Depreciation, depletion and amortization... 7,409 10,699 6,308 4,021 4,003 3,902 3,427
General and administrative................. 3,981 2,552 1,918 1,854 1,911 1,815 1,683
Accretion of asset retirement obligation... -- -- -- -- -- 25 --
------- ------- ------- ------- ------- ------- -------
35,571 43,450 33,341 19,796 17,690 19,231 16,873
------- ------- ------- ------- ------- ------- -------
Operating income (loss)...................... 2,630 8,770 8,136 (1,233) (3,266) 3,573 2,302
Other income (expense)....................... 627 1,046 342 26 79 (841) 112
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes............ 3,257 9,816 8,478 (1,207) (3,187) 2,732 2,414
Income tax expense (benefit)................. (6,855) -- 170 -- -- 929 --
------- ------- ------- ------- ------- ------- -------
Income before cumulative effect of change in
accounting principle....................... 10,112 9,816 8,308 (1,207) (3,187) 1,803 2,414
Cumulative effect of change in accounting
principle, net of related tax benefit of
approximately $33.......................... -- -- -- -- -- 64 --
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................ $10,112 $ 9,816 $ 8,308 $(1,207) $(3,187) $ 1,867 $ 2,414
======= ======= ======= ======= ======= ======= =======
Net income (loss) per common share:
Basic:
Income before cumulative effect of change
in accounting principle................ $ 1.86 $ 1.88 $ 1.67 $ (0.25) $ (0.68) $ 0.33 $ 0.45
Cumulative effect of change in accounting
principle.............................. -- -- -- -- -- 0.01 --
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................ $ 1.86 $ 1.88 $ 1.67 $ (0.25) $ (0.68) $ 0.34 $ 0.45
======= ======= ======= ======= ======= ======= =======
Diluted:
Income before cumulative effect of change
in accounting principle................ $ 1.78 $ 1.79 $ 1.54 $ (0.25) $ (0.68) $ 0.31 $ 0.43
Cumulative effect of change in accounting
principle.............................. -- -- -- -- -- 0.01 --
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................ $ 1.78 $ 1.79 $ 1.54 $ (0.25) $ (0.68) $ 0.32 $ 0.43
======= ======= ======= ======= ======= ======= =======
Weighted average number of common shares
outstanding:
Basic...................................... 5,427 5,220 4,979 4,761 4,711 5,494 5,412
======= ======= ======= ======= ======= ======= =======
Diluted.................................... 5,676 5,474 5,392 4,761 4,711 5,750 5,637
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA:
Current assets............................. $18,092 $15,892 $15,109 $ 8,407 $ 5,429 $16,331 $15,595
Total assets............................... 55,491 42,635 35,401 23,625 18,923 55,688 43,132
Current liabilities........................ 8,823 6,803 9,715 5,579 2,188 6,240 4,701
Long-term debt............................. -- -- 1,080 2,250 -- -- --
Stockholders' equity....................... 46,668 35,832 24,606 15,796 16,735 48,963 38,431
Working capital............................ 9,269 9,089 5,394 2,828 3,241 10,091 10,894
7
SELECTED UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL DATA OF PATTERSON-UTI
We derived the following unaudited condensed combined pro forma financial
data from Patterson-UTI's audited consolidated financial statements for the year
ended December 31, 2002, TMBR/Sharp's audited financial statements for the
fiscal year ended March 31, 2003, Patterson-UTI's unaudited consolidated
financial statements for the nine months ended September 30, 2003 and
TMBR/Sharp's unaudited financial statements for the six months ended September
30, 2003. The financial data has been prepared as if the proposed merger had
occurred on January 1, 2002 with respect to the operating data and as of
September 30, 2003 with respect to the balance sheet data. The pro forma data is
based on the estimates and assumptions set forth in the notes to such data. The
pro forma data is preliminary and is being furnished solely for information
purposes and, therefore, is not necessarily indicative of the results of
operations or financial position that might have been achieved for the dates or
periods indicated, nor is it necessarily indicative of the results of operations
or financial position that may occur in the future. This pro forma data is based
on the historical financial statements of Patterson-UTI and TMBR/Sharp and
should be read in conjunction with those historical financial statements and
related notes of Patterson-UTI and TMBR/Sharp contained in their respective
periodic filings with the SEC and incorporated in this proxy
statement/prospectus by reference. See "Where You Can Find More Information" on
page 78.
STATEMENT OF OPERATIONS:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
2002 2003
------------ -------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Revenues.................................................... $566,158 $600,705
Total operating expenses.................................... $560,955 $541,186
Operating income............................................ $ 5,203 $ 59,519
Net income.................................................. $ 3,093 $ 36,516
Net income per common share (diluted)....................... $ 0.04 $ 0.44
Average diluted shares outstanding.......................... 82,693 83,725
BALANCE SHEET DATA:
SEPTEMBER 30,
2003
--------------
(IN THOUSANDS)
Cash and cash equivalents................................................ $ 72,856
Current assets........................................................... $ 264,357
Total assets............................................................. $1,118,385
Current liabilities...................................................... $ 121,518
Long-term debt, less current maturities.................................. $ --
Total shareholders' equity............................................... $ 844,176
8
COMPARATIVE PER SHARE INFORMATION
The following table sets forth per share data separately for Patterson-UTI
and TMBR/Sharp on a historical basis, on a pro forma combined basis per
Patterson-UTI Share and on a pro forma combined basis per TMBR/Sharp equivalent
share, assuming that 0.312166 of a Patterson-UTI Share had been issued in
exchange for each outstanding TMBR/Sharp Share. You should read carefully the
information below together with the historical financial statements and related
notes of Patterson-UTI and TMBR/Sharp contained in their periodic filings with
the SEC and incorporated in this proxy statement/prospectus by reference. See
"Where You Can Find More Information" on page 78. The unaudited pro forma
combined data below is for illustrative purposes only. The companies may have
performed differently had they always been combined. You should not rely on this
information as being indicative of the historical results that would have been
achieved had the companies always been combined or the future results that the
combined company will experience after the merger.
UNAUDITED PRO FORMA
HISTORICAL --------------------------
-------------------------- PATTERSON-UTI TMBR/SHARP
PATTERSON-UTI TMBR/SHARP COMBINED EQUIVALENT
------------- ---------- ------------- ----------
Nine Months ended September 30, 2003
Income from continuing operations............... $0.44 $1.58 $ 0.45 $0.14
Book value as of September 30, 2003............. $9.87 $8.91 $10.31 $3.22
Year ended December 31, 2002 and March 31, 2003
Income from continuing operations............... $0.03 $1.86 $ 0.04 $0.01
9
RISK FACTORS
In deciding whether to approve the merger agreement and the merger of
TMBR/Sharp with Sub, we urge you to consider carefully all of the information we
have included in this document and its annexes and all of the information we
have included in the documents we have incorporated by reference, including the
risk factors identified in "Forward Looking Statements and Cautionary Statements
for the Purposes of the "Safe Harbor" Provisions of the Securities Litigation
Reform Act of 1995" in Patterson-UTI's Annual Report for the year ended December
31, 2002, filed on Form 10-K. See "Where You Can Find More Information" on page
78. In addition, we urge you to pay particular attention to the following risks
related to the merger and to your investment in Patterson-UTI following the
merger:
WE MAY NOT REALIZE THE BENEFITS OF INTEGRATING THE TWO COMPANIES.
In deciding that the merger is in the best interests of our respective
stockholders, the Patterson-UTI board of directors and the TMBR/Sharp board of
directors considered the potential complementary effects of combining the two
companies' assets, personnel and operational expertise. Integrating businesses,
however, involves a number of special risks, including the possibility that
management may be distracted from regular business concerns by the need to
integrate operations, unforeseen difficulties in integrating operations and
systems, problems concerning retaining and assimilating the employees of the
combined company, challenges in retaining customers, and potential adverse
short-term or long-term effects on operating results. If we cannot integrate our
businesses successfully, we may fail to realize the benefits we expect to
realize from the merger.
THE VALUE OF THE CONSIDERATION TO BE PAID TO THE TMBR/SHARP SHAREHOLDERS IN THE
MERGER WILL VARY AS A RESULT OF THE FIXED EXCHANGE RATIO AND STOCK PRICE
FLUCTUATIONS.
Under the terms of the merger agreement, each TMBR/Sharp Share (except
those shares owned directly or indirectly by TMBR/Sharp or Patterson-UTI, and
those shares held by dissenting shareholders), will be converted into $9.09 in
cash and 0.312166 of a Patterson-UTI Share. This exchange ratio is a fixed ratio
that will not be adjusted as a result of any increase or decrease in the price
of Patterson-UTI Shares or TMBR/Sharp Shares. The prices of Patterson-UTI Shares
and TMBR/Sharp Shares at the time the merger is completed may be higher or lower
than their prices on the date of this document or on the date of the special
meeting. Changes in the business, operations or prospects of Patterson-UTI or
TMBR/Sharp, market assessments of the benefits of the merger and of the
likelihood that the merger will be completed, regulatory considerations, oil and
gas prices, general market and economic conditions or other factors may affect
the prices of Patterson-UTI Shares or TMBR/Sharp Shares. Most of these factors
are beyond our control.
Because the merger will be completed only after the special meeting is
held, there is no way to be sure that the price of Patterson-UTI Shares now, or
on the date of the special meeting, will be indicative of its price at the time
the merger is completed. We urge you to obtain current market quotations for
both Patterson-UTI Shares and TMBR/Sharp Shares prior to making any decision
with respect to the merger.
SOME DIRECTORS AND EXECUTIVE OFFICERS OF TMBR/SHARP HAVE INTERESTS IN THE MERGER
DIFFERENT FROM, OR IN ADDITION TO, THE INTERESTS OF TMBR/SHARP SHAREHOLDERS.
Some of the directors and executive officers of TMBR/Sharp have interests
in the merger that are different from, or in addition to, your interests as a
TMBR/Sharp shareholder. These additional interests include a retention payment
of $700,800 payable to Mr. Brown. As of November 1, 2003, Mr. Brown also will
receive approximately $3,482,625 in exchange for the cancellation and
termination of his stock options to purchase TMBR/Sharp Shares. You should
consider these interests in determining whether to vote in favor of the merger
agreement. See "The Merger -- Interests of Certain Persons in the Merger"
beginning on page 37.
10
PATTERSON-UTI HAS PAID NO DIVIDENDS ON THE PATTERSON-UTI SHARES AND CURRENTLY
HAS NO PLAN TO PAY DIVIDENDS.
Patterson-UTI has not declared or paid cash dividends on the Patterson-UTI
Shares in the past. Patterson-UTI currently has no plan to declare or pay any
cash dividends on the Patterson-UTI Shares in the foreseeable future. In
addition, the terms of Patterson-UTI's existing credit facility may limit
payment of dividends without the prior written consent of the lenders.
11
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus, including the documents incorporated by
reference, includes "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. All statements, other than statements of historical facts, included in
this proxy statement/prospectus or the documents incorporated by reference that
address activities, events or developments that Patterson-UTI or TMBR/Sharp
expect, project, believe or anticipate will or may occur in the future are
forward-looking statements. These include such matters as:
- benefits, effects or results of the merger;
- cost reductions, operating efficiencies or synergies and the integration
of operations;
- future stock market valuations;
- timing of the merger;
- tax and accounting treatment of the merger;
- market conditions, expansion and other development trends in the drilling
and exploration and production industries;
- business strategies;
- competitive position;
- financing plans;
- transaction related expenses;
- expansion and growth of operations after the merger; and
- future operating results and financial condition of Patterson-UTI after
the merger.
Patterson-UTI and TMBR/Sharp have based these statements on their
assumptions and analyses in light of their experience and perception of
historical trends, current conditions, expected future developments and other
factors they believe are appropriate in the circumstances. These statements are
subject to a number of assumptions, risks and uncertainties, including:
- general economic and business conditions;
- prices of oil and gas and industry expectations about future prices;
- the business opportunities (or lack thereof) that may be presented to and
pursued by both companies;
- the ability to integrate the operations of TMBR/Sharp and Patterson-UTI;
and
- changes in laws or regulations.
These factors are in addition to the risks described in the "Risk Factors"
section of this proxy statement/prospectus and the "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" sections or similar sections of the documents incorporated by
reference. Most of these factors are beyond the control of either company. We
caution you that forward-looking statements are not guarantees of future
performance and that actual results or developments may differ materially from
those projected in these statements.
YOU SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS. EACH
FORWARD-LOOKING STATEMENT SPEAKS ONLY AS OF THE DATE OF THE PARTICULAR
STATEMENT, AND NEITHER PATTERSON-UTI NOR TMBR/SHARP UNDERTAKES ANY OBLIGATION TO
PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS.
12
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Patterson-UTI Shares are traded on the Nasdaq National Market under the
ticker symbol "PTEN", and TMBR/Sharp Shares are traded on the Nasdaq National
Market under the ticker symbol "TBDI". The following table shows, for the
calendar quarters indicated, based on published financial sources, the high and
low sales prices per Patterson-UTI Share and TMBR/Sharp Share as reported by the
Nasdaq National Market. Neither Patterson-UTI nor TMBR/Sharp has paid any cash
dividends during this period.
PATTERSON-UTI TMBR/SHARP
SHARES SHARES
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
2001
First Quarter.................................... $41.38 $28.62 $18.93 $13.00
Second Quarter................................... 36.83 16.01 19.61 14.50
Third Quarter.................................... 19.49 11.06 17.20 11.04
Fourth Quarter................................... 25.73 11.80 13.95 10.04
2002
First Quarter.................................... $29.85 $18.87 $15.30 $10.10
Second Quarter................................... 34.60 26.83 17.74 12.41
Third Quarter.................................... 29.78 20.63 15.38 12.05
Fourth Quarter................................... 33.97 23.96 17.32 12.70
2003
First Quarter.................................... $35.50 $27.09 $17.95 $15.25
Second Quarter................................... 36.97 31.80 20.50 16.63
Third Quarter.................................... 32.28 25.15 19.34 16.51
Fourth Quarter (through November 21)............. 30.58 25.67 18.38 16.50
On May 23, 2003, the last full trading day before Patterson-UTI and
TMBR/Sharp publicly announced the execution of the merger agreement, the closing
prices of the Patterson-UTI Shares and the TMBR/Sharp Shares were $35.59 and
$19.40, respectively. On , 2003, the most recent practicable date
prior to the date of this proxy statement/prospectus, the closing prices of the
Patterson-UTI Shares and the TMBR/Sharp Shares were $ and $ ,
respectively. Shareholders are urged to obtain current market quotations prior
to making any decision with respect to the merger.
Patterson-UTI has not declared or paid cash dividends on the Patterson-UTI
Shares in the past. Patterson-UTI currently has no plan to declare or pay any
cash dividends on the Patterson-UTI Shares in the foreseeable future. In
addition, the terms of Patterson-UTI's existing credit facility may limit
payment of dividends without the prior written consent of the lenders.
13
THE SPECIAL MEETING
GENERAL
A special meeting of TMBR/Sharp shareholders will be held on ,
2003, : a.m., local time, at the Midland Petroleum Club, 501 West Wall,
Midland, Texas 79701 for the purpose of voting upon the merger proposal and the
adjournment proposal described below. The accompanying proxy is being solicited
by TMBR/Sharp's board of directors and is to be voted at the special meeting or
any adjournment or postponement thereof. TMBR/Sharp's board of directors has
fixed , 2003 as the record date for the determination of shareholders
entitled to receive notice of and to vote at the special meeting and any
adjournment or postponement thereof. On the record date, there were
TMBR/Sharp Shares outstanding. On the record date, there were approximately
record holders of TMBR/Sharp Shares.
SOLICITATION
TMBR/Sharp will pay the costs of soliciting proxies from TMBR/Sharp
shareholders as well as all mailing fees incurred in connection with this proxy
statement/prospectus.
TMBR/Sharp has engaged the services of D.F. King & Co., Inc. to solicit
proxies and assist in the distribution of proxy materials. In connection with
its retention by TMBR/Sharp, D.F. King & Co., Inc. has agreed to provide
consulting and analytic services and provide solicitation services with respect
to banks, brokers, institutional investors and individual shareholders.
TMBR/Sharp agreed to pay D.F. King & Co., Inc. a fee of $7,500 plus "broker
bills," reasonable expenses, costs and disbursements, including reasonable
counsel fees and expenses, and to indemnify D.F. King & Co., Inc. against
certain liabilities and expenses, including liabilities under the federal
securities laws.
In addition to the solicitation of proxies by mail, some of TMBR/Sharp's
directors, officers and employees may solicit proxies by telephone, facsimile
and personal contact, without separate compensation for those activities. Copies
of solicitation materials will be furnished to fiduciaries, custodians and
brokerage houses for forwarding to beneficial owners of TMBR/Sharp Shares, and
these persons will be reimbursed for their reasonable out-of-pocket expenses.
TMBR/Sharp does not intend to use the Internet to solicit proxies, but if the
Internet is used for this purpose, TMBR/Sharp will file with the SEC as
additional soliciting material any written material used for that purpose.
QUORUM
The presence at the special meeting of the holders of a majority of the
outstanding TMBR/Sharp Shares entitled to vote, either in person or by proxy, is
necessary to constitute a quorum to transact business at the special meeting.
Abstentions and broker non-votes will be counted to determine whether or not
there is a quorum at the special meeting. A broker non-vote occurs when a broker
votes on some matters on the proxy card but not on others because he does not
have the authority to vote on such other matters.
MEETING PROPOSALS
At the meeting, holders of TMBR/Sharp Shares will be asked to consider and
vote on the merger proposal and the adjournment proposal. A vote for the merger
proposal is not also a vote for the adjournment proposal. You must vote
separately on each proposal.
The affirmative vote of the holders of at least two-thirds of the
outstanding TMBR/Sharp Shares entitled to vote at the special meeting is
required to approve the merger proposal. The affirmative vote of the holders of
a majority of TMBR/Sharp Shares present in person or by proxy at the special
meeting is required to approve the adjournment proposal.
Approval of the merger proposal will permit the merger of TMBR/Sharp with
and into Sub in accordance with, and subject to, the terms and conditions of the
merger agreement. Approval of the
14
adjournment proposal will permit the adjournment of the special meeting to
solicit additional proxies if there are not sufficient votes at the time of the
special meeting to approve the merger proposal. If on the date of the special
meeting TMBR/Sharp has not received duly executed proxies which, when added to
the number of votes represented in person at the special meeting by persons who
intend to vote for the merger proposal, will constitute a sufficient number of
votes to approve the merger proposal, TMBR/Sharp may recommend the adjournment
of the special meeting to a date not later than , 2003 if the
adjournment proposal is approved. Thomas C. Brown and David N. Fitzgerald, the
persons appointed as proxy for the special meeting, in consultation with D.F.
King & Co., Inc., will determine if the special meeting will be adjourned to
permit further solicitation and for how many days to a date not later than
, 2003, based on their estimate of how many days may be needed for
further solicitation. However, if holders of TMBR/Sharp Shares holding greater
than one-third of the outstanding TMBR/Sharp Shares have indicated their
intention to vote against, and have submitted duly executed proxies voting
against, the merger proposal, TMBR/Sharp will hold the vote on the merger
proposal and will not recommend adjournment of the meeting. Approval of the
adjournment proposal by the holders of TMBR/Sharp Shares is not a condition to
the merger.
VOTING
HOW TO VOTE YOUR SHARES
Each TMBR/Sharp Share is entitled to one vote. If you are a record holder
of TMBR/Sharp Shares, you may vote your TMBR/Sharp Shares at the special meeting
in person or by proxy. To vote in person, you must attend the special meeting,
and obtain and submit a ballot. The ballot will be provided at the special
meeting. To vote by proxy, you must complete and return the enclosed proxy card.
The proxy card contains specific instructions on how to complete it. By
completing and submitting it, you will direct the designated persons (known as
"proxies") to vote your TMBR/Sharp Shares at the special meeting in accordance
with your instructions. The TMBR/Sharp board has appointed Thomas C. Brown and
David N. Fitzgerald to serve as proxies for the meeting.
Your proxy will be valid only if you sign, date and return it before the
special meeting. If you complete all of the proxy card except the voting
instructions, the designated proxies will vote your shares FOR the approval of
the merger agreement and FOR the adjournment proposal.
You may revoke your proxy at any time before it is exercised (i.e., before
the voting begins) by any one of the following means:
- notifying TMBR/Sharp's secretary in writing;
- submitting another proxy bearing a later date; or
- attending the special meeting and voting in person. Your attendance at
the special meeting will not by itself revoke a proxy; you must vote your
shares at the meeting to revoke your proxy.
If you choose to submit a notice of revocation or a new proxy card you must
send it to the Secretary of TMBR/Sharp at 4607 West Industrial Blvd., Midland,
Texas 79703. TMBR/Sharp must receive the notice or new proxy card before the
vote is taken at the special meeting.
Many of TMBR/Sharp's shareholders hold their TMBR/Sharp Shares in "street
name." "Street name" means that the shares are registered in the names of their
broker, bank or other nominee holder rather than in the shareholders' names. In
addition to the proxy solicitation materials TMBR/Sharp has provided to the
street name holder, the street name holder should provide to you the street name
holder's own request for voting instructions. By completing the voting
instruction card, you may direct your street name holder how to vote your
shares. Alternatively, if you want to vote your street name shares at the
special meeting, you must contact your broker directly in order to obtain a
proxy issued to you by your broker as the nominee holder. NOTE THAT A BROKER
LETTER THAT IDENTIFIES YOU AS A SHAREHOLDER IS NOT THE SAME AS A NOMINEE-ISSUED
PROXY. If you fail to bring a nominee-issued proxy to the special meeting, you
will not be able to vote your street name shares at the special meeting.
15
Your TMBR/Sharp Shares will be voted for or against the merger proposal and
for or against the adjournment proposal only if you provide written instructions
to your broker as to how to vote your shares. If you want your broker to vote
your shares in favor of the merger proposal and the adjournment proposal, you
should follow the directions provided by your broker regarding how to instruct
your broker to vote your shares. Without instructions, your shares will not be
voted by your broker and the failure to vote will have the same effect as a vote
AGAINST the approval of the merger agreement but, assuming a quorum is present
at the special meeting, will have no effect on the adjournment proposal.
EFFECT OF FAILURE TO VOTE, ABSTENTIONS AND BROKER NON-VOTES
The failure to return a properly executed proxy card or to vote at the
special meeting will have the same effect as a vote against the approval of the
merger agreement but, assuming a quorum is present at the special meeting, will
have no effect on the approval of the adjournment proposal. An abstention from
the vote to approve the merger agreement will have the same effect as a vote
against the approval of the merger agreement and against the adjournment
proposal. If your TMBR/Sharp Shares are held in "street name" by your broker or
are held in the name of some other nominee holder, your shares will be voted for
or against the approval of the merger agreement and for or against the
adjournment proposal only if you provide written instructions to your broker as
to how to vote your shares. If you fail to provide voting instructions to your
broker or nominee holder, such broker non-votes will have the same effect as a
vote against the approval of the merger agreement but, assuming a quorum is
present at the special meeting, will have no effect on the approval of the
adjournment proposal.
APPRAISAL RIGHTS
TMBR/Sharp shareholders who do not vote in favor of approval of the merger
agreement and who otherwise comply with the applicable statutory procedures of
the TBCA summarized elsewhere in this proxy statement/prospectus, will be
entitled to seek appraisal of the value of their TMBR/Sharp Shares under
Articles 5.11-5.13 of the TBCA. See "The Merger -- Dissenters' Rights of
Appraisal" on page 42.
STOCK CERTIFICATES
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
COMPLETED, PATTERSON-UTI WILL SEND YOU INSTRUCTIONS REGARDING THE PROCEDURES FOR
CONVERSION OF EACH OF YOUR TMBR/SHARP SHARES INTO THE RIGHT TO RECEIVE $9.09 IN
CASH AND 0.312166 OF A PATTERSON-UTI SHARE.
16
THE MERGER
BACKGROUND OF THE MERGER
During the last few years, in an effort to maximize shareholder value,
TMBR/Sharp's board of directors periodically reviewed and evaluated TMBR/Sharp's
presence and position in its areas of operation. During this time, the
TMBR/Sharp board of directors monitored the size and quality of TMBR/Sharp's rig
fleet, the quality of its crews, the type of rigs preferred by its customers and
potential customers, rig utilization rates and the benefits that might be
achieved by acquiring additional rigs and expanding TMBR/Sharp's geographic
areas of operation. Also during this time, TMBR/Sharp discussed at different
times with one privately owned company and three publicly owned companies,
including Patterson-UTI, the possibility of entering into different types of
business combinations.
Although initially focused on expansion, the TMBR/Sharp board of directors
gradually broadened its focus to include the possibility of being acquired. This
transition resulted from a number of factors, including periods of depressed
industry conditions, increased competition resulting from the consolidation of
TMBR/Sharp's competitors into larger companies with greater resources, the
indications of interest received by TMBR/Sharp from potential purchasers as
discussed below, and, to a lesser extent, the death in January 2001 of Joe G.
Roper, a founder and former director and president of TMBR/Sharp.
TMBR/Sharp's familiarity with Patterson-UTI, its predecessors and their
respective principals, including Cloyce A. Talbott and A. Glenn Patterson,
Patterson-UTI's current chief executive officer and president, respectively,
dates back many years. TMBR/Sharp and its former parent, Tom Brown, Inc., have
competed with Patterson-UTI in the contract drilling business since the
formation of Patterson Energy, Inc., the predecessor of Patterson-UTI, in 1978.
The proximity of the two companies' headquarters, which are approximately 100
miles apart, has resulted in the companies competing in many local markets and
serving the same customers from time to time. As in any business, these
competitors have closely monitored one another's businesses for many years.
Additionally, Mark S. Siegel, the chairman of the board of directors of
Patterson-UTI, and Mr. Brown had brief, informal conversations from time to time
regarding interest in a business combination, beginning as early as 1996 when
Mr. Siegel was chairman of the board of UTI Energy Corp., an independent onshore
contract drilling company, before its merger with Patterson Energy, Inc. in May
2001.
In June 2001, TMBR/Sharp commenced its consideration and evaluation of the
acquisition of a privately held drilling company operating land drilling rigs in
Texas. Eventually, TMBR/Sharp's board of directors concluded not to proceed with
the acquisition. However, TMBR/Sharp's board of directors continued to discuss
different ways to acquire additional rigs from other third parties, including an
acquisition of another drilling company.
The first publicly owned drilling company to make a written proposal to
acquire TMBR/Sharp came in January 2002. Mr. Brown received a letter dated
January 18, 2002 from the chairman of the board and chief executive officer of
this first company, which included a proposal to acquire all of TMBR/Sharp's
Shares at $15.00 per share, payable in cash, stock or a combination of cash and
stock. The $15.00 price per share represented a premium of approximately 15.4%
over the closing price of $13.00 per share on January 18, 2002. At a meeting of
TMBR/Sharp's board of directors on January 22, 2002, the directors reviewed and
discussed the proposal. After discussion, the TMBR/Sharp board of directors
authorized Mr. Brown to find and engage an investment banking firm.
Mr. Brown discussed with an investment banking firm the possibility of
entering into a financial advisory services agreement and the general terms of
an agreement. However, after further discussions between Mr. Brown, Jeffrey D.
Phillips, the president of TMBR/Sharp, and this first publicly owned company,
the prospects of a transaction between the two companies became increasingly
remote. As a result, and to avoid payment of unnecessary engagement or retainer
fees, TMBR/Sharp did not engage an investment banking firm until November 2002,
when discussions regarding a potential transaction advanced to a point that
justified engaging an investment banking firm. In addition, and further
contributing to the delay of engaging an investment banking firm, on May 9,
2002, TMBR/Sharp experienced a well blowout
17
on a property believed by TMBR/Sharp to have potentially significant reserves.
The engagement of an investment banking firm was further postponed until the
well was brought under control and TMBR/Sharp could more accurately assess the
potential impact of the well on its financial condition.
In early March 2002, Patricia R. Elledge, TMBR/Sharp's controller and a
daughter of Mr. Roper, received a telephone message from John E. Vollmer III,
the Senior Vice President -- Corporate Development of Patterson-UTI. Upon
returning the call, Ms. Elledge learned that Patterson-UTI was interested in
acquiring the TMBR/Sharp Shares held by Mr. Roper's estate and by the Roper
family.
After becoming aware that Patterson-UTI was interested in acquiring the
TMBR/Sharp Shares held by the Roper family, and during a telephone conversation
between Mr. Brown and the chief executive officer of a third public company, Mr.
Brown, a business partner of Joe G. Roper and close friend of his and his family
for more than fifty years, commented to the chief executive officer that the
Roper family was interested in selling its TMBR/Sharp Shares. Mr. Brown remarked
that if the third company had an interest in acquiring the TMBR/Sharp Shares
held by the Roper family, the chief executive officer might want to call the
Roper family. Thereafter, and independently of any involvement of Mr. Brown or
TMBR/Sharp, this third public company contacted a representative of the Roper
family and pursued negotiations for the purchase of the Roper family's
TMBR/Sharp Shares.
On March 14, 2002, Mr. Brown received a letter from the chief executive
officer of the third publicly owned drilling company expressing its willingness
to acquire 1,079,000 TMBR/Sharp Shares held by the estate of Mr. Roper, the
children of Mr. Roper and a family partnership controlled by them. The letter
included a proposal to acquire these shares at a price of $15.05 per share,
which represented a premium of approximately 13.7% over the closing price of
$13.24 per share on March 14, 2002. The proposal to acquire the TMBR/Sharp
Shares held by the Roper family and their affiliated entities was subject to
certain conditions, including, among other things, TMBR/Sharp entering into a
merger agreement with this third company and agreeing to either repurchase the
Roper family's TMBR/Sharp Shares from that company at a price of $15.05 per
share if the merger agreement was terminated or pay to that company the
difference between the price the company sold such shares (if less than $15 per
share) and the price paid by the company for such shares. Under the proposal,
this third company would exchange 1.15 shares of its common stock for each
outstanding TMBR/Sharp Share, resulting in a valuation of $17.56 per TMBR/Sharp
Share. The TMBR/Sharp board of directors discussed a possible combination with
that company and other strategies. On March 19, 2002, this third company
requested copies of certain materials in order to conduct a due diligence review
of TMBR/Sharp.
At a meeting of TMBR/Sharp's board of directors on March 21, 2002, Mr.
Brown reported on his conversations with the chief executive officer of the
third company and advised the directors that he had informed the chief executive
officer that the contingencies outlined in the proposal would not be acceptable
to TMBR/Sharp. Mr. Brown concluded that the offer was not acceptable primarily
because of his belief that (1) the two potential transactions among the parties
should be pursued independently, if at all; (2) the terms of one transaction
should not influence or dictate the terms of the other potential transaction;
(3) TMBR/Sharp should not be required to repurchase the Roper family shares
under any circumstances; and (4) this third company would not increase its
offering price. Mr. Brown further advised the directors that this third company
had contacted the Roper family for the purpose of negotiating the purchase of
the Roper family's TMBR/Sharp Shares. The directors then entered into a general
discussion regarding:
- a potential combination of TMBR/Sharp with this third company and other
possible companies;
- the break-up value of the TMBR/Sharp Shares, estimated by TMBR/Sharp at
that time to be $19.70 per share;
- proposed exchange rates;
- current oil and gas reserve values;
- the value of TMBR/Sharp Shares and its price performance;
18
- the financial condition of other companies that might have an interest in
a combination with TMBR/Sharp;
- potential transactions with other companies, including Patterson-UTI; and
- the impact that a combination with this third company might have on
TMBR/Sharp's oil and gas exploration and production activities.
Based on the recommendation of Mr. Brown and the discussion described above
among the directors, the directors deferred any formal action in respect of the
third company's offer.
On March 22, 2002, TMBR/Sharp and its legal advisors received unsolicited
drafts of a proposed agreement and plan of merger from the third company.
At a telephonic meeting of TMBR/Sharp's board of directors on May 21, 2002,
the board again discussed the possibility of a transaction with the third
company. Mr. Brown suggested that no action be taken until TMBR/Sharp had
completed the redrilling of a well in Loving County, Texas that had experienced
a blowout earlier in the month. After following up on earlier discussions, an
agreement was never entered into because of differences in establishing a
mutually acceptable price and Patterson-UTI's acquisition of TMBR/Sharp Shares
from the Roper family as described below.
After a series of discussions, certain members of the Roper family, Mr.
Roper's estate and a Roper family partnership entered into a stock purchase
agreement with Patterson-UTI on June 11, 2002, pursuant to which they sold to
Patterson-UTI 762,597 TMBR/Sharp Shares at a price of $16.60 per share on June
14, 2002. The sellers also granted to Patterson-UTI an option to purchase, and
Patterson-UTI granted the sellers an option to sell, an additional 195,000
TMBR/Sharp Shares at $16.60 per share.
On June 12, 2002, Mr. Siegel called Mr. Brown and informed him about the
transaction with the Roper family and that Patterson-UTI had purchased, or
received an option to purchase, approximately 19.7% of the then outstanding
TMBR/Sharp Shares. Mr. Siegel also informed Mr. Brown of the following matters:
- the TMBR/Sharp Shares had been acquired for investment purposes;
- Patterson-UTI was interested in possible strategic opportunities with
TMBR/Sharp, including the possible combination of TMBR/Sharp and
Patterson-UTI;
- Patterson-UTI had indicated its interest to TMBR/Sharp; and
- Patterson-UTI had no intention of pursuing a strategic transaction other
than on a mutually acceptable basis.
On June 12, 2002, Mr. Phillips distributed to TMBR/Sharp's board of
directors copies of Patterson-UTI's press release relating to the transaction
and a letter from Mr. Siegel to Mr. Brown restating matters discussed in the
immediately preceding bullet points.
At the July 18, 2002 meeting of Patterson-UTI's board of directors, Mr.
Siegel reported on, and the directors discussed, strategic opportunities
relating to TMBR/Sharp.
At the August 28, 2002 meeting of TMBR/Sharp's board of directors, the
directors reviewed and discussed TMBR/Sharp's future prospects, the advantages
and disadvantages of pursuing a business combination and the need to engage an
investment banking firm. The directors requested that Mr. Brown continue to
explore potential combination transactions and proceed with the selection and
engagement of an investment banking firm to serve as TMBR/Sharp's financial
advisor in connection with strategic transactions. Following this meeting, Mr.
Brown and Mr. Phillips had discussions from time to time with representatives of
ECS regarding potential combination matters, such as potentially interested
parties, timing and the type of transaction that might be suitable for
TMBR/Sharp. Other than these discussions with ECS, there were no material
developments regarding potential combinations involving TMBR/Sharp until
November, 2002.
19
At the October 16, 2002 meeting of TMBR/Sharp's board of directors, the
directors discussed the current status of the contract drilling markets
generally, the financial condition of TMBR/Sharp and Patterson-UTI and the
market price of Patterson-UTI Shares. The directors also discussed the
exploration and production activities of Patterson-UTI.
On October 28, 2002, Patterson-UTI entered into a stock purchase agreement
with a member of the Roper family to purchase an additional 101,076 TMBR/Sharp
Shares at a price of $16.60 per share. On October 29, 2002, Patterson-UTI
completed the purchase of the 195,000 TMBR/Sharp Shares subject to the option
granted pursuant to the June 11, 2002 stock purchase agreement and completed the
purchase of 101,076 TMBR/Sharp Shares pursuant to the October 28, 2002 stock
purchase agreement.
In November 2002, TMBR/Sharp's compensation committee concluded that a
bonus plan for certain key employees of TMBR/Sharp should be established. On
November 6, 2002, the compensation committee met for the purpose of considering
proposed bonus agreements for certain key employees that would provide an
incentive for and encourage key employees to remain in TMBR/Sharp's employment
during a period of uncertainty created by TMBR/Sharp's possible sale. After
approval by, and upon recommendation of, the compensation committee, the
TMBR/Sharp board of directors approved the final form of retention agreements
for ten key employees. These agreements provide for the payment of a cash bonus
following a merger in an amount equal to an employee's base salary times an
applicable multiple. The maximum amount payable under the retention agreements
is approximately $2,157,677. For a more complete description of the agreements,
see "-- Interests of Certain Persons in the Merger -- Retention Agreements".
On November 13, 2002, TMBR/Sharp entered into a financial advisory
agreement with Energy Capital Solutions, LLC ("ECS") engaging ECS as
TMBR/Sharp's exclusive financial advisor in connection with a transaction
involving the direct or indirect sale or disposition of TMBR/Sharp. ECS was
selected as TMBR/Sharp's financial advisor, in large part, because J. Russell
Weinberg, a managing director of ECS, had performed financial services for
TMBR/Sharp in the past, and because ECS is an investment banking firm whose
principals have expertise and experience in transactions involving energy
companies similar to TMBR/Sharp.
In November 2002, and again in mid-January 2003, Patterson-UTI requested
that TMBR/Sharp's board of directors adopt a resolution relating to Article
13.03 of the TBCA authorizing Patterson-UTI's purchase of a number of TMBR/Sharp
Shares that would result in Patterson-UTI owning more than 20% of the
outstanding TMBR/Sharp Shares. Under this statute, if any party acquires more
than 20% of the outstanding TMBR/Sharp Shares without the prior approval of
TMBR/Sharp's board of directors, that party cannot acquire or enter into certain
transactions with TMBR/Sharp for a period of three years unless the acquisition
is approved by two-thirds of the unaffiliated shareholders. Without advance
approval of TMBR/Sharp's board of directors, these provisions of the TBCA could
have delayed Patterson-UTI's ability to combine with TMBR/Sharp. TMBR/Sharp's
board did not adopt the requested resolutions because of the uncertainties
associated with a single party having ownership of such a large percentage of
the outstanding TMBR/Sharp Shares, TMBR/Sharp's absence of any takeover defenses
and the expressed interest of other companies in acquiring TMBR/Sharp.
Throughout the latter part of 2002 and continuing into early February 2003,
Mr. Brown and Mr. Siegel continued to discuss strategic opportunities, including
a possible combination of TMBR/Sharp and Patterson-UTI on a mutually acceptable
basis.
At a meeting of Patterson-UTI's board of directors on February 4, 2003, Mr.
Siegel reported on, and the directors discussed, acquisition opportunities
relating to TMBR/Sharp.
At a meeting of TMBR/Sharp's board of directors on February 11, 2003, the
directors discussed the possible acquisition of TMBR/Sharp by Patterson-UTI and
whether the consideration to TMBR/Sharp's shareholders in a potential
transaction with Patterson-UTI should be all cash, all stock or a combination of
cash and stock. The directors also discussed the implications of giving advance
approval of Patterson-UTI's previous requests to acquire over 20% of the
outstanding TMBR/Sharp Shares. Mr. Brown further
20
reported that ECS had remained in contact with the third public company that
made an offer to TMBR/Sharp, and had gathered information regarding other
companies that might be interested in acquiring TMBR/Sharp. Mr. Phillips also
reported to the directors that the evaluation material requested by
Patterson-UTI had been provided. These materials included oil and gas reserve
data and other customary due diligence information.
At the February 26, 2003 meeting of TMBR/Sharp's board of directors, ECS
made a presentation to the directors of its preliminary valuation analysis of
TMBR/Sharp, which showed a possible valuation range of $16.24 to $20.96 per
share. ECS also provided information regarding potential buyers. TMBR/ Sharp's
legal advisors also made a presentation regarding the fiduciary duties of
directors and anti-takeover provisions for consideration by the directors.
During this meeting, the directors asked ECS to call Mr. Siegel. ECS and Mr.
Phillips then contacted Mr. Siegel to inquire about Patterson-UTI's interest in
pursuing discussions of a possible merger of the two companies.
On March 3, 2003, ECS, Mr. Brown and Mr. Phillips called Mr. Siegel and
Kenneth N. Berns, a director of Patterson-UTI. In this conversation, ECS
summarized the prior week's activities of TMBR/ Sharp and the parties discussed
how best to proceed in evaluating the potential benefits of a mutually
acceptable transaction, the manner in which a possible transaction might be
achieved and the status of new wells being drilled by TMBR/Sharp. The parties
agreed that detailed discussions, including pricing terms, would occur at a
later date and that the primary communications and negotiations between the two
companies would be conducted by designated representatives of each company.
Thereafter, negotiations between the companies were conducted by ECS, on behalf
of TMBR/Sharp, and by Mr. Berns, on behalf of Patterson-UTI.
On March 7, 2003, Mr. Berns and Mr. Vollmer met with ECS to discuss initial
due diligence matters and to gather more information about whether the parties
should continue to consider exploring a possible combination on a mutually
acceptable basis.
Subsequent to these conversations, and through May 26, 2003, Patterson-UTI
and its advisors conducted a due diligence review of TMBR/Sharp, which included,
among other things, the evaluation of TMBR/Sharp's periodic reports filed with
the SEC and other publicly available information, field inspections and the
review of TMBR/Sharp's oil and gas reserve information and other legal,
financial and operational documents. Throughout this time, discussions between
ECS and the representatives of Patterson-UTI continued regarding the possibility
of a merger and establishing a range of values that could be submitted to
TMBR/Sharp's board of directors.
On May 19, 2003, ECS received a telephone call from Mr. Berns in which Mr.
Berns informed ECS that Patterson-UTI would consider offering $20.00 per share
for the TMBR/Sharp Shares, which would be paid 50% in cash and 50% in
Patterson-UTI Shares.
At a telephonic meeting of TMBR/Sharp's board of directors on May 20, 2003,
which was also attended by TMBR/Sharp's legal and financial advisors, ECS
reported that the potential price to be offered by Patterson-UTI for the
TMBR/Sharp Shares would be $20.00 per share, payable 50% in cash and 50% in
Patterson-UTI Shares. The directors discussed:
- seeking a higher valuation from Patterson-UTI;
- contacting other potential buyers and the likelihood of being able to
complete a transaction with other potential buyers in a timely manner;
- fiduciary duties of the directors and the procedures required to meet
these duties;
- whether Patterson-UTI would be willing to reconsider its potential
valuation of the outstanding TMBR/Sharp Shares;
- the need to conduct further market checks in light of the board's prior
discussions;
- the advice of ECS regarding potential combinations;
21
- lock-up arrangements and the effect that different lock-up arrangements
might have on a merger price;
- the timing of a transaction with potential buyers;
- the adequacy of the potential price to be offered by Patterson-UTI;
- Patterson-UTI's identity in the marketplace;
- current market conditions, including the value of TMBR/Sharp's drilling
rigs; and
- the advisability of contacting the third publicly owned company that had
previously made a proposal to TMBR/Sharp and the risk of losing a
potential transaction with Patterson-UTI.
As a result of the discussion described above, at the request of the directors
and during the meeting, ECS called Mr. Berns and advised him that TMBR/Sharp's
board believed that the price should be greater than $20.00 per share.
On May 21, 2003, Mr. Berns telephoned ECS and informed ECS that
Patterson-UTI was willing to increase its potential valuation of the outstanding
TMBR/Sharp Shares from $20.00 to $20.25 per share.
At a telephonic meeting of TMBR/Sharp's board of directors on May 22, 2003,
which was also attended by TMBR/Sharp's legal and financial advisors, ECS
reported to the directors that Patterson-UTI was willing to increase its
potential valuation of TMBR/Sharp from $20.00 per share to $20.25 per share. The
directors discussed available alternatives, including contacting one of the
other public companies that had expressed interest in pursuing a transaction
with TMBR/Sharp. Having previously been informed by Raymond C. Batchelor, one of
TMBR/Sharp's directors, that Mr. Batchelor and the chief executive officer of
the third company coincidentally attended the same business luncheon in early
May 2003, Mr. Brown reported that the chief executive officer of the third
company informally commented that if TMBR/Sharp completed a transaction with
Patterson-UTI, the third company would have an interest in acquiring
TMBR/Sharp's oil and gas properties from Patterson-UTI. The directors discussed
these comments and Mr. Brown reported that this third company had already
contacted Patterson-UTI to express an interest in buying the properties from
Patterson-UTI if Patterson-UTI and TMBR/Sharp completed a transaction. The
directors also discussed the potential advantages and disadvantages of
conducting further market checks. At the request of TMBR/Sharp's directors, Mr.
Weinberg called Mr. Berns during the meeting to communicate an interest in
pursuing a potential transaction and to discuss the process of how to proceed
with further negotiations if Patterson-UTI had an interest in pursuing a
potential transaction. Mr. Weinberg also inquired as to Patterson-UTI's position
with respect to TMBR/Sharp contacting the third publicly owned company. Mr.
Berns indicated he would have to call back after talking to Patterson-UTI's
management. The TMBR/Sharp board of directors continued to discuss the structure
of the acquisition and possible terms of the deal.
On May 22, 2003, Mr. Berns returned the call to ECS and further discussed
with ECS the process of pursuing negotiations. During the discussion, and in
response to Mr. Berns' indication that Patterson-UTI preferred that TMBR/Sharp
not contact other companies, Mr. Weinberg advised Mr. Berns that TMBR/Sharp
would not contact other third parties, so long as the merger agreement did not
contain any significant barriers to third party offers. Having previously
reviewed and considered potential transactions with other third parties, and
having further reviewed the group of potential third parties that might have an
interest in a transaction with TMBR/Sharp, the TMBR/Sharp board of directors
decided not to contact other third parties because of (1) its determination that
the likelihood of entering into an alternative transaction with another company
on acceptable terms was remote; (2) Patterson-UTI's expressed preference that
TMBR/Sharp not contact other bidders, in exchange for which TMBR/Sharp required
minimal barriers to third party offers; and (3) the belief that other potential
candidates for a transaction would not be able to proceed as rapidly as
Patterson-UTI, especially in view of Patterson-UTI's ownership position in
TMBR/Sharp and familiarity with TMBR/Sharp.
On May 23, 2003, TMBR/Sharp and its legal and financial advisors received
an initial draft merger agreement.
22
Commencing on May 23, 2003 and continuing through May 26, 2003,
representatives of TMBR/Sharp and Patterson-UTI, together with their respective
advisors, engaged in extensive negotiations regarding the merger agreement and
the terms of the proposed merger.
On May 25, 2003, Mr. Brown, Mr. Phillips and representatives of ECS called
Mr. Siegel, Mr. Vollmer and Mr. Jonathan D. Nelson, the Vice President-Finance,
Chief Financial Officer, Secretary and Treasurer of Patterson-UTI, for the
purpose of allowing ECS and TMBR/Sharp to complete their due diligence review of
Patterson-UTI, and allowing Patterson-UTI to complete its due diligence review
of TMBR/Sharp.
On the evening of May 25, 2003 and the morning of May 26, 2003, summaries
of the potential terms and provisions of the merger agreement and drafts of the
merger agreement were distributed to TMBR/Sharp's board of directors.
At 3:00 p.m. on May 26, 2003, TMBR/Sharp's board of directors convened for
the purpose of considering and voting upon the proposed merger. At the meeting,
members of TMBR/Sharp's senior management and TMBR/Sharp's legal and financial
advisors reviewed with the board of directors the terms of the proposed merger.
In particular, the TMBR/Sharp legal advisors advised the TMBR/Sharp board of
directors as to its fiduciary duties to TMBR/Sharp shareholders. ECS then made a
presentation regarding the analysis described under "-- Opinion of TMBR/Sharp's
Financial Advisor". In addition, the terms of the merger agreement, including
the conditions to closing and the termination fee, and related exhibits were
presented in detail by the legal and financial advisors and were discussed at
length with the board of directors. The potential benefits of the proposed
merger and the financial and other effects the proposed merger would have on
TMBR/Sharp and its shareholders were also discussed in detail by TMBR/Sharp's
board of directors. Following further discussions between TMBR/Sharp and
Patterson-UTI and their advisors, the remaining issues were resolved, including
the allocation of cash and stock consideration and due diligence issues, which
resulted in a reduction of the price offered by Patterson-UTI for each
TMBR/Sharp Share from $20.25 to $20.20. The cash and stock offer of $20.20
represented a premium of approximately 4.12%, based on the closing prices of
$19.40 per TMBR/Sharp Share and $35.59 per Patterson-UTI Share on May 23, 2003,
the last trading day prior to the offer. After these discussions, ECS rendered
its oral opinion, subject to TMBR/Sharp's receipt of the final written price of
the merger consideration orally agreed upon by TMBR/Sharp and Patterson-UTI,
that, as of the date and subject to various assumptions, the consideration to be
received by TMBR/Sharp's shareholders in the merger was fair, from a financial
point of view, to TMBR/Sharp's shareholders. Following receipt of the final
written terms of the merger consideration, ECS confirmed its opinion in writing.
After these presentations and discussions, and subject to receipt of the final
written terms of the merger consideration, the board of directors of TMBR/Sharp
unanimously agreed that the merger agreement and the merger were fair to,
advisable and in the best interests of TMBR/Sharp and its shareholders and
unanimously voted: (1) to approve and adopt the merger agreement and the
transactions contemplated by the merger agreement, including the merger; and (2)
to recommend that TMBR/Sharp's shareholders vote to approve and adopt the merger
agreement and approve the merger.
On the afternoon of May 26, 2003, a summary of the proposed terms and
provisions of the merger agreement, the latest draft of the merger agreement and
a financial analysis of the proposed merger prepared by the senior management of
Patterson-UTI were distributed to Patterson-UTI's board of directors.
At 6:00 p.m. on May 26, 2003, Patterson-UTI's board of directors convened
for the purpose of considering and voting upon the proposed merger. At the
meeting, members of Patterson-UTI's senior management and Patterson-UTI's legal
advisors reviewed with the board of directors the terms of the merger and a
financial analysis of the proposed merger. In particular, Mr. Siegel summarized
the chronology of events leading up to the recent negotiations, including
Patterson-UTI's previous acquisition of nearly 20% of the outstanding TMBR/Sharp
Shares. Mr. Berns presented in detail the terms of the merger agreement,
including, among other things, the representations and warranties to be made by
TMBR/Sharp, the conditions to closing, the termination provisions, the break-up
fee and the treatment of
23
TMBR/Sharp stock options. Mr. Talbott reported on the TMBR/Sharp exploration and
production assets. Another member of senior management informed the directors of
the results of due diligence on TMBR/Sharp and presented in detail the
financial analysis of the proposed transaction, including the allocation of the
cash and stock consideration and the valuation of the TMBR/Sharp Shares at a
price of $20.20 per share. The Patterson-UTI board of directors discussed the
terms of the merger agreement, the financial analysis and the due diligence
results at length and asked senior management questions related to those
matters, including among other things, the potential tax consequences of the
proposed merger and the assumptions used in the senior management's financial
analysis. The Patterson-UTI board of directors also discussed the potential
benefits of the proposed merger and the financial and other effects that the
proposed merger would have on Patterson-UTI and its stockholders. At
approximately 7:30 p.m., after these presentations and discussions, the board of
directors of Patterson-UTI unanimously agreed that the merger agreement and the
merger were fair to, advisable and in the best interests of Patterson-UTI and
its stockholders and unanimously voted to approve and adopt the merger agreement
and the transactions contemplated by the merger agreement, including the merger.
On May 26, 2003, Patterson-UTI, Sub and TMBR/Sharp executed the merger
agreement and on May 27, 2003, issued a joint press release announcing that the
parties had signed a merger agreement. As of the date of this proxy
statement/prospectus, TMBR/Sharp has not received any expression of interest
from other third parties about alternate transactions.
TMBR/SHARP'S REASONS FOR THE MERGER
The TMBR/Sharp board of directors determined that the proposed merger is in
the best interests of TMBR/Sharp and its shareholders because it believes that
the value of the cash and stock consideration in the combined company after the
merger is likely to be superior to the long term value of an investment in
TMBR/Sharp as a stand-alone company. The TMBR/Sharp board considers the merger
to be a means of achieving the long term strategic and financial goals of
TMBR/Sharp while at the same time offering the TMBR/Sharp shareholders the
ability to participate in a larger, more diversified company. The decision of
the TMBR/Sharp board to approve the merger agreement and to recommend its
adoption by TMBR/Sharp's shareholders was based upon various factors, including
those mentioned in "-- Background of the Merger" beginning on page 17, and the
following:
- the judgment, advice and analyses of senior management of TMBR/Sharp,
including their analysis of the domestic onshore drilling and oil and gas
exploration and production industries generally and the strategic options
available to TMBR/Sharp;
- the value of the cash and stock consideration offered in the merger in
relation to historical and current market trading prices for TMBR/Sharp
Shares and the underlying value of TMBR/Sharp's net assets;
- information concerning the historical financial performance and
condition, business operations and prospects of each of TMBR/Sharp and
Patterson-UTI;
- TMBR/Sharp's projected future performance and prospects as a separate
entity and on a combined basis with Patterson-UTI;
- the operational efficiencies and collective management experience that
would result from the merger;
- the fact that the size and importance in the drilling industry of the
combined companies would likely provide greater visibility and a stronger
following by research analysts and greater stock market liquidity than
TMBR/Sharp would have on its own;
- the structure of the transaction and the terms of the merger agreement;
- the fact that the merger would provide holders of TMBR/Sharp Shares with
the opportunity to receive a premium over recent market prices for
TMBR/Sharp Shares and a more actively traded stock;
24
- the provisions of the merger agreement that permit the TMBR/Sharp board,
in the exercise of its fiduciary duties, to terminate the merger
agreement upon the payment of a $3.5 million termination fee to
Patterson-UTI under certain circumstances if a higher offer for
TMBR/Sharp is made, coupled with the fact that the TMBR/Sharp board did
not view this termination fee as unreasonably deterring any seriously
interested third party from making a higher offer;
- the opinion of TMBR/Sharp's financial advisor, as described below under
"-- Opinion of TMBR/Sharp's Financial Advisor", that the consideration
to be received by holders of TMBR/Sharp Shares in the merger was fair
from a financial point of view to such holders;
- the historical performance and financial strength of Patterson-UTI;
- the likelihood that the merger will be consummated;
- the belief that TMBR/Sharp will be able to continue its business
activities without any major disruption to its customers; and
- the belief of an increase in access to capital markets.
All of the above factors supported the TMBR/Sharp board's decision to
approve the merger agreement and the merger. In reaching its decision to approve
the merger agreement and the merger and to recommend the adoption of the merger
agreement by the TMBR/Sharp shareholders, the TMBR/Sharp board did not view any
single factor as determinative, and did not find it necessary or practicable to
assign any relative or specific weights to the various factors considered.
Furthermore, individual directors may have given different weights to different
factors.
The potential risks and disadvantages to the merger that were identified by
TMBR/Sharp's board as material included the following:
- the process of effecting the merger will require TMBR/Sharp's management
to divert a significant amount of their time and resources from daily
operations, and will involve significant expenses payable to legal,
accounting and other financial professionals, even if the merger is not
completed;
- the integration of the operations and systems of Patterson-UTI and
TMBR/Sharp may involve unforeseen difficulties and fail to achieve the
cost savings and other benefits anticipated by the parties;
- the larger combined company may not be able to focus on the exploration
and production of TMBR/Sharp's oil and natural gas reserves in the same
manner as TMBR/Sharp has done in the past;
- the market price of Patterson-UTI Shares at the time of the merger may be
lower than the market price of the Patterson-UTI Shares when the merger
agreement was signed, and lower than the corresponding market price on
the date of this proxy statement/prospectus or the date of the special
meeting;
- the merger might not be completed as a result of a failure to satisfy the
conditions contained in the merger agreement or other reasons;
- the merger might result in the loss of jobs of TMBR/Sharp employees; and
- the share price of the larger combined company might not be as favorably
affected by the exploration and production segment of TMBR/Sharp's
business as the price of the TMBR/Sharp Shares before the merger.
For additional discussion of the risks associated with the merger, see
"Risk Factors" beginning on page 10.
25
RECOMMENDATIONS OF TMBR/SHARP'S BOARD OF DIRECTORS
FOR THE REASONS SET FORTH UNDER "-- BACKGROUND OF THE MERGER" AND
"-- TMBR/SHARP'S REASONS FOR THE MERGER," TMBR/SHARP'S BOARD OF DIRECTORS HAS
UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR TO, ADVISABLE AND IN THE BEST
INTERESTS OF TMBR/SHARP AND ITS SHAREHOLDERS. TMBR/SHARP'S BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT TMBR/SHARP SHAREHOLDERS APPROVE THE MERGER AND
MERGER AGREEMENT. In addition to consideration to be received for their
TMBR/Sharp Shares, eight officers and directors of TMBR/Sharp will receive
compensatory payments as a result of the merger. You should consider these
payments and certain other interests in voting on the merger. For additional
information regarding these interests, see "-- Interests of Certain Persons in
the Merger" beginning on page 37.
OPINION OF TMBR/SHARP'S FINANCIAL ADVISOR
TMBR/Sharp engaged ECS as its financial advisor on November 13, 2002, in
connection with a possible merger or business combination involving TMBR/Sharp.
On May 26, 2003, ECS rendered to the TMBR/Sharp Board of Directors its oral
opinion (followed by its written opinion as of the same date) that, as of that
date and based upon and subject to the assumptions and qualifications described
in such opinion, the consideration described in the draft merger agreement,
dated May 26, 2003, to be received by the holders of TMBR/Sharp Shares (other
than Patterson-UTI and TMBR/Sharp) in the merger was fair from a financial point
of view to such holders. The amount of consideration to be paid in the merger
was not determined by ECS but was determined through negotiations between
TMBR/Sharp and Patterson-UTI.
The discussion below is a description of the assumptions made, procedures
followed, matters considered and limits of the scope of review undertaken by ECS
in rendering its opinion, which is attached as Annex B to this proxy
statement/prospectus and is incorporated by reference in this document.
TMBR/Sharp shareholders are urged to read carefully the ECS opinion. The full
text of ECS' opinion is also available for inspection and copying at
TMBR/Sharp's corporate offices during regular business hours by any of
TMBR/Sharp's shareholders, or a shareholder's representative who has been so
designated in writing.
ECS' opinion was provided to the TMBR/Sharp board of directors for its use
and benefit and addresses only the fairness from a financial point of view of
the consideration to be received by the holders of TMBR/Sharp Shares. ECS'
opinion does not address the merits of the underlying decision by TMBR/Sharp to
engage in the merger and does not constitute a recommendation to any shareholder
as to how that shareholder should vote at the special meeting. ECS' opinion and
its presentation to the TMBR/Sharp board of directors on May 26, 2003 were
among many factors taken into consideration by the TMBR/Sharp board of directors
in making its determination to approve and recommend the merger.
In arriving at its opinion, ECS, among other things:
- reviewed certain publicly available business and financial information
relating to TMBR/Sharp, including its Annual Reports on Form 10-K and
related audited financial statements for the fiscal years ended March 31,
2000, March 31, 2001 and March 31, 2002;
- reviewed a draft dated May 2, 2003, of TMBR/Sharp's unaudited financial
statements for the fiscal year ended March 31, 2003;
- reviewed certain publicly available business and financial information
relating to Patterson-UTI, including its Annual Reports on Form 10-K and
related audited financial statements for the fiscal years ended December
31, 2000, December 31, 2001 and December 31, 2002, and its unaudited
financial statements on Form 10-Q for the fiscal quarters ended March 31,
2002 and March 31, 2003;
- reviewed certain estimates of TMBR/Sharp's oil and gas reserves,
including estimates of proved, probable and possible reserves prepared by
Joe C. Neal & Associates as of April 1, 2003;
- analyzed certain historical and projected financial and operating data of
TMBR/Sharp;
26
- reviewed certain estimates of TMBR/Sharp's yard inventory and other
equipment related to the drilling business as prepared by the management
of TMBR/Sharp;
- reviewed certain research reports relating to the historical and
projected financial and operating data of Patterson-UTI prepared by
third-parties;
- discussed the current operations and prospects of TMBR/Sharp and
Patterson-UTI with the management and staff of TMBR/Sharp and
Patterson-UTI, respectively;
- reviewed the historical market prices and trading history of the
TMBR/Sharp Shares and the Patterson-UTI Shares;
- compared recent stock market capitalization indicators for TMBR/Sharp
with recent stock market capitalization indicators for certain other
publicly traded independent energy and land drilling companies;
- compared the financial terms of the merger with the financial terms of
other transactions that ECS deemed to be relevant;
- participated in certain discussions among representatives of TMBR/Sharp
and Patterson-UTI and their respective advisors;
- reviewed the merger agreement dated May 26, 2003; and
- reviewed such other financial studies and analyses and performed such
other investigations and considered such other matters as ECS deemed
necessary or appropriate.
In preparing its opinion, ECS assumed and relied upon, without assuming any
responsibility for or independently verifying, the accuracy and completeness of
any information supplied or otherwise made available to ECS by TMBR/Sharp and
Patterson-UTI. ECS further relied upon the assurances of the representatives of
the management of TMBR/Sharp and Patterson-UTI that they were unaware of any
facts that would make the information provided to ECS incomplete or misleading
in any material respect. With respect to projected financial and operating data,
ECS assumed that the data had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management and staff of
TMBR/Sharp relating to the future financial and operational performance of
TMBR/Sharp. With respect to the estimates of oil and gas reserves, ECS assumed
that they had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management and staff of TMBR/Sharp (and
its engineering consultants) relating to the oil and gas properties of
TMBR/Sharp. ECS did not make an independent evaluation or appraisal of the
assets or liabilities of either TMBR/Sharp or Patterson-UTI nor, except for the
estimates of oil and gas reserves and estimates of drilling equipment and yard
inventory referred to above, was ECS furnished with any such evaluations or
appraisals. In addition, ECS did not assume any obligation to conduct, and did
not conduct, any physical inspection of the properties or facilities of
TMBR/Sharp or Patterson-UTI.
ECS was not asked to consider, and its opinion does not address, the price
at which Patterson-UTI Shares or TMBR/Sharp Shares will trade following the
announcement of the merger or the price at which the Patterson-UTI Shares will
trade following the consummation of the merger.
ECS' opinion was rendered on the basis of conditions in the securities
markets and the oil and gas markets prevailing as of the date of its opinion and
the condition and prospects, financial and otherwise, of TMBR/Sharp and
Patterson-UTI as they had been represented to ECS as of the date of its opinion
or as they were reflected in the materials and discussions described above.
The following is a summary of the analyses performed by ECS in connection
with the preparation of its opinion dated May 26, 2003, and presented to the
TMBR/Sharp Board of Directors on that date.
This summary includes information presented in tabular format. In order to
fully understand these financial analyses, the tables must be read carefully
together with the text accompanying each summary. The tables alone do not
constitute a complete description of these financial analyses. Considering the
data
27
set forth in the tables without considering the full narrative description of
these analyses, including the methodologies and assumptions underlying these
analyses, could create a misleading or incomplete view of the financial analyses
performed by ECS.
SUMMARY OF ANALYSIS
The following table sets forth the summary results of the material
valuation methodologies utilized by ECS as part of its analysis:
CALCULATED METRICS
----------------------------------------------------------------------------------------------
ENTERPRISE PREMIUM TO:
EQUITY VALUE TO VALUE TO 2003 -------------------------------------------
OFFER PRICE LTM CASH FLOW EBITDA 1-DAY PRIOR 30-DAYS PRIOR 60-DAYS PRIOR
--------------- --------------- ------------- ----------- ------------- -------------
OFFER PRICE
METRICS............ $20.20 10.2x 7.6x 4% 19% 16%
ANALYSIS METHODOLOGY: PER SHARE RANGE
---------------
Net Asset Value
Analysis
5-year strip
average........ $17.35 - $19.92 8.7x - 10.0x 6.4x - 7.5x (11)% - 2% 2% - 17% (1)% - 14%
strip flat....... $17.27 - $19.79 8.7x - 9.9x 6.4x - 7.4x (11)% - 1% 2% - 16% (1)% - 13%
5-year historical
flat............. $16.11 - $18.49 8.1x - 9.3x 5.9x - 6.9x (17)% - (5)% (5)% - 9% (8)% - 6%
Asset Transaction
Analysis......... $17.19 - $19.71 8.6x - 9.9x 6.3x - 7.4x (12)% - 1% 1% - 16% (2)% - 13%
Company Transaction
Analysis......... $17.99 - $22.30 9.0x - 11.2x 6.7x - 8.4x (8)% - 14% 6% - 31% 3% - 28%
Publicly Traded
Company
Analysis......... $17.13 - $22.30 8.6x - 11.2x 6.3x - 8.4x (12)% - 14% 1% - 31% (2)% - 28%
Going Concern
Analysis......... $18.00 - $23.00 9.0x - 11.6x 6.7x - 8.7x (8)% - 18% 6% - 35% 3% - 32%
HISTORICAL STOCK TRADING RATIO ANALYSIS
ECS analyzed the historical ratios of the closing prices of TMBR/Sharp
Shares divided by corresponding closing prices of Patterson-UTI Shares for the
period from May 24, 2002 to May 23, 2003. ECS noted the proposed merger exchange
ratio of 0.568 was above the average historical trading ratio of 0.535 during
such period. Additionally, ECS noted that the proposed merger exchange ratio was
also above the three month average historical trading ratio of 0.546, the six
month average historical trading ratio of 0.541, and the historical trading
ratio of 0.538 from June 12, 2002, the date Patterson-UTI first announced it
would acquire a portion of TMBR/Sharp Shares.
IMPLIED PREMIUM ANALYSIS
ECS calculated the premiums implied by comparing the $20.20 per share
merger consideration for the TMBR/Sharp Shares in blended value offered by
Patterson-UTI (based on the closing price of Patterson-UTI Shares on May 23,
2003) to the average historical trading price of TMBR/Sharp Shares for specified
periods between May 23, 2002 and May 23, 2003, and between June 12, 2001 and
June 12,
28
2002 (the date Patterson-UTI publicly announced its initial acquisition of
TMBR/Sharp Shares), and derived the following results:
TMBR/SHARP $20.20 OFFER
AVERAGE PRICE PREMIUM
----------------- -----------------
PERIOD 6/12/02 5/23/03 6/12/02 5/23/03
------ ------- ------- ------- -------
Last Price........................................ $15.75 $19.40 28% 4%
Day Prior......................................... $13.92 $19.51 45% 4%
30 days........................................... $15.29 $17.00 32% 19%
60 days........................................... $13.70 $17.47 47% 16%
90 days........................................... $12.15 $16.40 66% 23%
180 days.......................................... $12.80 $12.36 58% 63%
1 year............................................ $10.25 $13.45 97% 50%
52-Week High Price................................ $20.30 0%
52-Week Low Price................................. $12.05 68%
NET ASSET VALUE ANALYSIS
ECS conducted a net asset value analysis for the purpose of determining the
equity reference value range per share of TMBR/Sharp Shares. ECS calculated the
net present value of estimates of future after-tax cash flows for TMBR/Sharp's
oil and gas reserve assets based on the proved, probable and possible reserve
estimates referred to above, for its drilling assets using the reference value
range from selected comparable drilling asset transactions (as described in
Selected Comparable Asset Transactions Analysis below), and for its other
non-reserve assets utilizing information provided by TMBR/Sharp.
For the oil and gas assets, ECS evaluated three scenarios in which the
principal variables were oil and gas prices. The three pricing scenarios, 5-Year
Strip Average, Strip Flat, and 5-Year Historical Flat, were based on benchmarks
for spot sales of West Texas Intermediate crude oil and for spot sales of Henry
Hub gas. The strip pricing scenarios were based upon the publicly available
average of oil and gas futures contract prices quoted on the New York Mercantile
Exchange (NYMEX) as of May 23, 2003. The 5-Year Strip Average Case utilized the
average price of the NYMEX futures for oil and gas for the period May 23, 2003
to December 31, 2007. The Strip Flat Case reflected the average NYMEX futures
price for each year, 2003 to 2007, for oil and gas prices. For the period April
1, 2003 through December 31, 2003, the 5-Year Strip Average Case and the Strip
Flat Case reflected actual prices from April 1, 2003 through May 23, 2003,
blended with the NYMEX strip for the remainder of the year. The 5 Year
Historical Flat Case reflected the average price of oil and gas for the
five-year period between May 26, 1998 and May 23, 2003, as the constant price
for oil and gas. Adjustments were made to the benchmarks based on the historical
relationship between the benchmarks and TMBR/Sharp's realized prices.
Applying after-tax discount rates of 10.0%-12.5%, 12.5%-15.0%, 15.0%-20.0%,
30.0%-40.0% and 40.0%-50.0% for the proved producing, proved non-producing,
proved undeveloped, probable and possible reserve categories, respectively, to
the after-tax cash flows, assuming a carry-over of TMBR/Sharp's existing tax
positions, and adding net working capital of $9.4 million as of March 31, 2003,
the net asset value analysis indicated equity reference value ranges that were
divided by the diluted number of shares of TMBR/Sharp Shares outstanding to
derive the following equity reference value ranges per share of TMBR/Sharp
Shares:
5-YEAR 5-YEAR
STRIP AVERAGE STRIP FLAT HISTORICAL FLAT
--------------- --------------- ---------------
Equity Reference Value Range per
Common Share....................... $17.35 - $19.92 $17.27 - $19.79 $16.11 - $18.49
ECS noted the Patterson-UTI's implied offer price of $20.20 per TMBR/Sharp
Share was in excess of the equity reference value ranges implied by ECS' net
asset value analysis.
29
SELECTED COMPARABLE ASSET TRANSACTIONS ANALYSIS
ECS reviewed selected publicly available information related to 16
announced land-based drilling asset acquisitions announced between February 1999
and March 2003 located in North America (U.S. and Canada). The dataset for this
analysis comprised selected transactions to acquire continental U.S. based
land-drilling assets from February 1999 through March 2003. ECS reviewed the
entire dataset for this analysis, taking into account all transactions listed
and did not focus on any one particular transaction to derive the reference
value range under this methodology. ECS reviewed purchase price multiples of
drilling rigs for the acquired assets in each transaction. The number of
transactions, the maximum, mean, median and minimum implied multiples as well as
the selected benchmark ranges in these transactions were as follows:
DRILLING ASSETS
Number of Transactions...................................... 16
Purchase Price of Drilling Assets/Rigs ($MM/Rig)
Maximum................................................... $6.1
Mean...................................................... $3.2
Median.................................................... $3.1
Minimum................................................... $1.0
Benchmark Multiples ($MM/Rig)............................... $3.0 - $3.5
After applying the benchmark multiples to TMBR/Sharp's corresponding rig
count and adding estimates of TMBR/Sharp's yard inventory and other equipment as
described above, ECS determined an enterprise reference value range for
TMBR/Sharp's drilling assets. All transaction value to rig number datapoints for
the selected transactions were available and were utilized in this analysis.
ECS also reviewed selected publicly available information related to 67
announced oil and gas property acquisition transactions announced between
January 2001 and May 2003 located primarily in the Texas Onshore and Mid
Continent regions. Of a possible 134 transaction value datapoints to be
considered, 108 were available and were utilized in this analysis. ECS reviewed
purchase price multiples of equivalent reserves and equivalent daily production
for the acquired assets in each transaction. For purposes of this analysis, an
equivalency ratio of one barrel of oil to six thousand cubic feet of gas
("Mcfe") was used to compare quantities of oil with quantities of gas. The
number of transactions, the maximum, mean, median and minimum implied multiples
as well as the selected benchmark ranges in these transactions were as follows:
OIL AND GAS ASSETS
NUMBER OF TRANSACTIONS...................................... 67
PURCHASE PRICE OF DAILY
PURCHASE PRICE OF RESERVES/ PRODUCTION/
PROVED RESERVES DAILY PRODUCTION
($/MCFE) ($/MCFE/DAY)
--------------------------- -----------------------
Maximum.................................... $2.13 $8,915
Mean....................................... $1.06 $4,311
Median..................................... $0.99 $4,242
Minimum.................................... $0.44 $975
Benchmark Multiples ($/Mcfe & $/Mcfe/day).. $0.95 - $1.10 $4,000 - $4,400
ECS applied the benchmark multiples to TMBR/Sharp's corresponding proved
reserve and current daily production figures to determine enterprise reference
value ranges for TMBR/Sharp's oil and gas assets. The dataset for this analysis
comprised selected transactions under $500 million to acquire exploration and
production assets in the Texas onshore and Mid-Continent regions from January
2001 through May 2003. ECS reviewed the entire dataset for this analysis, taking
into account all transactions
30
listed and did not focus on any one particular transaction to derive the
reference value range under this methodology.
Based on the enterprise reference value ranges determined above for the
drilling and oil and gas business segments, respectively, and following
adjustments for TMBR/Sharp's other corporate assets and liabilities, ECS
determined a composite enterprise reference value range for TMBR/Sharp under
this method of $90.3 million to $105.0 million. After adding net working capital
of $9.4 million as of March 31, 2003, to the composite enterprise reference
value range and dividing by the diluted number of shares of TMBR/Sharp Shares
outstanding, the resulting equity reference value range per share of TMBR/Sharp
Shares was $17.19 to $19.71.
ECS noted the Patterson-UTI implied offer price of $20.20 per TMBR/Sharp
Share was in excess of the equity reference value range implied by ECS' selected
comparable asset transactions analysis.
SELECTED COMPARABLE COMPANY TRANSACTIONS ANALYSIS
Drilling Transactions
ECS reviewed selected publicly available information on the following 15
company acquisition transactions and offers for control involving companies in
the oil and gas drilling industry that were announced between April 1999 and
February 2003:
ACQUIRER OR BIDDER FOR CONTROL TARGET DATE OF ANNOUNCEMENT
------------------------------ ------ --------------------
Trinidad Drilling Ltd.............. Saturn Drilling Inc. February 24, 2003
Patterson-UTI Energy, Inc.......... TMBR/Sharp Drilling, Inc. June 12, 2002
Parker Drilling Co. ............... Australian Oil & Gas Corp. Ltd. June 6, 2002
Ensign Resource Service Group Australian Oil & Gas Corp. Ltd. March 15, 2002
Inc. ............................
Patterson-UTI Energy, Inc. ........ Odin Drilling, Inc. March 12, 2002
Nabors Industries Inc. ............ Command Drilling Corp. September 17, 2001
Abbot Group plc.................... Preussag Energie GmbH August 31, 2001
TRC/TRC Capital.................... Precision Drilling Corp. August 21, 2001
South Texas Drilling and Mustang Drilling Inc. February 20, 2001
Exploration......................
Patterson Energy, Inc. ............ UTI Energy Corp. February 5, 2001
Patterson Energy, Inc. ............ Jones Drilling Corp. November 15, 2000
Bonus Resources Services Corp. .... Tetonka Drilling Inc. September 11, 2000
Patterson Energy, Inc. ............ High Valley Drilling, Inc. February 7, 2000
Tetonka Drilling Inc. ............. H&R Drilling Inc. December 2, 1999
UTI Energy Corp. .................. Norton Drilling Services, Inc. April 26, 1999
The dataset for this analysis comprised selected transactions between oil
and gas land drilling companies from April 1999 through February 2003. ECS
reviewed the entire dataset for this analysis, taking into account all
transactions listed and did not focus on any one particular transaction to
derive the reference value range under this methodology.
Using publicly available information, ECS reviewed the transaction value,
which for the purposes of this analysis was defined as purchase price of equity
plus net obligations assumed, multiples of last twelve months ("LTM") earnings
before interest, taxes, depreciation, depletion and amortization and exploration
expense ("EBITDX") and of drilling rigs for the target company in each
transaction. The maximum,
31
mean, median and minimum implied multiples as well as the selected benchmark
ranges in these transactions were as follows:
IMPLIED MULTIPLES IN RECENT TRANSACTIONS
-----------------------------------------
MINIMUM MEDIAN MEAN MAXIMUM BENCHMARK RANGE
--------- -------- ------ --------- ---------------
Transaction Value/LTM EBITDX...... 4.0x 6.5x 8.7x 23.9x 6.0x - 8.5x
Transaction Value/Rig ($MM/rig)... $1.3 $3.5 $4.0 $ 9.7 $3.5 - $4.5
ECS applied the benchmark multiples to TMBR/Sharp's LTM EBITDX (for the
drilling business) and rig count to determine enterprise reference value ranges
for TMBR/Sharp's drilling business. Of a possible 30 transaction datapoints to
be considered, 22 were available and were utilized in this analysis.
Oil and Gas Transactions
ECS also reviewed selected publicly available information on the following
19 company acquisition transactions and offers for control involving companies
in the oil and gas exploration and production industry that were announced
between January 2002 and March 2003:
ACQUIRER OR BIDDER FOR CONTROL TARGET DATE OF ANNOUNCEMENT
------------------------------ ------ --------------------
Evergreen Resources, Inc. ............ Carbon Energy Corporation March 31, 2003
Cerberus Capital Management, L.P. .... EXCO Resources Inc. March 12, 2003
Patina Oil & Gas Corporation.......... Le Norman Partners, LLC February 20, 2003
Plains Exploration & Production 3TEC Energy Corp. February 3, 2003
Co. ................................
Patina Oil & Gas Corporation.......... Bravo Natural Resources November 6, 2002
Patina Oil & Gas Corporation.......... Le Norman Energy Corporation October 23, 2002
Black Hills Corp. .................... Mallon Resources October 1, 2002
Anadarko Petroleum Corp. ............. Howell Corp. September 30, 2002
Nuevo Energy Company.................. Athanor Resources, September 18, 2002
Inc./Yorktown
Unocal Corp. ......................... Pure Resources Inc. August 20, 2002
Chesapeake Energy Corp. .............. EnCana Corp./Enogex Corporation July 25, 2002
BP Capital Energy Equity Fund......... Penn Virginia Corporation June 25, 2002
Newfield Exploration Co. ............. EEX Corporation May 29, 2002
Paramount Resources Ltd. ............. Summit Resources Ltd. May 12, 2002
Plantation Petroleum Holdings LLC..... Maynard Oil Company April 25, 2002
Chesapeake Energy Corp. .............. Canaan Energy Corp. April 22, 2002
ECM Acquisition Company/Santos Esenjay Exploration, Inc. March 18, 2002
America.............................
Cimarex Energy Co./Helmerich & Payne, Key Production Company, Inc. February 25, 2002
Inc. ...............................
Patina Oil & Gas Corporation.......... Elysium Energy, LLC January 14, 2002
The dataset for this analysis comprised selected transactions between
exploration and production companies with enterprise values of less than $1
billion from January 2003 through March 2003. ECS reviewed the entire dataset
for this analysis, taking into account all transactions listed and did not focus
on any one particular transaction to derive the reference value range under this
methodology.
Using publicly available information, ECS reviewed transaction value
multiples of LTM EBITDX, equivalent proved reserves, and equivalent daily
production for the target company in each transaction. The
32
maximum, mean, median and minimum implied multiples as well as the selected
benchmark ranges in these transactions were as follows:
IMPLIED MULTIPLES IN RECENT TRANSACTIONS
-------------------------------------------
MINIMUM MEDIAN MEAN MAXIMUM BENCHMARK RANGE
--------- -------- -------- --------- ---------------
Transaction Value/LTM EBITDX.... 2.9x 5.7x 7.0x 18.6x 5.5x - 7.0x
Transaction Value/Daily
Production($/Mcfe/d).......... $1,092 $3,873 $4,111 $7,923 $4,000 - $4,600
Transaction Value/Proved
Reserves...................... $ 0.52 $ 1.02 $ 1.05 $ 1.43 $ 0.90 - $1.10
ECS applied the benchmark multiples to TMBR/Sharp's LTM EBITDX (for the oil
and gas business), current equivalent daily production, and equivalent proved
reserves to determine enterprise reference value ranges for TMBR/Sharp's oil and
gas business. Of a possible 57 transaction datapoints to be considered, 50 were
available and were utilized in this analysis.
Premiums Paid
ECS also performed a premium analysis, which compared the offer price per
target company share with the target company's share price for the periods of
one day, 30 days and 60 days prior to the public announcement of the offer.
Transaction premiums for both drilling company and oil and gas company
transactions were included. The maximum, mean, median, and minimum premiums,
which for the purposes of this analysis was defined as the excess of the offer
price over the target company's price stated as a percentage above the target
company's share price, as well as the benchmark ranges selected by ECS for these
periods were as follows:
IMPLIED PREMIUMS IN RECENT TRANSACTIONS
-----------------------------------------
MAXIMUM MEAN MEDIAN MINIMUM BENCHMARK RANGE
--------- ------ -------- --------- ---------------
One Day Prior..................... 166% 40% 19% (10)% 20.0 - 40.0%
30 Days Prior..................... 110% 34% 22% (13)% 20.0 - 35.0%
60 Days Prior..................... 126% 41% 28% (12)% 25.0 - 40.0%
ECS applied these premium benchmarks to the corresponding stock prices of
TMBR/Sharp for the periods of one day, 30 days and 60 days prior to May 23,
2003. All historical price datapoints for each selected transaction required in
the premium analysis calculation were available and were utilized in this
analysis. Based upon the enterprise reference value ranges implied by these
multiples and the enterprise reference value ranges determined above for the
drilling and oil and gas business segments, respectively, ECS determined a
composite enterprise reference value range for TMBR/Sharp under this method of
$95.0 million to $120.0 million. After adding net working capital of $9.4
million as of March 31, 2003, to the enterprise reference value range and
dividing by the diluted number of shares of TMBR/Sharp common stock outstanding,
the resulting equity reference value range per share of TMBR/Sharp common stock
was $17.99 to $22.30.
ECS noted the Patterson-UTI's implied offer price of $20.20 per TMBR/Sharp
Share was within the equity reference value range implied by ECS' selected
comparable company transactions analysis.
SELECTED PUBLICLY TRADED COMPANIES ANALYSIS
Using publicly available information, ECS calculated enterprise value
multiples of historical and projected 2003 EBITDX and proved reserves for
selected publicly traded companies with operating and financial characteristics
comparable to TMBR/Sharp. Multiples of projected 2003 EBITDX for TMBR/Sharp
were based upon 2003 EBITDX projections prepared by ECS and reviewed by
TMBR/Sharp management. ECS obtained the enterprise value of each company by
adding the sum of its long-term and short-term debt to the sum of the market
value of its common equity as of May 23, 2003, the market value of its preferred
stock (or, if not publicly traded, liquidation or book value) and the book value
of its minority interest in other companies and subtracting cash.
33
ECS determined that the following drilling companies were relevant to an
evaluation of TMBR/Sharp's drilling business based upon ECS' view of the
comparability of the operating and financial characteristics of these companies
to those of TMBR/Sharp:
- Nabors Industries, Ltd.
- Patterson-UTI
- Helmerich & Payne, Inc.
- Unit Corporation
- Grey Wolf, Inc.
- Parker Drilling Company
- Pioneer Drilling Company
The dataset for this analysis comprised selected publicly traded US-based
land drilling companies. ECS reviewed the entire dataset for this analysis,
taking into account all companies listed and did not focus on any one particular
company to derive the reference value range under this methodology.
The minimum, median, mean and maximum multiples for the seven
drilling-oriented companies are set forth below. The table also includes
benchmark multiple ranges selected by ECS based on a review of the selected
comparable company multiples.
COMPARABLE COMPANY MULTIPLES
----------------------------------
MINIMUM MEDIAN MEAN MAXIMUM BENCHMARK RANGE
------- ------ ----- ------- ---------------
Enterprise Value/LTM EBITDX.............. 6.8x 14.1x 17.5x 29.9x 11.0x - 14.0x
Enterprise Value/2003 Estimated EBITDX... 5.6x 14.2x 13.1x 17.6x 9.0x - 13.0x
ECS applied the benchmark multiples to TMBR/Sharp's LTM EBITDX and 2003
estimated EBITDX (for the drilling business) to determine enterprise reference
value ranges for TMBR/Sharp's drilling business.
ECS also determined that the following companies were relevant to an
evaluation of the oil and gas business of TMBR/Sharp based upon ECS' view of the
comparability of the operating and financial characteristics of these companies
to those of TMBR/Sharp:
- Beta Oil & Gas, Inc.
- Brigham Exploration Co.
- Carrizo Oil & Gas, Inc.
- Clayton Williams Energy, Inc.
- Contango Oil & Gas Co.
- Edge Petroleum Corp.
- PetroCorp, Inc.
- The Exploration Company
- Wiser Oil Company
The dataset for this analysis comprised selected publicly traded
exploration and production companies with an enterprise value of less than $250
million and operations primarily focused in the Texas onshore and Mid-Continent
regions. ECS reviewed the entire dataset for this analysis, taking into account
all companies listed and did not focus on any one particular company to derive
the reference value range under this methodology.
34
The minimum, median, mean and maximum multiples for the nine companies are
set forth below. The table also includes benchmark multiple ranges selected by
ECS based on a review of the selected comparable company multiples.
COMPARABLE COMPANY MULTIPLES
----------------------------------
MINIMUM MEDIAN MEAN MAXIMUM BENCHMARK RANGE
------- ------ ----- ------- ---------------
Enterprise Value/LTM EBITDX.............. 2.5x 5.2x 5.8x 10.1x 4.0x - 6.0x
Enterprise Value/2003 Estimated EBITDX... 2.8x 3.6x 3.7x 5.1x 3.0x - 4.0x
Enterprise Value/Proved Reserves
($/Mcfe)............................... $1.06 $1.77 $1.92 $3.58 $1.50 - $1.90
ECS applied the benchmark multiples to TMBR/Sharp's LTM EBITDX, 2003
estimated EBITDX (for the oil and gas business) and proved reserve estimates to
determine enterprise reference value ranges for TMBR/Sharp's oil and gas
business.
Based upon the enterprise reference value ranges determined above for the
drilling and oil and gas business segments, respectively, ECS determined a
composite enterprise reference value range for TMBR/Sharp under this method of
$90.0 million to $120.0 million. After adding net working capital of $9.4
million as of March 31, 2003, to the composite enterprise reference value range
and dividing by the diluted number of TMBR/Sharp Shares outstanding, the
composite equity reference value range per TMBR/Sharp Share was $17.13 to
$22.30.
ECS noted the Patterson-UTI's implied offer price of $20.20 per TMBR/Sharp
Share was within the equity reference value range implied by ECS' selected
publicly traded companies analysis.
GOING CONCERN ANALYSIS
ECS projected the potential financial performance of TMBR/Sharp, without
giving effect to the merger, for the five-year period beginning on January 1,
2003, utilizing two cases and various assumptions for both the drilling and oil
and gas business segments. Going Concern Case 1 used a constant exit multiple of
6.0x projected 2007 EBITDX, a sensitivity of annual dayrate/utilization rate
increases of 1%, 3%, and 5% for the drilling business with associated increases
in corporate overhead and drilling maintenance capital expenditures, and the
three different pricing assumptions and operating projections assumptions as
described above in the "Net Asset Value Analysis" for the oil and gas business.
Going Concern Case 2 used the same variables as in Going Concern Case 1 for the
drilling business, the 5-Year Historical Price Case for the oil and gas business
with the same operating projections assumptions as in the "Net Asset Value
Analysis," and exit multiples of 5.0x, 6.0x, and 7.0x projected 2007 EBITDX. ECS
prepared these projections using operating and reserve projections prepared
and/or provided by TMBR/Sharp management and staff (or their consultants) and
certain assumptions based upon discussions with TMBR/Sharp management regarding
TMBR/Sharp's potential future operating and financial performance. From the
equity reference values implied by this analysis, ECS determined a composite
equity reference value range per diluted TMBR/Sharp Share of $18.00 to $23.00.
ECS noted the Patterson-UTI's implied offer price of $20.20 per TMBR/Sharp
Share was within the composite equity reference value range implied by the going
concern analysis.
PRO FORMA MERGER ANALYSIS
ECS analyzed the pro forma financial effects of the merger as of May 23,
2003, and for the fiscal years ended 2003 and 2004 with operating projections
based upon research analyst estimates for Patterson-UTI and projections prepared
by ECS for TMBR/Sharp (with review by TMBR/Sharp management). For purposes of
its analysis, ECS used the merger exchange ratio and assumed the merger would be
accounted for using purchase accounting. ECS also assumed that the merger
consideration would be 45% cash and 55% stock, TMBR/Sharp's selling, general and
administrative expenses would decrease by 50% as a result of merger synergies,
and the corporate income tax rate would be 35%. The pro forma merger analysis
indicated that the merger would be accretive to Patterson-UTI's 2003 and 2004
estimated earnings
35
by 3.0% and 2.8%, respectively, and accretive to Patterson-UTI's 2003 and 2004
cash flow by 12.1% and 8.7%, respectively.
GENERAL
The description set forth above constitutes a summary of the analyses
employed and factors considered by ECS in rendering its opinion to the
TMBR/Sharp board of directors. ECS believes that its analyses must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses and factors, could create an incomplete view of the process underlying
its opinion. The preparation of a fairness opinion is a complex analytical
process involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and is not necessarily susceptible to partial analysis
or summary description.
In arriving at its opinion, ECS did not attribute any particular weight to
any analysis that it considered, but rather made qualitative judgments as to the
significance and relevance of each analysis. Any estimates resulting from the
analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth in this document.
In addition, analyses based on forecasts of future results are not
necessarily indicative of future results, which may be significantly more or
less favorable than suggested by these analyses. Estimates of reference values
of companies do not purport to be appraisals or necessarily reflect the prices
at which companies may actually be sold. Because the estimates are inherently
subject to uncertainty and based upon numerous factors or events beyond the
control of the parties and ECS, ECS cannot assure you that the estimates will
prove to be accurate.
No transaction involving companies other than Patterson-UTI and TMBR/Sharp
used in the analyses of selected comparable transactions is identical to
TMBR/Sharp, Patterson-UTI or the proposed merger. Accordingly, these analyses
must take into account differences in the financial and operating
characteristics of the selected publicly traded companies and differences in the
structure and timing of the selected transactions and other factors that would
affect the public trading values and acquisition values of the companies
considered.
ECS, as part of its investment banking business, is continually engaged in
the evaluation of energy-related businesses and their securities in connection
with mergers and acquisitions, private placements and valuations for corporate
and other purposes. TMBR/Sharp selected ECS as its financial advisor because it
is an investment banking firm whose principals have substantial experience in
transactions similar to the proposed merger.
Pursuant to an engagement letter between ECS and TMBR/Sharp dated as of
November 13, 2002 (and as amended March 3, 2003), TMBR/Sharp agreed to pay to
ECS (i) a retainer fee of $50,000 in cash, payable promptly following
TMBR/Sharp's execution of the engagement letter, (ii) an opinion fee of $450,000
in cash, payable promptly upon delivery of a written fairness opinion by ECS,
regardless of the conclusion reached by ECS in the opinion and (iii) a
transaction fee of 0.5% of the transaction proceeds in cash conditioned upon
consummation of the merger. The 0.5% transaction fee to be received by ECS on
completion of the merger is based on the closing price of Patterson-UTI Shares
on the day of the closing of the merger and excludes TMBR/Sharp Shares owned by
Patterson-UTI and TMBR/Sharp before the merger. Assuming the closing price of
Patterson-UTI Shares on the day of the merger is the same as at the end of the
trading day on , 2003, $[ ], the transaction consideration would
be $[ ] in cash and [ ] in Patterson-UTI Shares, resulting in total
transaction consideration of $[ ] and a transaction fee payable to ECS of
$[ ]. In addition, TMBR/Sharp also agreed to reimburse ECS for its
reasonable out-of-pocket expenses related to its rendering of financial advisory
services to TMBR/Sharp, including the reasonable fees and expenses of its
counsel. TMBR/Sharp also agreed to indemnify ECS and its affiliates, the
respective directors, officers, partners, agents, employees of ECS and its
affiliates and controlling persons for certain expenses, losses, claims, damages
and liabilities related to or arising out of its rendering of services under its
engagement as financial advisor. During the
36
past two years, TMBR/Sharp has not paid any fees to ECS, Mr. Weinberg or any of
their affiliates except in connection with the retention of ECS as financial
advisor to TMBR/Sharp in the merger.
SOURCE OF FUNDS FOR CASH PORTION OF MERGER CONSIDERATION
Patterson-UTI currently intends to pay the cash portion of the merger
consideration to TMBR/Sharp shareholders out of funds available on hand and
existing financing facilities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL
In considering the recommendation of the TMBR/Sharp board of directors, you
should be aware that certain members of TMBR/Sharp's management team and board
of directors, including Mr. Brown, have interests in the merger that are
different from, or in addition to, your interests as a TMBR/Sharp shareholder.
These interests include compensatory payments to be paid pursuant to retention
agreements with eight officers and directors of TMBR/Sharp, and the receipt of
cash payments in exchange for the cancellation and termination of stock options
held by these same officers and directors to purchase TMBR/Sharp Shares. In the
aggregate, the payments to the eight officers and directors under the retention
agreements and the cash-out of stock options held by these officers and
directors will be approximately $6,116,466, including a payment of $700,800 to
Mr. Brown pursuant to his retention agreement and approximately $3,482,625 in
connection with the cash-out of his stock options. For the reasons described
below, these additional interests did not affect the TMBR/Sharp board's ability
to exercise its judgment solely for the benefit of TMBR/Sharp and its
shareholders:
- TMBR/Sharp's board was aware of these additional interests and the
board's decision to approve the merger was made with full knowledge of
the existence of these additional interests and their terms;
- the officers' retention agreements were recommended by non-employee
directors solely for the purpose of ensuring that TMBR/Sharp's officers
would continue to devote their services for the best interests of
TMBR/Sharp and its shareholders and not be distracted by the
uncertainties created by Patterson-UTI's ownership interest in TMBR/Sharp
and any potential change in control;
- the TMBR/Sharp directors believed the officers' retention agreements to
be prudent and in the best interests of TMBR/Sharp and its shareholders;
- these additional interests were not implemented for the purpose of
creating a deterrent to any takeover proposal;
- all of the stock options held by the officers and directors of TMBR/Sharp
were granted in the normal course of business in accordance with
TMBR/Sharp's past practices and not in contemplation of the proposed
transaction with Patterson-UTI or any other party; and
- four of the five TMBR/Sharp directors are non-employee directors, and the
only compensation that each such non-employee director will receive in
connection with the merger is $30,200 resulting from the cash-out of such
director's stock options.
RETENTION AGREEMENTS
In November 2002, TMBR/Sharp entered into retention agreements with Thomas
C. Brown, TMBR/Sharp's Chairman of the Board and Chief Executive Officer,
Jeffrey D. Phillips, TMBR/Sharp's President, Don H. Lawson, TMBR/Sharp's
Vice-President of Operations, Patricia R. Elledge, TMBR/Sharp's Treasurer and
Controller and six other TMBR/Sharp employees. TMBR/Sharp entered into these
retention agreements as a result of the determination of the TMBR/Sharp board of
directors and compensation committee that it was imperative for TMBR/Sharp to be
able to rely upon these individuals to continue in their respective positions
with TMBR/Sharp without concern that such employees might be distracted by the
personal uncertainties and risks created by any proposed change of control of
TMBR/
37
Sharp. Each retention agreement provides for the payment of a cash bonus within
five days following the consummation of the merger in an amount that is equal to
the officer's base salary during the preceding twelve months times an applicable
multiple. The table below sets forth the applicable multiple for each officer
who has a retention agreement:
NAME APPLICABLE MULTIPLE BASE SALARY(1) RETENTION PAYMENT(2)
---- ------------------- -------------- --------------------
Thomas C. Brown..................... 2.92x $240,000 $700,800
Jeffrey D. Phillips................. 2.97x $140,000 $352,816
Don H. Lawson....................... 1.80x $ 90,000 $162,000
Patricia R. Elledge................. 1.60x $120,000 $192,000
---------------
(1) Calculated for the twelve month period beginning November 1, 2002 and ending
October 31, 2003.
(2) Payments under these agreements may be reduced to an amount that does not
exceed $1.00 less than three times such officer's "Base Amount" within the
meaning of Section 280G of the Internal Revenue Code. The amount for Mr.
Phillips reflects such a reduction.
CONSIDERATION FOR TMBR/SHARP SHARES
The directors and officers of TMBR/Sharp will receive the same per share
consideration for their TMBR/Sharp Shares in the merger as every other
TMBR/Sharp shareholder. The table below sets forth the estimated aggregate
amount of consideration that will be received in the merger by TMBR/Sharp
directors and officers on account of their ownership of TMBR/Sharp Shares as of
November 1, 2003:
AMOUNT OF CASH TO
NUMBER OF BE RECEIVED FOR NUMBER OF PATTERSON-
TMBR/SHARP TMBR/SHARP UTI SHARES TO BE
NAME SHARES OWNED SHARES IN MERGER RECEIVED IN MERGER
---- ------------ ----------------- --------------------
Thomas C. Brown...................... 177,278 $1,611,457 55,340
Jeffrey D. Phillips.................. 0 0 0
Don H. Lawson........................ 990 9,000 309
Patricia R. Elledge.................. 0 0 0
David N. Fitzgerald.................. 58,282 529,784 18,193
Michael M. Cone...................... 14,900 135,441 4,651
Raymond E. Batchelor................. 6,200 56,358 1,935
James B. Taylor...................... 4,600 41,814 1,435
------- ---------- ------
TOTAL........................... 262,250 $2,383,854 81,863
======= ========== ======
STOCK OPTIONS
If the TMBR/Sharp shareholders approve the merger agreement, after the
special meeting but before the completion of the merger, TMBR/Sharp will make a
cash payment to each holder of a stock option granted under a TMBR/Sharp benefit
plan. The cash amount to be paid for each TMBR/Sharp Share subject to the option
will equal the difference between $20.20 and the exercise price per TMBR/Sharp
Share subject to the option, less applicable withholding taxes. All stock
options to purchase TMBR/Sharp Shares will vest after the merger is approved at
the special meeting and before the completion of the merger.
The following table sets forth the number of TMBR/Sharp Shares subject to
stock options that are owned by the officers and directors of TMBR/Sharp as of
November 1, 2003, and the amount that each
38
officer and director will receive in exchange for the cancellation and
termination of those options in connection with the merger:
NUMBER OF TMBR/SHARP POTENTIAL PAYMENT
SHARES SUBJECT TO UPON TERMINATION
NAME OPTIONS OF OPTIONS
---- -------------------- -----------------
Thomas C. Brown................................. 235,000 $3,482,625
Jeffrey D. Phillips............................. 52,000 614,650
Don H. Lawson................................... 32,000 403,775
Patricia R. Elledge............................. 10,000 87,000
David N. Fitzgerald............................. 10,000 30,200
Michael M. Cone................................. 10,000 30,200
Raymond E. Batchelor............................ 10,000 30,200
James B. Taylor................................. 10,000 30,200
------- ----------
TOTAL...................................... 369,000 $4,708,850
======= ==========
EMPLOYMENT AGREEMENTS
Other than the retention agreements and option agreements entered into by
TMBR/Sharp with its directors and officers, as disclosed in "-- Retention
Agreements" and "-- Stock Options", none of TMBR/Sharp's directors or officers
is a party to an employment agreement that would require any payment upon
completion of the merger.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; DIRECTORS' AND OFFICERS' INSURANCE
The merger agreement provides that Patterson-UTI will indemnify each of our
present and former directors and officers after the effective time of the
merger. The merger agreement further provides that for a period of six years
after the effective time of the merger, Patterson-UTI must use commercially
reasonable efforts to purchase and maintain in effect for TMBR/Sharp's directors
and officers liability insurance protection with the same coverage and in the
same amount and on terms and conditions no less favorable to such individuals
than that provided by our current insurance policies; provided that Patterson-
UTI will not be required to pay an annual premium for such insurance in excess
of two times the last annual premium paid by TMBR/Sharp prior to the merger
agreement. In such case Patterson-UTI will purchase as much coverage as possible
for such amount. The persons benefiting from the insurance provisions of the
merger agreement include all persons who serve or have served as officers or
directors of TMBR/Sharp, or an officer, director or employee of TMBR/Sharp who
acts as a fiduciary under any TMBR/Sharp employee benefit plan.
DIRECTORS AND OFFICERS
None of the directors or officers of TMBR/Sharp will become a director or
officer of Patterson-UTI in connection with the merger. Patterson-UTI currently
has no arrangements or agreements with any of the officers of TMBR/Sharp
regarding employment following completion of the merger. Patterson-UTI and
Messrs. Brown, Phillips and Lawson, however, may consider employment or
consulting arrangements in the future.
TRANSACTIONS WITH PATTERSON-UTI
Since July 2001, Tri-C Resources, Inc., a privately owned oil and gas
exploration company controlled by Michael M. Cone, has utilized the contract
drilling services of Patterson-UTI for the purposes of drilling eight wells
owned and operated by Tri-C in Matagorda and Jackson Counties, Texas. Tri-C paid
a total of approximately $1,020,882 to Patterson-UTI for these contract drilling
services. Tri-C selected Patterson-UTI as its drilling contractor after
obtaining competitive bids from three contract drilling companies, including
Patterson-UTI. Mr. Cone has been a director of TMBR/Sharp since March 2001.
39
BHC Pipe and Equipment Company, a privately held oil field equipment supply
company controlled by Raymond H. Batchelor, has sold drilling equipment from
time to time to Patterson-UTI and certain of its predecessors. Since February
2000, BHC has invoiced Patterson-UTI and its predecessors for a total of
approximately $120,605 for equipment sales. Mr. Batchelor has been a director of
TMBR/Sharp since March 2001.
EMPLOYEE COMPENSATION AND BENEFITS
From and after the effective time of the merger, individuals who are
officers of TMBR/Sharp who continue as employees of Patterson-UTI or Sub will be
immediately eligible to participate in any qualified employee benefit plan
maintained and sponsored by Patterson-UTI and will be credited with vesting
service for their years of service with TMBR/Sharp. In addition, Patterson-UTI
will generally provide compensation and employee benefits, which are comparable
to the compensation and employee benefits provided to all similarly situated
employees of Patterson-UTI, to each TMBR/Sharp officer who continues as an
employee of Patterson-UTI after the merger.
ACCOUNTING TREATMENT
The merger will be accounted for as a business combination using the
"purchase" method of accounting under generally accepted accounting principles
in the United States. Patterson-UTI will be the acquiror for financial
accounting purposes.
OPINIONS THAT THE MERGER CONSTITUTES A REORGANIZATION UNDER SECTION 368(a) OF
THE INTERNAL REVENUE CODE
The completion of the merger is conditioned on, among other things, the
receipt of opinions from tax counsel for each of Patterson-UTI and TMBR/Sharp
that the merger will qualify as a "reorganization" under Section 368(a) of the
Internal Revenue Code. These opinions will be delivered only if the holders of
TMBR/Sharp Shares receive in the merger an amount of Patterson-UTI Shares with a
value equal to at least forty percent (40%) of the total consideration paid by
Patterson-UTI for all TMBR/Sharp Shares. The total consideration takes into
account the amount of cash paid or deemed to be paid to holders of TMBR/Sharp
Shares in connection with the merger, cash paid to holders of TMBR/Sharp Shares
who perfect their dissenters' rights and cash paid by Patterson-UTI to acquire
TMBR/Sharp Shares within twelve (12) months of the date of the merger agreement.
In addition to the market value of the Patterson-UTI Shares on the date of
the merger and the other items described above, various factors affect the
determination of whether the value of the Patterson-UTI Shares received by the
TMBR/Sharp shareholders in exchange for TMBR/Sharp Shares is equal to at least
forty percent (40%) of the combined value of the total consideration paid by
Patterson-UTI for all TMBR/Sharp Shares, including:
- The amount, if any, to be paid to TMBR/Sharp shareholders who perfect
their dissenters' rights;
- Whether prior to and in connection with the merger TMBR/Sharp (or certain
parties related to TMBR/Sharp) redeems or acquires TMBR/Sharp Shares or
makes distributions to the TMBR/Sharp shareholders; and
- Whether there will be any repurchases by Patterson-UTI (or certain
parties related to Patterson-UTI) of the Patterson-UTI Shares to be
issued in the merger.
Accordingly, it may not be possible to state with certainty the minimum
trading price of the Patterson-UTI Shares that would cause the value of the
Patterson-UTI Shares to be received in the merger to be equal to at least forty
percent (40%) of the combined value of the total consideration paid by
Patterson-UTI for all TMBR/Sharp Shares.
If, on or before the closing date, it is determined that Patterson-UTI and
TMBR/Sharp will not receive opinions from their respective tax counsels to the
effect that the merger will qualify as a
40
"reorganization" under Section 368(a) of the Code and the parties agree to
proceed with a taxable transaction under a revised structure, an amended proxy
statement/prospectus with revised disclosure regarding the new structure and
material United States federal tax consequences will be mailed to you at least
20 days prior to the special meeting. If the shareholders have already voted to
approve the merger, TMBR/Sharp would hold another special meeting to vote on the
revised merger proposal after the amended proxy statement/prospectus had been
mailed to you.
REGULATORY MATTERS
Under the HSR Act, the parties cannot complete the merger until they have
notified and furnished information to the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice and a specified
waiting period expires or is terminated. Patterson-UTI and TMBR/Sharp filed the
required notification and report forms under the HSR Act with the FTC and the
Antitrust Division on June 11, 2003. On July 3, 2003, the FTC notified the
parties that the FTC and the Antitrust Division had terminated the specified
waiting period under the HSR Act.
Each state in which Patterson-UTI or TMBR/Sharp has operations also may
review the merger under state antitrust laws.
At any time before the effective time of the merger, the FTC, the Antitrust
Division, a state or non-U.S. governmental authority or a private person or an
entity could seek under the antitrust laws, among other things, to enjoin the
merger or to cause Patterson-UTI or TMBR/Sharp to divest assets or businesses as
a condition to completion of the merger. If a challenge to the merger is made,
Patterson-UTI and TMBR/Sharp may not prevail. The obligations of Patterson-UTI
and TMBR/Sharp to consummate the merger are subject to the condition that there
be no order or injunction of a U.S. or non-U.S. court of competent jurisdiction
or other governmental authority that prohibits the consummation of the merger.
Each party has agreed to use its reasonable efforts to have any such order or
injunction lifted or vacated.
Patterson-UTI and TMBR/Sharp believe that they will obtain all material
required regulatory approvals prior to the special meeting. It is not certain,
however, that all approvals will be received by that time, or at all, and
governmental authorities may impose unfavorable conditions for granting the
required approvals.
INTERESTED SHAREHOLDER TRANSACTIONS UNDER TEXAS LAW
TMBR/Sharp is a Texas corporation. In general, Article 13 of the TBCA
prevents an "interested shareholder," which is generally a person who owns or
has the right to acquire 20% or more of a corporation's outstanding voting
stock, or an affiliate or associate thereof, from engaging in a "business
combination," which is defined to include mergers and certain other
transactions, with a Texas corporation for a period of three years following the
date such person became an interested shareholder unless, among other things,
prior to such date the board of directors of the corporation approved either the
business combination or the transaction in which the interested shareholder
became an interested shareholder. The board of directors of TMBR/Sharp has
recommended the merger, approved the merger agreement and the other transactions
contemplated by the merger agreement and has rendered inapplicable to the merger
the provisions of Article 13 of the TBCA.
FEDERAL SECURITIES LAWS CONSEQUENCES; RESALE RESTRICTIONS
All Patterson-UTI Shares that will be distributed to TMBR/Sharp
shareholders in the merger will be freely transferable, except for restrictions
applicable to "affiliates" of TMBR/Sharp. Persons who are deemed to be
affiliates of TMBR/Sharp may resell Patterson-UTI Shares received by them only
in transactions permitted by the resale provisions of Rule 145 or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of TMBR/Sharp generally include executive officers, directors and significant
shareholders of TMBR/Sharp. The merger agreement requires TMBR/Sharp to cause
each of its directors and executive officers who TMBR/Sharp believes may be
deemed to be
41
affiliates of TMBR/Sharp to execute a written agreement to the effect that those
persons will not sell, assign or transfer any of the Patterson-UTI Shares issued
to them in the merger unless that sale, assignment or transfer has been
registered under the Securities Act, is in conformity with Rule 145 or is
otherwise exempt from the registration requirements under the Securities Act.
This proxy statement/prospectus does not cover any resales of the
Patterson-UTI Shares to be received by TMBR/Sharp's shareholders in the merger,
and no person is authorized to make any use of this proxy statement/prospectus
in connection with any resale.
DISSENTERS' RIGHTS OF APPRAISAL
Each holder of TMBR/Sharp Shares has the right to dissent to the merger in
accordance with Articles 5.11 through 5.13 of the TBCA ("Articles 5.11-5.13").
If the statutory procedures are complied with and the merger is consummated,
dissenting holders would be entitled to receive cash equal to the "fair value"
of the shares held by them in lieu of receiving consideration proposed under the
merger agreement. See Annex C to this proxy statement/prospectus. Such "fair
value" is determined as of the day immediately preceding the special meeting
(excluding any appreciation or depreciation in anticipation of the merger). In
addition, dissenting shareholders may be entitled to receive payment of interest
beginning 91 days from the date of consummation of the merger to the date of a
judicial determination on the amount determined to be the fair value of their
shares. Any judicial determination of the fair value of the shares could be
based upon considerations other than or in addition to the merger consideration
and the market value of the shares, including asset values, the investment value
of the shares and any other valuation considerations generally accepted in the
investment community. The value so determined for dissenting shares could be
more than, less than or equal to the merger consideration, and payment of such
consideration would take place subsequent to payment pursuant to the merger.
The TBCA provides that, in the absence of fraud in the transaction, the
statutory dissenters' rights remedy provided under the TBCA to a shareholder
objecting to the merger is the exclusive remedy for the recovery of the value of
such shareholder's shares or for money damages to such shareholder with respect
to the merger. If TMBR/Sharp complies with the requirements of Article 5.12 of
the TBCA, any shareholder who fails to comply with the requirements of that
Article will not be entitled to bring suit for the recovery of the value of his
shares or for money damages to the shareholder with respect to the merger.
The rights of dissenting holders of TMBR/Sharp shares are governed by
Articles 5.11-5.13. The following summary of applicable provisions of Articles
5.11-5.13 is not intended to be a complete statement of such provisions and is
qualified in its entirety by reference to the full text of Articles 5.11-5.13,
which is attached to this proxy statement/prospectus as Annex C and incorporated
by reference herein.
A holder of TMBR/Sharp Shares who has filed a written objection to the
merger prior to the special meeting, who has not voted in favor of approval of
the merger agreement and who has made a demand for compensation, all as provided
under Articles 5.11-5.13 is entitled under such provisions, as an alternative to
receiving the consideration offered in the merger for his shares, to the fair
value of his shares. The following is a summary of the procedural steps that
must be taken if the dissenters' rights are to be validly exercised.
TMBR/Sharp shareholders may elect to exercise their right to dissent from
the merger by filing with TMBR/Sharp, at the address set forth below, prior to
the special meeting, a written objection to the merger, setting forth that such
shareholder's right to dissent will be exercised if the merger is effected and
such shareholder's address for any notice.
If the merger is effected and such shareholder has not voted in favor of
approving the merger agreement, TMBR/Sharp will within ten (10) days after the
merger is effected, deliver or mail to such shareholder written notice that the
merger has been effected, and such shareholder may, within ten
42
(10) days from the delivery or mailing of such notice, make written demand on
TMBR/Sharp for payment of the fair value of such holder's shares.
The fair value of any dissenting shares will be the value thereof as of the
day immediately preceding the special meeting, excluding any appreciation or
depreciation in anticipation of the merger. The shareholder demand will state
the number of shares owned by the dissenting shareholder and the fair value of
such shares as estimated by him. Any shareholder failing to make demand within
the ten (10) day period will be bound by the merger.
A dissenting shareholder's written objection to the merger and demand for
payment must be in addition to and separate from any vote against approval of
the merger agreement. Neither voting against, abstaining from voting, nor
failing to vote for approval of the merger agreement will constitute the written
notice required to be filed by a dissenting shareholder. Failure to vote against
the approval of the merger agreement, however, will not constitute a waiver of
rights under Articles 5.11-5.13, provided that a written notice has been
properly delivered. A shareholder voting for the approval of the merger
agreement will be deemed to have waived his dissenters' rights.
Under Articles 5.11-5.13, holders of record of shares are entitled to
dissenters' rights as described above, and the procedures to perfect such rights
must be carried out by and in the name of holders of record. Persons who are
beneficial but not record owners of shares and who wish to exercise dissenters'
rights with respect to the merger should consult promptly with the record
holders of their shares as to the exercise of such rights. All written
objections and demands for payment should be addressed to TMBR/Sharp Drilling,
Inc., 4607 West Industrial Boulevard, Midland, Texas 79703, Attn: James M.
Alsup, Secretary. All written objections and demand for payment must be received
before the special meeting. Demands for payment must be made as described above.
Within twenty (20) days after receipt by TMBR/Sharp of a demand for payment
made by a dissenting shareholder, TMBR/Sharp must deliver or mail to such
dissenting shareholder a written notice that will either (i) state that
TMBR/Sharp accepts the amount claimed in the demand and agrees to pay that
amount within ninety (90) days after the date on which the merger was effected
upon the surrender of the stock certificates duly endorsed or (ii) will contain
an estimate by TMBR/Sharp of the fair value of such shares, together with an
offer to pay the amount of that estimate within ninety (90) days after the date
on which the merger was effected, upon receipt of notice within sixty (60) days
after that date from the dissenting shareholder that such shareholder agrees to
accept that amount, upon the surrender of the stock certificates duly endorsed.
In addition, within the twenty (20) day period after demanding payment for his
shares, each holder of certificates representing shares so demanding payment
shall submit such certificates to TMBR/Sharp for notation thereon that such
demand has been made. The failure of holders of certificates representing shares
to do so will, at TMBR/Sharp's option, terminate such shareholder's rights under
the provisions of the TBCA relating to dissenters' rights unless a court of
competent jurisdiction for good and sufficient cause shown shall otherwise
direct.
If, within sixty (60) days after the date on which the merger was effected,
the value of such shares is agreed upon between the dissenting shareholder and
the surviving company, payment therefor will be made within ninety (90) days
after the date on which the merger was effected and upon surrender of the stock
certificates duly endorsed. Upon payment of the agreed value, the dissenting
shareholder will cease to have any interest in the shares or in TMBR/Sharp.
If, within sixty (60) days after the date on which the merger was effected,
the dissenting shareholder and the surviving company do not so agree, then the
dissenting shareholder or the surviving company may, within sixty (60) days
after the expiration of the sixty (60) day period, file a petition in any court
of competent jurisdiction in the county in which TMBR/Sharp's principal office
is located, asking for a finding and determination of the fair value of such
dissenting shareholder's shares.
In connection with the filing of a petition, TMBR/Sharp will provide such
court with a list of names and addresses of all its shareholders who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached. After the hearing of the petition, the
43
court will determine the dissenting shareholders who have complied with the
provisions of the TBCA relating to dissenters' rights and have become entitled
to the value of and payment for their shares, and will appoint one or more
qualified appraisers to determine the value.
The appraisers will determine the fair value of the shares held by the
dissenting shareholders adjudged by the court to be entitled to payment and will
file their report of the value in the office of the clerk of the court. The
court will determine the fair value of the shares held by the dissenting
shareholders entitled to payment therefor and will direct the payment of that
value by the Sub, as the surviving company in the merger, together with interest
thereon, beginning 91 days after the date on which the merger was effected to
the date of such judgment, to the dissenting shareholders entitled thereto. Upon
payment of the judgment by TMBR/Sharp to such dissenting shareholders, the
dissenting shareholders will cease to have any interest in those shares or in
TMBR/Sharp.
In the absence of fraud in the transaction, the remedy provided by the
provisions of the TBCA relating to dissenters' rights to a shareholder objecting
to the merger is the exclusive remedy for the recovery of the value of his
shares or money damages to such shareholder with respect to the merger. If
TMBR/Sharp complies with the requirements of Article 5.12, in the absence of
fraud in the transaction, any dissenting shareholder who fails to comply with
the requirements of the provisions of such Article will not be entitled to bring
suit for the recovery of the value of his shares or money damages to such
shareholder with respect to the merger.
Any shareholder who has demanded payment for his shares and has not voted
in favor of the merger agreement as described above shall not thereafter be
entitled to vote or exercise any other rights of a shareholder except (i) the
right to receive payment for his shares pursuant to the provisions described
above and (ii) the right to maintain an appropriate action to obtain relief on
the ground that the merger would be or was fraudulent. Such shares shall not
thereafter be considered outstanding for the purposes of any subsequent vote of
TMBR/Sharp shareholders.
Any shareholder who has demanded payment for his shares as described above
may withdraw such demand at any time before payment for his shares or before any
petition has been filed asking for a finding and determination of the fair value
of such shares, but no such demand may be withdrawn after such payment has been
made or, unless TMBR/Sharp shall consent thereto, after any such petition has
been filed. If, however, such demand is withdrawn as herein before provided, or
if TMBR/Sharp terminates the shareholder's rights as provided above, or if no
petition asking for a finding and determination of fair value of such shares by
a court has been filed within the time period described above, or if after the
hearing of a petition filed as described above, the court determines that such
shareholder is not entitled to the relief as described above, then, in any such
case, such shareholder and all persons claiming under him will be conclusively
presumed to have approved and ratified the merger from which he dissented and
will be bound thereby, the right of such shareholder to be paid the fair value
of his shares will cease, and his status as a shareholder will be restored
without prejudice to any corporate proceedings which may have been taken during
the interim, and such shareholder will be entitled to receive any dividends or
other distributions made to holders of shares in the interim.
Any shareholder contemplating the exercise of dissenters' rights is urged
to read carefully the provisions of the TBCA relating to dissenters' rights,
attached hereto as Annex C.
FAILURE TO COMPLY STRICTLY WITH ALL OF THE PROCEDURES SET FORTH IN ARTICLES
5.11-5.13 OF THE TBCA MAY RESULT IN THE LOSS OF A SHAREHOLDER'S STATUTORY
APPRAISAL RIGHTS. CONSEQUENTLY, ANY SHAREHOLDER WISHING TO EXERCISE APPRAISAL
RIGHTS IS URGED TO CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE APPRAISAL
RIGHTS.
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THE MERGER AGREEMENT
The following is a summary of the merger agreement, which is attached as
Annex A to this proxy statement/prospectus and incorporated in this document.
To understand the merger more fully, and for a more complete legal description
of the merger, you are urged to read carefully the entire proxy
statement/prospectus, including the merger agreement and the other annexes.
STRUCTURE OF THE MERGER
Upon the terms and conditions of the merger agreement, and in accordance
with Texas law, at the effective time of the merger, TMBR/Sharp will merge with
and into Sub. Sub will be the surviving company under the name TMBR/Sharp
Drilling, LLC, and will be a wholly owned subsidiary of Patterson-UTI. The
separate corporate existence of TMBR/Sharp will cease at the effective time of
the merger.
WHEN THE MERGER BECOMES EFFECTIVE
The closing date of the merger will occur on the second business day
following the date on which all conditions to the merger, other than those
conditions that by their nature are to be satisfied at the closing, have been
satisfied or waived, unless the parties agree on another time. Contemporaneously
with the closing, Sub and TMBR/Sharp will file articles of merger with the
Secretary of State of the State of Texas. The effective time of the merger will
be the time Sub and TMBR/Sharp file the articles of merger with the Secretary of
State of the State of Texas or at a later time as we may agree and specify in
the articles of merger.
CONVERSION OF STOCK AND STOCK OPTIONS
At the effective time of the merger:
- each outstanding share of TMBR/Sharp common stock, except those (1)
shares owned directly or indirectly by Patterson-UTI or TMBR/Sharp,
including treasury stock, and (2) shares held by TMBR/Sharp shareholders
who validly exercise their dissenters' rights under Texas law, will be
converted into the right to receive $9.09 in cash and 0.312166 of a
Patterson-UTI Share;
- TMBR/Sharp Shares held by TMBR/Sharp shareholders who exercise their
dissenters' rights under Texas law will be treated as described under
"The Merger -- Dissenters' Rights of Appraisal", assuming that those
shareholders validly exercise their dissenters' rights; and
- TMBR/Sharp Shares owned or held by Patterson-UTI or TMBR/Sharp, including
treasury stock, will be canceled.
If, before the effective time of the merger, the issued and outstanding
Patterson-UTI Shares or TMBR/Sharp Shares are changed into a different number of
shares as a result of a reclassification, recapitalization, stock split, stock
combination, stock dividend or share exchange, an appropriate and proportionate
adjustment will be made to the number of Patterson-UTI Shares to be received by
the TMBR/Sharp shareholders.
If the TMBR/Sharp shareholders approve the merger agreement, after the
special meeting but before the completion of the merger, TMBR/Sharp will make a
cash payment to each holder of a stock option granted under a TMBR/Sharp benefit
plan. The cash amount to be paid for each TMBR/Sharp Share subject to the option
will equal the difference between $20.20 and the exercise price per TMBR/Sharp
Share subject to the option, less applicable withholding taxes. All stock
options to purchase TMBR/Sharp Shares will vest after the merger is approved at
the special meeting and before the completion of the merger.
For a description of Patterson-UTI Shares and TMBR/Sharp Shares and a
description of the comparative rights of holders of Patterson-UTI Shares and
TMBR/Sharp Shares, see "Comparison of the Rights of Patterson-UTI Stockholders
and TMBR/Sharp Shareholders".
45
EXCHANGE PROCEDURES
EXCHANGE AGENT
As soon as practicable after the effective time of the merger, Sub will
deposit with the exchange agent, for the benefit of the holders of TMBR/Sharp
Shares, an amount in cash and certificates representing Patterson-UTI Shares
sufficient to effect the conversion of TMBR/Sharp Shares into the cash and stock
consideration to be paid in the merger. Sub will also make funds available to
the exchange agent from time to time after the effective time of the merger as
needed to pay any cash instead of fractional shares or any dividends or other
distributions declared by Patterson-UTI on Patterson-UTI Shares with a record
date after the effective time of the merger and a payment date on or before the
date the relevant TMBR/Sharp stock certificate was surrendered.
At the effective time of the merger, the stock transfer books of TMBR/Sharp
will be closed and no further issuances or transfers of TMBR/Sharp Shares will
be made. If, after the effective time, valid TMBR/Sharp stock certificates are
presented to the surviving company for any reason, they will be cancelled and
exchanged as described above to the extent allowed by applicable law.
EXCHANGE OF SHARES
Promptly after the effective time of the merger, the exchange agent will
mail to you a transmittal letter and instructions explaining how to surrender
your certificates to the exchange agent. TMBR/Sharp shareholders who surrender
their stock certificates to the exchange agent, together with a properly
completed and signed transmittal letter and any other documents required by the
instructions to the transmittal letter, will receive:
- Patterson-UTI Shares certificates representing the number of whole shares
to which each holder is entitled in accordance with the 0.312166 exchange
ratio; and
- A check, after any required tax withholdings are deducted, in the
aggregate amount of:
- $9.09 per TMBR/Sharp Share surrendered to the exchange agent;
- the amount of cash being paid in lieu of fractional Patterson-UTI
Shares; and
- any cash dividends and any other dividends or other distributions
declared by Patterson-UTI on Patterson-UTI Shares with a record date
after the effective time of the merger and a payment date on or before
the date the relevant TMBR/Sharp stock certificate was surrendered.
If you have a TMBR/Sharp stock certificate, you should surrender that
certificate for exchange after the effective time of the merger. Until you
surrender your TMBR/Sharp stock certificates, dividends or other distributions
declared with a record date after the effective time of the merger will accrue,
but will not be paid, on Patterson-UTI Shares that you are entitled to receive
as a result of the conversion of your shares of TMBR/Sharp Shares. When you
surrender your certificates, any unpaid dividends or other distributions will be
paid, less the amount of any withholding taxes that may be required. No interest
will be paid or accrued on:
- the $9.09 in cash being paid per TMBR/Sharp Share surrendered to the
exchange agent;
- the amount of cash being paid in lieu of fractional Patterson-UTI Shares;
or
- any cash dividends and any other dividends or other distributions
declared by Patterson-UTI on Patterson-UTI Shares with a record date
after the effective time of the merger and a payment date on or before
the date the relevant TMBR/Sharp stock certificate was surrendered.
The exchange agent will deliver to Patterson-UTI any Patterson-UTI Shares
to be issued in the merger or funds set aside by Patterson-UTI to pay the cash
consideration, cash in lieu of fractional shares in connection with the merger
or to pay dividends or other distributions on Patterson-UTI Shares to be issued
in the merger that are not claimed by former TMBR/Sharp shareholders within one
year after the effective time of the merger. Thereafter, Patterson-UTI will act
as the exchange agent and former TMBR/
46
Sharp shareholders may look only to Patterson-UTI for payment of their
Patterson-UTI Shares, cash consideration, cash in lieu of fractional shares and
unpaid dividends and distributions. None of Patterson-UTI, the surviving
company, the exchange agent or any other person will be liable to any former
TMBR/Sharp shareholder for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
If any certificates for Patterson-UTI Shares are to be issued in a name
other than that in which the TMBR/Sharp stock certificate surrendered in
exchange for such shares is registered, the person requesting the exchange must
(i) pay any transfer or other taxes required by reason of the issuance of
certificates for Patterson-UTI Shares in a name other than that of the
registered holder of the certificate surrendered or (ii) establish to the
satisfaction of Patterson-UTI or the exchange agent that such tax has been paid
or is not applicable.
TMBR/SHARP STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED
PROXY CARD. A TRANSMITTAL LETTER AND ACCOMPANYING INSTRUCTIONS WILL BE PROVIDED
TO TMBR/SHARP SHAREHOLDERS FOLLOWING THE EFFECTIVE TIME OF THE MERGER.
FRACTIONAL SHARES
No fractional Patterson-UTI Shares will be issued to TMBR/Sharp
shareholders. Instead of fractional shares, each TMBR/Sharp shareholder
otherwise entitled to a fractional share will receive, in cash rounded to the
nearest cent and without interest, an amount representing the fractional share,
rounded to four decimal places, multiplied by the average of the midpoint of the
daily high and low trading prices of Patterson-UTI Shares as reported under
Nasdaq National Market Issues Reports in the Wall Street Journal for each of the
first 20 consecutive trading days in the period commencing 25 trading days prior
to the closing date of the merger.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties by
TMBR/Sharp relating to, among other things:
- corporate organization, qualification and good standing;
- the absence of subsidiaries;
- capital structure;
- corporate power and authority to enter into the merger agreement, and due
execution, delivery and enforceability of the merger agreement;
- conflicts with, violations of or defaults under charter documents,
bylaws, material agreements, orders, decrees, licenses or permits as a
result of the merger;
- authorizations, consents, approvals and filings required to enter into
the merger agreement or to complete the transactions contemplated by the
merger agreement;
- accurate filings with the SEC in compliance with applicable rules and
regulations;
- information to be supplied for the registration statement of which this
document is a part;
- the absence of certain changes or events;
- the absence of undisclosed material liabilities;
- the absence of default or violation of charter documents and other
agreements;
- state takeover statutes and required shareholder actions;
- litigation matters;
47
- employee benefits and ERISA compliance;
- tax matters;
- the absence of parachute payments;
- environmental matters;
- compliance with laws and possession of permits;
- public disclosure of material agreements;
- title to properties;
- intellectual property matters;
- the absence of a material adverse change in the most recent independent
petroleum engineer's report relating to TMBR/Sharp's oil and gas
properties;
- labor matters;
- fairness opinion of financial advisors;
- insurance matters;
- broker's and finder's fees;
- the determinations and recommendations of the TMBR/Sharp board of
directors;
- the required vote of TMBR/Sharp shareholders to approve the merger
agreement; and
- the intention of TMBR/Sharp directors and officers to vote in favor of
the merger agreement.
The merger agreement contains customary representations and warranties by
Patterson-UTI and Sub relating to, among other things:
- organization, qualification and good standing;
- capital structure;
- power and authority to enter into the merger agreement, and due
execution, delivery and enforceability of the merger agreement;
- conflicts with, violations of or defaults under charter documents,
bylaws, material agreements, orders, decrees, licenses or permits as a
result of the merger;
- authorizations, consents, approvals and filings required to enter into
the merger agreement or to complete the transactions contemplated by the
merger agreement;
- accurate filings with the SEC in compliance with applicable rules and
regulations;
- information to be supplied for this registration statement of which this
document is a part;
- the absence of a material adverse change;
- the absence of undisclosed material liabilities;
- compliance with laws and possession of permits;
- broker's and finder's fees;
- litigation matters;
- financing capability; and
- tax matters.
48
The representations and warranties contained in the merger agreement will
not survive the merger, but they form the basis of certain conditions to each
party's obligations to complete the merger.
COVENANTS AND OTHER AGREEMENTS
OPERATING COVENANTS
Prior to the effective time of the merger TMBR/Sharp has agreed to conduct
its operations in the ordinary course in substantially the same manner as
previously conducted and to use all reasonable efforts to preserve intact its
business organization and goodwill. Prior to the effective time of the merger,
and unless Patterson-UTI and Sub consent otherwise in writing, with certain
exceptions TMBR/Sharp has agreed not to:
- declare, set aside or pay dividends on, or make any other distributions
in respect of, any of its capital stock; split, combine or reclassify any
of its capital stock; or redeem, purchase or otherwise acquire any shares
of its capital stock;
- issue, deliver, sell, pledge, dispose of or otherwise encumber any of its
capital stock or any securities convertible into, or any rights, warrants
or options to acquire, any such capital stock;
- amend its articles of incorporation or bylaws;
- acquire or agree to acquire any business, entity or assets that would be
material to TMBR/Sharp, except purchases of supplies and inventory in the
ordinary course of business consistent with past practice;
- sell, lease, mortgage, pledge, grant a lien on or otherwise encumber or
dispose of any of its properties or assets, except (i) in the ordinary
course of business and (ii) other transactions involving not in excess of
$100,000 in the aggregate;
- incur any indebtedness for borrowed money, except:
- under working capital borrowings under revolving credit facilities
incurred in the ordinary course of business;
- borrowings to fund the payments to the holders of TMBR/Sharp stock
options; and
- indebtedness incurred to refund, refinance or replace indebtedness for
borrowed money outstanding on the date of the merger agreement;
- make any loans, advances or capital contributions to, or investments in,
any other person, other than employees in the ordinary course of business
consistent with past practice;
- guarantee any indebtedness, issue any debt securities or warrants or
rights to acquire any debt securities or guarantee any debt securities of
others;
- make or incur any capital expenditure, except in the ordinary course of
business and, in the case of any single expenditure in excess of $200,000
and any expenditures in the aggregate in excess of $500,000, as
previously disclosed in writing to Patterson-UTI;
- make any material election relating to taxes or settle or compromise any
material tax liability;
- take any extraordinary action that causes its net operating loss
carryforwards to be reduced;
- satisfy any liabilities, other than satisfaction, in the ordinary course
of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated
by, its balance sheet as of December 31, 2002;
- waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which it is a party;
49
- adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
- enter into any new collective bargaining agreement;
- change any accounting principle used by it, except as required by
regulations promulgated by the SEC or the Financial Accounting Standards
Board;
- settle or compromise any litigation other than settlements or
compromises:
- of litigation where the amount paid does not exceed $100,000, or
- in consultation and cooperation with Patterson-UTI, and, with respect to
any such settlement, with the prior written consent of Patterson-UTI;
- enter into any new, or amend any existing, severance agreement or
arrangement, deferred compensation arrangement or employment agreement
with any officer, director or employee, except that, TMBR/Sharp may hire
additional employees, so long as it does not enter into any employment or
severance agreement or any deferred compensation arrangement with any
such additional employees;
- adopt any new incentive, retirement or welfare benefit arrangements,
plans or programs for the benefit of current, former or retired employees
or amend any existing TMBR/Sharp benefit plan;
- grant any increases in employee compensation, other than in the ordinary
course or pursuant to promotions, in each case consistent with past
practice;
- grant any stock options or stock awards;
- adopt or amend any compensation, employment or employee benefit plan or
arrangement;
- increase any compensation or benefits of any person, other than in the
ordinary course of business consistent with past practice; or
- take any action that would, or could reasonably be expected to, result in
its representations and warranties in the merger agreement becoming
untrue.
ADDITIONAL AGREEMENTS
The merger agreement contains additional agreements between Patterson-UTI
and TMBR/Sharp relating to, among other things:
- convening and holding the TMBR/Sharp shareholder meeting;
- making and maintaining the required recommendation by TMBR/Sharp's board
of directors to its shareholders;
- preparing, filing and distributing this document and filing the
registration statement of which this document is a part;
- providing access to information and cooperating regarding filings with
governmental and other agencies and organizations;
- using their commercially reasonable efforts to satisfy the conditions to
closing;
- providing notice of (i) any representation or warranty in the merger
agreement becoming untrue or inaccurate or (ii) the failure to materially
comply with or satisfy any covenant, condition or agreement in the merger
agreement;
- making public announcements; and
- listing on the Nasdaq National Market, upon official notice of issuance,
the shares of Patterson-UTI to be issued in connection with the merger.
50
EMPLOYEE BENEFIT PLANS
Generally, TMBR/Sharp officers and employees at the effective time of the
merger who continue as employees of Patterson-UTI or Sub will be immediately
eligible to participate in any Patterson-UTI benefit plan that is provided to
such persons and will be credited with vesting service for their years of
service with TMBR/Sharp. Patterson-UTI will take such actions as are necessary
so that each TMBR/Sharp employee who continues as an employee of Patterson-UTI
or Sub will not be subject to preexisting condition exclusions or waiting
periods for coverages under any Patterson-UTI benefit plan. Patterson-UTI may
temporarily retain one or more of TMBR/Sharp's benefit plans to provide for a
more efficient transition of TMBR/Sharp employees to Patterson-UTI's benefit
plans. Subject to that temporary retention, Patterson-UTI or Sub will provide to
each TMBR/Sharp employee who continues as an employee of Patterson-UTI or Sub
after the effective time of the merger, compensation and employee benefits that
are comparable to the compensation and employee benefits provided to all
similarly-situated employees of Patterson-UTI or Sub.
INDEMNIFICATION AND INSURANCE
From and after the effective time of the merger, Patterson-UTI and the
surviving company will indemnify and hold harmless to the fullest extent
permitted under applicable law each person who is, or has been at any time prior
to the effective time of the merger, an officer or director of TMBR/Sharp and
each person who served at the request of TMBR/Sharp as a director, officer,
employee or fiduciary of another entity. Those persons will be indemnified to
the fullest extent permitted by law against all losses, including fees and
expenses of counsel, arising out of or pertaining to actions taken by them, or
failures to act, while serving in those capacities, whether claimed before or
after the effective time of the merger.
The surviving company will maintain directors' and officers' liability
insurance for six years after the effective time of the merger to cover persons
who are or were covered by TMBR/Sharp's existing directors' and officers'
liability insurance policies at any time before the effective time of the
merger. The terms of the insurance will be of at least the same coverage and
amounts containing terms and conditions that are no less advantageous in any
material respect to such persons than the existing insurance with respect to
acts or omissions prior to the effective time of the merger. However, the
surviving company will not be required to pay annual premiums in excess of 200%
of the last annual premium paid by TMBR/Sharp, but will be required to purchase
as much coverage as possible for such amount.
AFFILIATE AGREEMENTS
TMBR/Sharp has agreed to use its best efforts to cause its affiliates, as
defined by Rule 145 under the Securities Act of 1933, to deliver to
Patterson-UTI written agreements no later than 30 days prior to the effective
time of the merger that restrict their ability to sell, transfer or otherwise
dispose of any Patterson-UTI Shares issued to them in connection with the
merger, except:
- in compliance with Rule 145 under the Securities Act of 1933;
- pursuant to an effective registration statement under the Securities Act
of 1933; or
- in reliance upon an opinion of counsel reasonably acceptable to
Patterson-UTI, to the effect that such sale, transfer or other
disposition is exempt from registration under the Securities Act of 1933.
Certain agreements in the merger agreement will survive the effective time
of the merger.
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CONDITIONS PRECEDENT
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The obligations of Patterson-UTI, Sub and TMBR/Sharp to complete the merger
are subject to the following conditions:
- approval of the merger agreement and the related transactions by the
holders of at least two-thirds of the outstanding TMBR/Sharp Shares
entitled to vote at the special meeting;
- the expiration or termination of the waiting period under the HSR Act
(which has occurred) and the filing, occurrence or receipt of other
authorizations, consents, orders, or approvals required to consummate the
transactions contemplated by the merger agreement;
- the absence of any legal restraint or prohibition preventing the
consummation of the merger;
- the approval for listing of the Patterson-UTI Shares to be issued in the
merger on the Nasdaq National Market, upon official notice of issuance;
and
- a registration statement registering the issuance of the Patterson-UTI
Shares shall have become effective, no stop order suspending the
effectiveness of the registration statement shall have been issued and
remain effective and all necessary state securities or "Blue Sky"
authorizations shall have been received.
CONDITIONS TO OBLIGATIONS OF PATTERSON-UTI AND SUB
Unless waived in whole or in part by Patterson-UTI and Sub, the obligations
of Patterson-UTI and Sub to effect the merger are subject to the following
conditions:
- performance in all material respects by TMBR/Sharp of its obligations
under the merger agreement;
- certification that each of the representations and warranties of
TMBR/Sharp contained in the merger agreement is true and correct in all
material respects;
- receipt of all required third party authorizations, consents or approvals
that, if not received, would have a material adverse effect on the
surviving company assuming the merger had taken place;
- absence of a material adverse change in TMBR/Sharp's business, operations
or financial condition;
- holders of no more than five percent (5%) of the outstanding TMBR/Sharp
Shares entitled to vote at the special meeting properly perfect their
dissenters' rights;
- receipt of an opinion of legal counsel to TMBR/Sharp substantially to the
effect set forth in exhibit A to the merger agreement attached as Annex A
to this proxy statement/prospectus, which form of opinion addresses such
matters as organization, existence and good standing, authority, non-
contravention, absence of legal proceedings, receipt of required consents
and material compliance as to form of the proxy statement/prospectus;
- receipt of an opinion satisfactory to Patterson-UTI of its tax counsel,
Fulbright & Jaworski L.L.P., to the effect that, if the merger is
consummated in accordance with the terms of the merger agreement, the
merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code;
- receipt of a copy of certified resolutions duly adopted by TMBR/Sharp's
board of directors approving the merger agreement and the consummation of
the merger and the related transactions and directing the submission of
the merger to a vote of TMBR/Sharp's shareholders;
- receipt of a copy of certified resolutions duly adopted by the holders of
at least two-thirds of the outstanding TMBR/Sharp Shares entitled to vote
at the special meeting approving the merger agreement and the related
transactions; and
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- receipt of a comfort letter from KPMG LLP, TMBR/Sharp's independent
auditors, in form and substance satisfactory to Patterson-UTI and Sub,
with respect to the financial statements and certain financial
information related to TMBR/Sharp.
CONDITIONS TO OBLIGATIONS OF TMBR/SHARP
Unless waived in whole or in part by TMBR/Sharp, the obligations of
TMBR/Sharp to effect the merger are subject to the following conditions:
- performance in all material respects by Patterson-UTI and Sub of their
obligations under the merger agreement;
- certification that each of Patterson-UTI's and Sub's representations and
warranties contained in the merger agreement is true and correct in all
material respects;
- receipt of all required third party authorizations, consents or approvals
that, if not received, would have a material adverse effect on the
surviving company assuming the merger had taken place;
- absence of a material adverse change in Patterson-UTI's business or
operations;
- receipt of an opinion of legal counsel to Patterson-UTI and Sub
substantially to the effect set forth in exhibit B to the merger
agreement attached as Annex A to this proxy/statement prospectus, which
form of opinion addresses such matters as organization, existence and
good standing; authority, non-contravention, absence of legal
proceedings, receipt of required consents, material compliance as to form
of the proxy statement/prospectus and legality of the Patterson-UTI
Shares to be issued in the merger;
- receipt of an opinion satisfactory to TMBR/Sharp of its tax counsel,
Haynes and Boone, LLP, to the effect that, if the merger is consummated
in accordance with the terms of the merger agreement, the merger will
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code;
- receipt of a comfort letter from PricewaterhouseCoopers LLP,
Patterson-UTI's independent auditors, in form and substance satisfactory
to TMBR/Sharp, with respect to the financial statements and certain
financial information related to Patterson-UTI and Sub; and
- receipt of a copy of certified resolutions duly adopted by
Patterson-UTI's board of directors and Sub's managing member approving
the merger agreement and the consummation of the merger and the related
transactions.
Neither Patterson-UTI nor TMBR/Sharp will waive the condition to closing that
requires receipt of the tax opinions referenced above. If these opinions are
unable to be delivered at the closing of the merger and Patterson-UTI and
TMBR/Sharp desire to proceed with a merger other than as a "reorganization"
within the meaning of Section 368(a) of the Code, they will do so only after
revising the structure of the transaction. In such case, an amended proxy
statement/prospectus with revised disclosure regarding the new structure and the
material United States federal income tax consequences will be mailed to you at
least 20 days prior to the special meeting. If the shareholders have already
voted to approve the merger, TMBR/Sharp would hold another special meeting to
vote on the revised merger proposal after the amended proxy statement/prospectus
had been mailed. See "Material United States Federal Income Tax Consequences" on
page 57.
NO SOLICITATION
TMBR/Sharp has agreed that it will not, and will not permit its officers,
directors, employees, investments bankers, attorneys or other advisors, agents
and other representatives to, directly or indirectly:
- solicit, initiate or encourage, or otherwise intentionally facilitate,
the making of any proposal that constitutes a third party "acquisition
proposal" of the type described below;
53
- subject to certain exceptions, enter into any agreement with respect to
any acquisition proposal; or
- participate in any discussions or negotiations regarding, furnish any
information with respect to, or facilitate any inquiries or the making of
any proposal that constitutes or may reasonably be expected to lead to,
an acquisition proposal; provided, however, that:
- to the extent required by the fiduciary obligations of the TMBR/Sharp
board of directors, as determined in good faith after consultation with
outside legal counsel;
- before approval of the merger by the TMBR/Sharp shareholders; and
- subject to TMBR/Sharp providing written notice to Patterson-UTI of its
decision to take such action in response to an unsolicited written
request, TMBR/Sharp may:
- pursuant to a confidentiality agreement that contains substantially
the same terms as the confidentiality agreement contained in the
merger agreement, furnish information to, or enter into discussions or
negotiations with, any person or entity that has made a superior
proposal of the type described below; and
- ask for information solely to determine whether or not the unsolicited
acquisition proposal is a superior proposal.
TMBR/Sharp will promptly notify Patterson-UTI of any pending negotiations
relating to, or the receipt of, any acquisition proposal.
As used in the merger agreement, "acquisition proposal" means any proposal
or offer, other than a proposal or offer by Patterson-UTI or any of its
affiliates:
- for a merger or other business combination involving TMBR/Sharp;
- to acquire from TMBR/Sharp or any of its affiliates in any manner,
directly or indirectly, an equity interest in TMBR/Sharp, any voting
securities of TMBR/Sharp or a material amount of the assets of
TMBR/Sharp; or
- to acquire from the TMBR/Sharp shareholders by tender offer, exchange
offer or otherwise more than 20% of the outstanding TMBR/Sharp Shares.
Except in connection with the termination of the merger agreement as
described in "-- Termination" below, the TMBR/Sharp board of directors will not
be permitted to:
- withdraw, modify, or propose to withdraw or modify its approval or
recommendation of the merger agreement or the merger, or
- approve or recommend any acquisition proposal, except that:
if the TMBR/Sharp board of directors receives an acquisition proposal that, in
the exercise of its fiduciary obligations (as determined in good faith by a
majority of the disinterested members thereof after consultation with outside
legal counsel), it determines to be a superior proposal, the TMBR/Sharp board of
directors may withdraw or modify its approval or recommendation of the merger
agreement or the merger and may terminate the merger agreement (subject to the
conditions in the eleventh through sixteenth bullet points under
"-- Termination"), in each case at any time after midnight on the third business
day following Patterson-UTI's receipt of written notice of the superior proposal
advising Patterson-UTI that the TMBR/Sharp board of directors has received an
acquisition proposal which it has determined to be a superior proposal. The
notice must specify the material terms and conditions of the superior proposal
(including the proposed financing and a copy of any documents conveying the
proposal) and identifying the party making the superior proposal.
As used in the merger agreement, the term "superior proposal" means any
bona fide acquisition proposal to acquire, directly or indirectly, all of the
then outstanding TMBR/Sharp Shares or all or substantially all the assets of
TMBR/Sharp, and otherwise on terms which a majority of the members of
TMBR/Sharp's board of directors determines in its good faith reasonable judgment
(after consultation
54
with its financial advisor) to be more favorable to TMBR/Sharp's shareholders
than the merger and which it intends to recommend that the TMBR/Sharp
shareholders approve.
TERMINATION
Before the effective time of the merger, the merger agreement may be
terminated:
- by mutual written consent of Patterson-UTI and TMBR/Sharp, or by mutual
action of their respective boards of directors;
- by either Patterson-UTI or TMBR/Sharp, if:
- the affirmative vote of the holders of two-thirds of the outstanding
TMBR/Sharp Shares entitled to vote on the approval of the merger
agreement and the related transactions is not obtained upon a vote at
the special meeting or an adjournment thereof;
- the effective time of the merger has failed to occur on or before
December 31, 2003, unless the failure is the result of a material breach
of the merger agreement by the party seeking the termination; or
- any court or other governmental entity has issued a final and
nonappealable order, decree or ruling or has taken any other final and
nonappealable action that enjoins, restrains or prohibits the purchase
of TMBR/Sharp Shares pursuant to the merger;
- by Patterson-UTI, if:
- TMBR/Sharp fails to hold and call the TMBR/Sharp shareholder meeting by
December 31, 2003;
- TMBR/Sharp breaches any of its representations or warranties in, or
fails to materially perform any of its covenants, agreements or
obligations under, the merger agreement, if such breach or failure (i)
would cause any of the conditions to the obligations of all parties to
consummate the merger or to the obligations of Patterson-UTI and Sub to
consummate the merger not to be satisfied and (ii) cannot be or has not
been cured within 30 days following receipt of written notice of such
breach; or
- TMBR/Sharp's board of directors (i) withdraws or modifies, in any manner
adverse to Patterson-UTI, its recommendation or approval of the merger
agreement or the related transactions, or (ii) recommends or resolves to
recommend to the TMBR/Sharp shareholders an acquisition proposal;
- by TMBR/Sharp:
- if:
- its shareholders have not approved the merger agreement;
- it has notified Patterson-UTI of its receipt of a superior proposal;
- it has not received by the end of the third business day after receipt
of the notice of the superior proposal an offer from Patterson-UTI
that is no less favorable than the superior proposal; and
- it has paid to Patterson-UTI, a $3.5 million termination fee; or
- if Patterson-UTI or Sub breaches any of its representations or
warranties in, or fails to materially perform any of its covenants,
agreements or obligations under, the merger agreement, if such breach or
failure (i) would cause any of the conditions to the obligations of all
parties to consummate the merger or to the obligations of TMBR/Sharp to
consummate the merger not to be satisfied and (ii) cannot be or has not
been cured within 30 days following receipt of written notice of such
breach.
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FEES AND EXPENSES
TMBR/Sharp will pay $3.5 million to Patterson-UTI promptly upon:
- the termination of the merger agreement:
- by Patterson-UTI or TMBR/Sharp, if the TMBR/Sharp shareholders have not
voted to approve the merger, and prior to the shareholder meeting, a
third party has made a bona fide written acquisition proposal that has
not been withdrawn;
- by TMBR/Sharp because it receives a superior proposal (which termination
must comply with the tenth through sixteenth bullet points under
"-- Termination"); or
- the TMBR/Sharp board of directors taking any action set forth in the
twelfth and thirteenth bullet points under "-- No Solicitation" and not
reinstating its recommendation of the merger agreement or withdrawing its
approval or recommendation or both of any such acquisition proposal
within two business days of taking such actions.
Whether or not the merger is consummated, each of Patterson-UTI, Sub and
TMBR/Sharp will bear its own costs and expenses in connection with the merger
agreement and the related transactions, except that Patterson-UTI and TMBR/Sharp
will share equally the costs and expenses in connection with filings and related
matters under the HSR Act.
AMENDMENT
Patterson-UTI, Sub and TMBR/Sharp may amend the merger agreement at any
time before the effective time of the merger. However, after the approval of the
merger agreement by the TMBR/Sharp shareholders, no amendment may be made that
would require further approval by such shareholders without the further approval
of such shareholders.
EXTENSION; WAIVER
Patterson-UTI, Sub and TMBR/Sharp may, at any time before the effective
time of the merger and to the extent legally allowed:
- extend the time for the performance of any of the obligations or the
other acts of the other parties;
- waive any inaccuracies in the representations and warranties contained in
the merger agreement or in any document delivered pursuant to the merger
agreement; or
- waive compliance with any of the agreements or conditions contained in
the merger agreement.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion sets forth the material U.S. federal income tax
consequences of the merger. This discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury Regulations promulgated under
the Code, court decisions, published positions of the Internal Revenue Service
(the "IRS"), and other applicable authorities, all as in effect on the date of
this document and all of which are subject to change or differing
interpretations, possibly with retroactive effect. This discussion is limited to
holders who hold TMBR/Sharp Shares as capital assets for U.S. federal income tax
purposes (generally, assets held for investment). This discussion does not
address all of the U.S. federal income tax consequences that may be relevant to
a holder in light of their particular circumstances or to holders who may be
subject to special treatment under U.S. federal income tax laws, such as tax
exempt organizations, financial institutions, insurance companies,
broker-dealers, holders who hold TMBR/Sharp Shares as part of a hedge, straddle,
wash sale, synthetic security, conversion transaction, or other integrated
investment comprised of TMBR/Sharp Shares and one or more investments, holders
with a "functional currency" (as defined in the Code) other than the U.S.
dollar, and persons who acquired TMBR/Sharp Shares in compensatory transactions.
Further, this discussion does not address any aspect of state, local or foreign
taxation. Except as otherwise indicated, statements of legal conclusion
regarding tax treatments, tax effects or tax consequences discussed in this
section constitute the opinions of Fulbright & Jaworski L.L.P., counsel to
Patterson-UTI, and Haynes and Boone, LLP, counsel to TMBR/Sharp.
An opinion of counsel is not binding on the IRS or any court. No ruling has
been or will be obtained from the IRS regarding any matter relating to the
merger. No assurance can be given that the IRS will not assert, or that a court
will not sustain, a position contrary to any of the tax aspects described below.
THIS DISCUSSION IS NOT A SUBSTITUTE FOR AN INDIVIDUAL ANALYSIS OF THE TAX
CONSEQUENCES OF THE MERGER TO YOU. WE URGE YOU TO CONSULT A TAX ADVISOR
REGARDING THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE MERGER IN LIGHT OF YOUR OWN SITUATION.
As used in this section, a "U.S. holder" is (i) an individual U.S. citizen
or resident alien; (ii) a corporation, partnership or other entity created or
organized under U.S. law (federal or state); (iii) an estate whose worldwide
income is subject to U.S. federal income tax; or (iv) a trust if a court within
the U.S. is able to exercise primary supervision over the administration of the
trust and one or more U.S. persons have the authority to control all substantial
decisions of the trust. A "non-U.S. holder" is any holder other than a U.S.
holder.
This discussion does not address the U.S. federal income tax consequences
to non-U.S. holders that are subject to special treatment under U.S. federal
income tax laws, such as (i) a non-U.S. holder that holds TMBR/Sharp Shares in
connection with a trade or business conducted in the United States or in
connection with an office or fixed place of business located in the United
States, (ii) an individual non-U.S. holder that is deemed to be present in the
United States for 183 days or more in the current taxable year, (iii) an
individual non-U.S. holder that is an expatriate subject to the provisions of
Section 877 of the Code, (iv) a non-U.S. holder that is subject to or affected
by the provisions of an income tax treaty to which the United States is a party,
or (v) a non-U.S. holder that owns or has owned (either directly or indirectly)
more than five percent (5%) of the outstanding shares of Patterson-UTI Shares at
any time during the five (5) year period preceding the effective time of the
merger.
If a partnership (including for this purpose any entity treated as a
partnership for U.S. federal income tax purposes) is a beneficial owner of
TMBR/Sharp Shares, the tax treatment of a partner in such partnership will
generally depend on the status of the partner and the activities of the
partnership. Holders of TMBR/Sharp Shares that are partnerships and partners in
such partnerships are urged to consult their tax advisors regarding the U.S.
federal income tax consequences of owning and disposing of TMBR/Sharp Shares in
the merger.
Patterson-UTI and TMBR/Sharp have made representations to both tax
counsels, including a representation that holders of TMBR/Sharp Shares will
receive in the merger an amount of
57
Patterson-UTI Shares with a value equal to at least forty percent (40%) of the
total consideration paid by Patterson-UTI for all TMBR/Sharp Shares. The total
consideration takes into account the amount of cash paid or deemed to be paid to
holders of TMBR/Sharp Shares in connection with the merger, cash paid to holders
of TMBR/Sharp Shares who perfect their dissenters' rights and cash paid by
Patterson-UTI to acquire TMBR/Sharp Shares within twelve (12) months of the date
of the merger agreement. Based in part on such representations, it is the
opinion of Fulbright & Jaworski L.L.P., tax counsel for Patterson-UTI, and
Haynes and Boone, LLP, tax counsel for TMBR/Sharp, that the merger when effected
in accordance with the terms of the merger agreement, will be treated for United
States federal income tax purposes as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code.
TAX CONSEQUENCES OF THE MERGER TO U.S. HOLDERS
THE MERGER
The following discussion sets forth the material United States federal
income tax consequences to U.S. holders in a merger that qualifies as a
"reorganization" within the meaning of Section 368(a) of the Code.
A U.S. holder who exchanges TMBR/Sharp Shares for shares of Patterson-UTI
Shares and cash in the merger will recognize gain (but not loss) in an amount
equal to the lesser of (i) the amount of cash received pursuant to the merger,
and (ii) the amount, if any, by which (a) the sum of the fair market value of
the Patterson-UTI Shares as of the effective time of the merger and the amount
of cash received pursuant to the merger exceeds (b) such U.S. holder's adjusted
tax basis in such holder's TMBR/Sharp Shares. Gain recognized upon the exchange
generally will be capital gain, unless the receipt of cash by a U.S. holder has
the effect of a distribution of a dividend, in which case the gain will be
treated as dividend income to the extent of the U.S. holder's ratable share of
TMBR/Sharp's accumulated earnings and profits as calculated for U.S. federal
income tax purposes. In determining whether or not the receipt of cash has the
effect of a distribution of a dividend, certain constructive ownership rules
must be taken into account. Any recognized capital gain will be long-term
capital gain if the U.S. holder has held TMBR/Sharp Shares for more than one
year.
If a U.S. holder receives cash in lieu of a fractional share of
Patterson-UTI Shares in exchange for shares of Patterson-UTI Shares, such U.S.
holder will generally recognize capital gain or loss equal to the difference
between the cash received in lieu of such fractional share and the portion of
such U.S. holder's adjusted tax basis in TMBR/Sharp Shares surrendered that is
allocable to such fractional share. The capital gain or loss will be long-term
capital gain or loss if the holding period for TMBR/Sharp Shares exchanged for
cash in lieu of the fractional share of Patterson-UTI stock is more than one
year at the time of the merger.
A U.S. holder will have an aggregate tax basis in the shares of
Patterson-UTI Shares received pursuant to the merger equal to the aggregate
adjusted tax basis in TMBR/Sharp Shares surrendered pursuant to the merger, (i)
reduced by (a) the portion of such U.S. holder's adjusted tax basis in
TMBR/Sharp shares surrendered in the merger that is allocable to a fractional
share of Patterson-UTI Shares for which cash is received, and (b) the amount of
cash received by such U.S. holder pursuant to the merger, and (ii) increased by
the amount of gain (including the portion of such gain that is treated as a
dividend as described above) recognized by such U.S. holder (but not by any gain
recognized upon the receipt of cash in lieu of a fractional share of
Patterson-UTI Shares pursuant to the merger). The holding period of the
Patterson-UTI Shares received by a U.S. holder pursuant to the merger will
include the holding period of TMBR/Sharp Shares surrendered in exchange
therefor, provided that such TMBR/Sharp Shares are held as capital assets of the
effective time of the merger.
One of the requirements that must be satisfied in order for the merger to
qualify as a "reorganization" under Section 368(a) of the Code is the continuity
of interest requirement. This requirement will be satisfied if the shareholders
of TMBR/Sharp exchange a substantial portion of their proprietary interest in
TMBR/Sharp for proprietary interests in Patterson-UTI. In the opinion of Haynes
and Boone, LLP and of
58
Fulbright & Jaworski L.L.P., the continuity of interest requirement will be
satisfied under applicable case law if, as of the effective time of the merger,
the value of the Patterson-UTI Shares received in connection with the merger by
the shareholders of TMBR/Sharp equals or exceeds forty percent (40%) of the
total consideration paid or deemed paid by Patterson-UTI in exchange for all
TMBR/Sharp Shares, taking into account the amount of cash paid or deemed paid to
holders of TMBR/Sharp Shares in connection with the merger, cash paid to
TMBR/Sharp shareholders who perfect their dissenters' rights and cash paid by
Patterson-UTI to acquire TMBR/Sharp Shares within twelve (12) months of the date
of the merger agreement.
Various factors affect whether the value of the Patterson-UTI Shares
received by the shareholders of TMBR/Sharp in exchange for TMBR/Sharp Shares is
equal to at least forty percent (40%) of the combined value of the total
consideration paid by Patterson-UTI for all TMBR/Sharp Shares, including:
- the amount, if any, to be paid to shareholders of TMBR/Sharp who perfect
their dissenters' rights;
- whether prior to and in connection with the merger TMBR/Sharp (or certain
parties related to TMBR/Sharp) redeems or acquires TMBR/Sharp Shares or
makes distributions to the shareholders of TMBR/Sharp; and
- whether there will be any repurchases by Patterson-UTI (or certain
parties related to Patterson-UTI) of the Patterson-UTI Shares to be
issued in the merger.
Accordingly, it may not be possible to state with any certainty the minimum
trading price of the Patterson-UTI Shares at which the value of the
Patterson-UTI Shares to be received in the merger will be equal to at least
forty percent (40%) of the value of the total consideration paid by
Patterson-UTI for all TMBR/Sharp Shares.
Holders of TMBR/Sharp Shares are entitled to dissenters' rights under Texas
law in connection with the merger. If a U.S. holder receives cash pursuant to
the exercise of dissenters' rights, that U.S. holder generally will recognize
gain or loss measured by the difference between the cash received and such
holder's adjusted tax basis in such holder's TMBR/Sharp Shares. This gain should
be long-term capital gain or loss if the U.S. holder held TMBR/Sharp Shares for
more than one year at the time at which any cash is received. Any holder of
TMBR/Sharp Shares that plans to exercise dissenters' rights in connection with
the merger is urged to consult a tax advisor to determine the related tax
consequences.
However, if the IRS were to successfully challenge the conclusion that the
merger is treated as a "reorganization" within the meaning of Section 368(a) of
the Code, then each U.S. holder would recognize gain or loss equal to the
difference between the sum of the fair market value of the Patterson-UTI Shares
and the amount of cash received in the merger (including cash received in lieu
of fractional shares of Patterson-UTI Shares) and such U.S. holder's tax basis
in TMBR/Sharp Shares surrendered in exchange therefor. Further, if the merger is
not treated as a "reorganization" within the meaning of Section 368(a) of the
Code, TMBR/Sharp would be subject to tax on the deemed sale of its assets to
Patterson-UTI with gain or loss for this purpose measured by the difference
between TMBR/Sharp's tax basis in its assets and the fair market value of the
consideration deemed to be received therefor (i.e., the cash and Patterson-UTI
Shares). Such gain or loss would be reported on TMBR/Sharp's final tax return,
subject to the effect of any tax carryovers and the effect of its other income
or loss for such period, and Patterson-UTI would become liable for any such tax
liability by virtue of the merger.
BACKUP WITHHOLDING
United States federal income tax law requires that a holder of TMBR/Sharp
Shares provide the exchange agent with his correct taxpayer identification
number, which is, in the case of a holder who is an individual, a social
security number, or, in the alternative, establish a basis for exemption from
backup withholding. Exempt holders, including, among others, corporations and
some foreign individuals, are not subject to backup withholding and reporting
requirements. If the correct taxpayer identification number or an adequate basis
for exemption is not provided, a holder will be subject to backup withholding.
Any amounts withheld under the backup withholding rules from a payment to a U.S.
holder will be allowed as
59
a credit against such U.S. holder's U.S. federal income tax and may entitle the
U.S. holder to a refund, provided that the required information is furnished to
the IRS.
To prevent backup withholding, each holder of TMBR/Sharp Shares must
complete the Substitute Form W-9 which will be provided by the exchange agent
with the transmittal letter and certify under penalties of perjury that (i) the
taxpayer identification number provided is correct or that the holder is
awaiting a taxpayer identification number; and (ii) the holder is not subject to
backup withholding because (a) the holder is exempt from backup withholding, (b)
the holder has not been notified by the IRS that he is subject to backup
withholding as a result of the failure to report all interest or dividends, or
(c) the IRS has notified the holder that he is no longer subject to backup
withholding. The Substitute Form W-9 must be completed, signed and returned to
the exchange agent.
INFORMATION REPORTING
Shareholders of TMBR/Sharp receiving Patterson-UTI Shares in the merger
should file a statement with their U.S. federal income tax return setting forth
their adjusted tax basis in TMBR/Sharp Shares exchanged in the merger, as well
as the fair market value of the Patterson-UTI Shares and the amount of cash
received in the merger. In addition, shareholders of TMBR/Sharp will be required
to retain permanent records of these facts relating to the merger.
TAX CONSEQUENCES OF THE MERGER TO NON-U.S. HOLDERS
This discussion does not address the U.S. federal income tax consequences
to non-U.S. holders that are subject to the special rules described above.
THE MERGER
Provided that TMBR/Sharp has not been a U.S. real property holding
corporation within the meaning of Section 897(c) of the Code (a "USRPHC") within
the 5-year period ending on the date of the merger, a non-U.S. holder generally
will not be subject to U.S. federal income tax on gain or income realized on the
exchange of TMBR/Sharp Shares for Patterson-UTI Shares and cash, unless, (i) in
the case of an individual non-U.S. holder, such holder either (a) is present in
the U.S. for 183 days or more in the year of such exchange, or (b) has gain from
the exchange of TMBR/Sharp Shares that is attributable to an office or other
fixed place of business in the U.S., and (ii) in the case of a corporate
non-U.S. holder, such holder has gain from the exchange of TMBR/Sharp Shares
that is attributable to an office or other fixed place of business in the U.S. A
corporate non-U.S. holder may also, under certain circumstances, be subject to
an additional branch profits tax with respect to gain that is effectively
connected with the conduct of a trade or business in the United States.
TMBR/Sharp believes that it has not been a USRPHC during the relevant 5-year
period.
Even if it is determined that TMBR/Sharp has been a USRPHC during the
relevant 5-year period, a non-U.S. holder not described in the preceding
sentence will not be subject to U.S. federal income tax on any such gain or
income provided that such holder does not actually or constructively own 5% or
more of the outstanding TMBR/Sharp Shares on the date of the merger.
BACKUP WITHHOLDING
In general, backup withholding and information reporting will not apply to
payments made by us or our paying agents in their capacities as such to a
non-U.S. holder if the holder has provided the required certification that the
holder is not a U.S. person on IRS Form W-8BEN, IRS Form W-8ECI, IRS Form
W-8EXP, or IRS Form W-8IMY, as applicable, and provided that neither we nor our
paying agent has actual knowledge that the holder is a U.S. person. Payments of
the proceeds from a disposition by a non-U.S. holder of TMBR/Sharp Shares made
to or through a foreign office of a broker will generally not be subject to
information reporting or backup withholding. However, information reporting will
apply to those payments, if the broker is: (i) a U.S. person, (ii) a controlled
foreign corporation for U.S. federal income tax purposes, (iii) a foreign person
50% or more of whose gross income from all sources is
60
effectively connected with a U.S. trade or business for a specified three-year
period, or (iv) a foreign partnership, if at any time during its tax year, one
or more of its partners are U.S. persons, as defined in Treasury Regulations,
who in the aggregate hold more than 50% of the income or capital interest in the
partnership or if, at any time during its tax year, the foreign partnership is
engaged in a U.S. trade or business, unless (a) such broker has documentary
evidence in its records that the beneficial owner is not a U.S. person and
certain other conditions are met or (b) the beneficial owner otherwise
establishes an exemption.
Payments of the proceeds from a disposition by a non-U.S. holder made to or
through the U.S. office of a broker is subject to information reporting and
backup withholding unless the statement that the payee is not a U.S. person
described above has been received (and the payor does not have actual knowledge
that the beneficial owner is a U.S. person) or the holder or beneficial owner
otherwise establishes an exemption from information reporting and backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a non-U.S. holder will be allowed as a credit against such non-U.S.
holder's U.S. federal income tax and may entitle the non-U.S. holder to a
refund, provided that the required information is furnished to the IRS.
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DESCRIPTION OF PATTERSON-UTI CAPITAL STOCK
The following summary description of our capital stock is qualified in its
entirety by the provisions of Patterson-UTI's restated certificate of
incorporation and amended and restated bylaws and by Delaware law.
GENERAL
Patterson-UTI is authorized by its restated certificate of incorporation to
issue 200,000,000 shares of common stock, $0.01 par value per share, and
1,000,000 shares of preferred stock, $0.01 par value per share, of which 100,000
have been designated as Series A Participating Preferred Stock.
COMMON STOCK
VOTING RIGHTS
The holders of Patterson-UTI Shares are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders, including the
election of directors. Holders of Patterson-UTI Shares do not have cumulative
voting rights.
DIVIDENDS
The holders of Patterson-UTI Shares are entitled to receive dividends when,
as and if declared by the Patterson-UTI board of directors out of funds legally
available therefor. However, if any shares of Patterson-UTI preferred stock are
at the time outstanding, the payment of dividends on Patterson-UTI Shares or
other distributions (including Patterson-UTI's repurchase of Patterson-UTI
Shares) will be subject to the declaration and payment of all cumulative
dividends on outstanding shares of Patterson-UTI preferred stock.
LIQUIDATION
In the event of the dissolution, liquidation or winding up of
Patterson-UTI, the holders of Patterson-UTI Shares will be entitled to share
ratably in any assets remaining after the satisfaction in full of the prior
rights of creditors, including holders of Patterson-UTI indebtedness, and the
payment of the aggregate liquidation preference of the preferred stock.
OTHER RIGHTS
The holders of Patterson-UTI Shares do not have any conversion, redemption
or preemptive rights.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Patterson-UTI Shares is Continental
Stock Transfer & Trust Company, New York, New York.
LISTING
Outstanding Patterson-UTI Shares are traded on the Nasdaq National Market
under the symbol "PTEN".
PREFERRED STOCK
The Patterson-UTI board of directors can, without approval of its
stockholders, issue one or more additional series of preferred stock and
determine the number of shares of each series and the rights, preferences and
limitations of each series by appropriate board resolutions. The terms of the
preferred stock will be subject to and qualified by the certificate of
designation relating to any applicable series of preferred stock. Undesignated
preferred stock may enable the Patterson-UTI board of directors to render more
difficult or to discourage an attempt to obtain control of Patterson-UTI by
means of a tender offer, proxy contest, merger or otherwise, and to thereby
protect the continuity of Patterson-UTI's management. As a result, the issuance
of shares of a series of preferred stock may discourage bids for Patterson-UTI
62
Shares or may otherwise adversely affect the market price of Patterson-UTI
Shares or any other of Patterson-UTI preferred stock. The issuance of shares of
preferred stock may also adversely affect the rights of the holders of
Patterson-UTI Shares. For example, any preferred stock issued may rank prior to
Patterson-UTI Shares as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into Patterson-UTI
Shares or other securities.
STOCKHOLDER RIGHTS PLAN
The Patterson-UTI board of directors has adopted a stockholder rights plan,
which provides each Patterson-UTI Share's holder a preferred share purchase
right (the "Rights"). The Rights permit the holder to purchase one
one-thousandth of a share (a unit) of Series A preferred stock at an initial
exercise price of $75 per share under certain circumstances. The purchase price,
the number of units of preferred stock and the type of securities issuable upon
exercise of the Rights are subject to adjustment. The Rights expire on October
23, 2011 unless earlier redeemed or exchanged. Until a Right is exercised, the
holder thereof has no rights as a stockholder of Patterson-UTI, including the
right to vote or receive dividends. The Rights become exercisable on the earlier
to occur of (i) the acquisition by a person or group of affiliated or associated
persons of 15% or more of the outstanding Patterson-UTI Shares, or (ii) 10
business days following the commencement of or announcement of an intention to
acquire 15% or more of the outstanding Patterson-UTI Shares through a tender
offer or exchange offer.
OTHER PROVISIONS HAVING A POSSIBLE ANTI-TAKEOVER EFFECT
SECTION 203 OF DGCL
As a Delaware corporation, Patterson-UTI is subject to Section 203 of the
DGCL. Subject to limited exceptions, Section 203 of the DGCL prohibits "business
combinations," including certain mergers, sales and leases of assets, issuances
of securities and similar transactions by a corporation or a subsidiary with an
"interested stockholder" who beneficially owns 15% or more of a corporation's
voting stock, within three years after the person or entity becomes an
interested stockholder, unless: (1) the transaction that will cause the person
to become an interested stockholder is approved by the board of directors of the
corporation prior to the transaction, (2) after the completion of the
transaction in which the person becomes an interested stockholder, the
interested stockholder holds at least 85% of the voting stock of the corporation
not including (a) shares held by officers and directors of the interested
stockholder and (b) shares held by specified employee benefit plans, or (3) at
or subsequent to such time the person becomes an interested stockholder, the
business combination is approved by the board of directors and holders of at
least 66 2/3% of the outstanding voting stock, excluding shares held by the
interested stockholder.
In addition to being subject to Section 203 of the DGCL, Patterson-UTI's
restated certificate of incorporation and amended and restated bylaws contain
certain provisions that could discourage potential takeover attempts and make
more difficult attempts by stockholders to change management. The following
paragraphs set forth a summary of these provisions:
SPECIAL MEETINGS OF STOCKHOLDERS
The Patterson-UTI restated certificate of incorporation provides that
special meetings of stockholders may be called only by the Patterson-UTI board
of directors (or a majority of the members thereof), the chief executive
officer, the president or the holders of a majority of the outstanding stock
entitled to vote at such special meeting. This provision will make it more
difficult for Patterson-UTI stockholders to call a special meeting.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT
The Patterson-UTI restated certificate of incorporation provides that
stockholder action may be taken only at annual or special meetings and not by
written consent of the stockholders.
63
COMPARISON OF THE RIGHTS OF PATTERSON-UTI STOCKHOLDERS
AND TMBR/SHARP SHAREHOLDERS
As a result of the merger, the holders of TMBR/Sharp Shares will become
holders of Patterson-UTI Shares. The rights of TMBR/Sharp's shareholders are
currently governed by the TBCA and the articles of incorporation and bylaws of
TMBR/Sharp. The rights of Patterson-UTI's stockholders are governed by the DGCL
and the restated certificate of incorporation and amended and restated bylaws of
Patterson-UTI.
The following is a summary of material differences between the rights of
TMBR/Sharp shareholders and Patterson-UTI stockholders. Because TMBR/Sharp is a
Texas corporation and Patterson-UTI is a Delaware corporation, these differences
arise from differences between the TBCA and the DGCL in addition to differences
between the articles of incorporation and bylaws of TMBR/Sharp and the restated
certificate of incorporation and amended and restated bylaws of Patterson-UTI.
The following summaries are qualified in their entirety by reference to the
TBCA and DGCL and the governing corporate instruments of TMBR/Sharp and
Patterson-UTI to which you are referred. The identification of specific
differences in the rights of these holders as material is not intended to
indicate that other equally important or more significant differences do not
exist. For more information and to obtain copies of the restated certificate of
incorporation and amended and restated bylaws of Patterson-UTI, see the section
entitled "Where You Can Find Additional Information" on page 78.
AUTHORIZED CAPITAL STOCK
TMBR/Sharp Patterson-UTI
The total number of authorized shares of The total number of authorized shares of
capital stock of TMBR/Sharp is 60,000,000, capital stock of Patterson-UTI is
consisting of 50,000,000 shares of TMBR/Sharp 201,000,000, consisting of 200,000,000
Shares, par value $0.10 per share, and Patterson-UTI Shares, par value $0.01 per
10,000,000 shares of preferred stock, par share; and 1,000,000 shares of preferred
value $0.10 per share. stock, par value $0.01 per share, 100,000 of
which have been designated as Series A
Participating Preferred Stock. See
"Description of Patterson-UTI Capital Stock".
BOARD OF DIRECTORS
TMBR/Sharp Patterson-UTI
Under the TBCA, the articles of incorporation The DGCL permits the certificate of
or bylaws of a corporation may set the number incorporation or the bylaws of the
of directors or provide the manner of corporation to govern the number and terms of
determining the number of directors. The directors. The amended and restated bylaws of
TMBR/Sharp articles of incorporation set the Patterson-UTI provide that the number of
number of directors on the initial board of directors will be four, or such other number
directors and the TMBR/Sharp bylaws provide as may be fixed or changed by amendment of
that the number of directors will be not less the bylaws or by resolution of the board of
than one nor more than nine, with the number directors. The current number of
of directors to serve for the ensuing year to Patterson-UTI directors, as fixed by
be established from time to time by resolution of the Patterson-UTI board of
resolution of the board of directors. The directors, is nine. The DGCL permits the
current number of TMBR/Sharp directors, as certificate of incorporation to provide for
fixed by resolution of the TMBR/Sharp board the division of directors into up to three
of directors, is five. The TBCA permits the classes, with the term of office of each
bylaws of a corporation to provide that class of directors expiring in successive
directors be divided into up to three years. The Patterson-UTI restated certificate
classes. The bylaws of TMBR/Sharp do not of incorporation does not divide the board
provide for classification of the board of into classes. Under the DGCL and the
directors. Under the TBCA and the bylaws of Patterson-UTI amended and restated bylaws,
TMBR/Sharp, directors hold office until the directors hold office until the next annual
next annual meeting meeting of stockholders and until his or her
64
TMBR/Sharp Patterson-UTI
of shareholders and until his or her successor is elected and qualified.
successor is elected and qualified.
Under the Patterson-UTI amended and restated
Under the TMBR/Sharp bylaws, a quorum at any bylaws, a majority of the whole authorized
meeting of the TMBR/Sharp board of directors number of directors constitutes a quorum for
consists of a majority of the number of the transaction of business, except that a
directors fixed by the bylaws. The bylaws of majority of the directors in office shall
TMBR/Sharp provide that the action of a constitute a quorum for filling a vacancy on
majority of the directors present at a the board. The Patterson-UTI amended and
meeting at which a quorum is present will be restated bylaws provide that the act of a
the act of the board of directors, unless the majority of the directors present at a
act of a greater number is required by meeting at which a quorum is present shall be
statute or TMBR/Sharp's articles of the act of the board.
incorporation or bylaws.
CUMULATIVE VOTING
TMBR/Sharp Patterson-UTI
Under the TBCA, shareholders are allowed to The DGCL permits cumulative voting for the
cumulate their votes in the election of election of directors if provided for by the
directors unless prohibited in the certificate of incorporation. The
corporation's articles of incorporation. The Patterson-UTI restated certificate of
TMBR/Sharp articles of incorporation incorporation does not provide for cumulative
expressly prohibit cumulative voting. voting.
PREEMPTIVE RIGHTS
TMBR/Sharp Patterson-UTI
Under the TBCA, a shareholder has preemptive Under the DGCL, a stockholder does not have
rights unless the articles of incorporation preemptive rights unless the corporation's
limit those rights. The TMBR/Sharp articles certificate of incorporation specifically
of incorporation expressly deny the grants those rights. The Patterson-UTI
shareholders preemptive rights. restated certificate of incorporation does
not grant preemptive rights.
REMOVAL OF DIRECTORS
TMBR/Sharp Patterson-UTI
Under the TBCA and TMBR/Sharp's bylaws, any Under the DGCL and Patterson-UTI's amended
director or the entire board of directors of and restated bylaws, any director or the
a corporation with an unclassified board, entire board of directors of a corporation
such as TMBR/Sharp, may be removed, with or with an unclassified board, such as
without cause, by the vote of the holders of Patterson-UTI, may be removed by the holders
a majority of the shares entitled to vote at of a majority of shares then entitled to vote
any meeting of shareholders called expressly at an election of directors.
for such purpose.
COMMITTEES OF THE BOARD OF DIRECTORS
TMBR/Sharp Patterson-UTI
Under the TBCA and the TMBR/Sharp bylaws, the Under the DGCL and the Patterson-UTI amended
TMBR/Sharp board of directors may designate and restated bylaws, the Patterson-UTI board
one or more committees from among its of directors may designate one or more
members. The TMBR/Sharp board of directors committees, which will have such powers as
currently has a compensation committee and an the Patterson-UTI board of directors may
audit committee. provide, subject to restrictions in the DGCL.
The Patterson-UTI board of directors
currently has an executive committee, a
compensation committee, an audit committee
and a corporate governance and nominating
committee.
65
SPECIAL MEETINGS OF STOCKHOLDERS
TMBR/Sharp Patterson-UTI
The TBCA provides that a special meeting of Under the DGCL, the board of directors or any
shareholders may be called by the president, person authorized in the corporation's
the board of directors or such other persons certificate of incorporation or bylaws may
authorized in the corporation's articles of call a special meeting of stockholders. Under
incorporation or bylaws, or by holders of at the Patterson-UTI restated certificate of
least 10% of all shares entitled to vote at incorporation, special meetings of the
the meeting, unless the articles of stockholders may be called at any time by a
incorporation provide for a different majority of the board of directors by action
percentage not greater than 50%. The at a meeting or without a meeting, the chief
TMBR/Sharp bylaws provide that a special executive officer, the president or the
meeting of shareholders may be called by the holders of a majority of the issued and
chairman of the board, the president, the outstanding stock of Patterson-UTI entitled
board of directors or the holders of not less to be voted at such special meeting.
than 10% of all shares entitled to vote at
the meetings.
QUORUM AT STOCKHOLDER MEETINGS
TMBR/Sharp Patterson-UTI
Under the TBCA and the TMBR/Sharp bylaws, the Under the DGCL and the Patterson-UTI amended
holders of record of a majority of the shares and restated bylaws, the holders of shares
entitled to vote at a shareholders meeting, entitling them to exercise a majority of the
present in person or represented by proxy, voting power of Patterson-UTI entitled to
constitute a quorum for the transaction of vote at the meeting, present in person or
business. In the absence of a quorum, the represented by proxy, constitute a quorum for
shareholders present in person or represented the transaction of business to be conducted
by proxy at a meeting may adjourn the meeting at such meeting. The holders of a majority of
until a quorum is present or represented. the voting shares represented at a meeting,
whether or not a quorum is present, may
adjourn the meeting from time to time until a
quorum is present.
STOCKHOLDER ACTION BY WRITTEN CONSENT
TMBR/Sharp Patterson-UTI
Under the TBCA, shareholders may take any Under the DGCL, unless the certificate of
action that may be taken at any annual or incorporation provides otherwise,
special meeting of the shareholders without a stockholders may take any action without a
meeting, without prior notice and without a meeting, without prior notice and without a
vote if all of the shareholders entitled to vote, if written consents are signed by the
vote on the matter consent to the action in holders of not less than the minimum number
writing. The TMBR/Sharp bylaws include a of votes that would be necessary to authorize
similar provision allowing action by or take such action at a meeting if all
shareholders without a meeting. shares were present and voted. However, the
Patterson-UTI restated certificate of
incorporation prohibits Patterson-UTI
stockholders from taking action by written
consent.
STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS
TMBR/Sharp Patterson-UTI
Neither the TMBR/Sharp articles of The Patterson-UTI amended and restated bylaws
incorporation nor bylaws have a provision provide that a stockholder may propose
that requires a shareholder to provide business to be brought before a stockholder
advance notice to TMBR/Sharp of business meeting if certain requirements are
that the shareholder proposes be considered satisfied. Patterson-UTI must receive notice
at an annual meeting. However, of the proposed business at its
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TMBR/Sharp Patterson-UTI
shareholders wishing to submit a proposal at principal executive offices not less than 90
an annual meeting must comply with the rules days nor more than 120 days prior to the
for shareholder proposals contained in the anniversary date of the immediately preceding
proxy rules of the Securities Exchange Act of annual meeting of stockholders; provided,
1934. Under the proxy rules, the proposal however, that in the event that the annual
must be received at the company's principal meeting is called for a date that is not
executive offices not less than 120 calendar within 30 days before or after such
days before the date of the company's proxy anniversary date, notice by the stockholder
statement released to shareholders in to be timely must be received not later than
connection with the previous year's annual the close of business on the tenth day
meeting. However, if the company did not hold following the day on which the notice of the
an annual meeting the previous year, or if date of the meeting was mailed or public
the date of the current year's annual meeting disclosure of the annual meeting date was
has been changed by more than 30 days from made, whichever occurs first.
the date of the previous year's meeting, then
the deadline is a reasonable time before the The Patterson-UTI amended and restated bylaws
company begins to print and mail its proxy also require that the notice of proposed
materials. The deadline for submitting a business contain certain information. A
proposal is usually found in the proxy stockholder's notice must set forth (i) a
statement for the preceding year. The proxy brief description of each matter desired to
rules contain other restrictions regarding be brought before the annual meeting and the
shareholder proposals, including restrictions reasons for conducting such business at the
on who is eligible to submit a proposal and annual meeting, (ii) the name and record
the length of the proposal. address of the stockholder proposing such
business, (iii) the class and number of
shares beneficially owned by the stockholder,
(iv) any material interest the stockholder
may have in the proposed business and (v) a
representation that such stockholder intends
to appear in person or by proxy at the annual
meeting to bring such business before the
meeting. The chairman at the meeting may
determine that the stockholder's proposal
does not comply with the required procedures
and declare that the business not be
transacted.
BUSINESS COMBINATION WITH AN INTERESTED STOCKHOLDER
TMBR/Sharp Patterson-UTI
Pursuant Article 13 of the TBCA, a public Subject to limited exceptions, Section 203 of
corporation is generally prevented from the DGCL prohibits "business combinations,"
entering into or engaging in certain business including certain mergers, sales and leases
combinations, including certain mergers, of assets, issuances of securities and
sales and leases of assets, issuances of similar transactions by a corporation or a
securities and similar transactions, with a subsidiary with an "interested stockholder"
person who beneficially owns 20% or more of a who beneficially owns 15% or more of a
corporation's outstanding voting shares (an corporation's voting stock, within three
"affiliated shareholder") during the years after the person or entity becomes an
three-year period immediately following the interested stockholder, unless: (1) the
affiliated shareholder's acquisition of transaction that will cause the person to
shares, unless specific conditions are become an interested stockholder is approved
satisfied. The three-year restriction does by the board of directors of the corporation
not apply if either: (i) before the date a prior to the transaction, (2) after the
person becomes an affiliated shareholder, the completion of the transaction in which the
board of directors of the corporation person becomes an interested stockholder, the
approved the business combination or interested stockholder holds at least 85% of
acquisition of shares made by the affiliated the voting stock of the corporation not
shareholder on that date or (ii) not less including (a) shares held by officers and
than six months after the date a person directors of the interested stockholder and
becomes an affiliated shareholder, the (b) shares held by specified employee benefit
business combination is approved at a meeting plans, or (3) at or subsequent to such time
by the affirmative vote of at least the person becomes an interested stockholder,
two-thirds of the corporation's outstanding the business combination is
voting shares not beneficially owned by the
affiliated
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TMBR/Sharp Patterson-UTI
shareholder or its affiliates or associates. approved by the board of directors and
holders of at least 66 2/3% of the
Article 13 of the TBCA provides that these outstanding voting stock, excluding shares
prohibitions do not apply in certain held by the interested stockholder.
circumstances, including when a public
corporation expressly elects not to be A Delaware corporation may elect not to be
governed by these provisions of the TBCA governed by Section 203. Patterson-UTI has
through a provision in the corporation's not made such an election, and is therefore
articles of incorporation or bylaws. Neither subject to Section 203 of the DGCL.
the TMBR/Sharp articles of incorporation nor
bylaws make such an election, and TMBR/Sharp
is therefore subject to Article 13 of the
TBCA.
DISSENTERS' APPRAISAL RIGHTS
TMBR/Sharp Patterson-UTI
Under the TBCA, a shareholder is entitled to Under the DGCL, stockholders of a corporation
dissent from and obtain the appraised value involved in a merger have the right to demand
of his or her shares in connection with any and receive payment of the fair value of
plan of merger or exchange or disposition of their stock in certain mergers. However,
all or substantially all of the corporation's appraisal rights are not available to
assets if the TBCA requires a shareholder stockholders if the shares are (1) listed on
vote on the action and the shareholder has a national securities exchange, (2)
shares of a class entitled to vote on that designated as a national market system
transaction. However, a shareholder does not security on an interdealer quotation system
have the right to dissent from any plan of operated by the National Association of
merger in which there is a single surviving Securities Dealers, Inc. or (3) held of
or new corporation, or from any plan of record by more than 2,000 stockholders.
exchange, if (1) the shares held by the Notwithstanding the foregoing sentence,
shareholder are listed on a national appraisal rights are available to
securities exchange, listed on the Nasdaq stockholders if the stockholders are required
Stock Market, designated a national market to accept in the merger anything other than
security by the National Association of (a) shares of stock of the surviving
Securities Dealers, Inc. or held of record by corporation in the merger, (b) shares of
not less than 2,000 shareholders, (2) the stock of another corporation that, at the
shareholder is not required by the terms of effective date of the merger, will be listed
the plan of merger or the plan of exchange to on a national securities exchange, designated
accept for his or her shares any as a national market system security on an
consideration that is different than the interdealer quotation system operated by the
consideration to be provided to any other National Association of Securities Dealers,
holder of shares of the same class or series Inc. or held of record by more than 2,000
and (3) the shareholder is not required by holders, (c) cash in lieu of fractional
the terms of the plan of merger or the plan shares or (d) any combination of the
of exchange to accept for his or her shares foregoing.
consideration (a) other than shares of a
corporation which immediately after the A Delaware corporation's certificate of
effective time of the merger will be listed incorporation may provide that appraisal
on a national securities exchange, approved rights will be available in the event of the
for quotation as a national market security sale of all or substantially all of a
by the National Association of Securities corporation's assets or adoption of an
Dealers, Inc., or held of record by not less amendment to its certificate of
than 2,000 shareholders, (b) cash in lieu of incorporation. The Patterson-UTI restated
fractional shares the shareholder is certificate of incorporation does not provide
otherwise entitled to receive, or (c) any for such rights.
combination of such securities and cash in
lieu of fractional shares. See "The
Merger -- Dissenters' Rights of Appraisal".
DIVIDENDS
TMBR/Sharp Patterson-UTI
Under the TBCA, generally the board of Under the DGCL, a corporation may pay
directors of a corporation may authorize a dividends out of surplus. If there is no
corporation to make distributions only if, surplus, dividends may be paid out of net
(1) after giving effect to profits for the current or
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TMBR/Sharp Patterson-UTI
the distribution the corporation would be preceding fiscal year unless the capital of
solvent and (2) the distribution does not the corporation has been decreased to an
exceed the surplus of the corporation. Under amount less than the aggregate amount of the
the TMBR/Sharp articles of incorporation, the capital represented by the issued and
board of directors may, in its discretion, outstanding stock having a preference upon
out of funds legally available for the the distribution of assets. Under the
payment of dividends and at such times and in Patterson-UTI restated certificate of
such manner as determined by the board of incorporation, the board of directors may, in
directors, declare and pay dividends on the its discretion, declare and pay dividends on
common stock of TMBR/Sharp. Under the the Patterson-UTI Shares out of the assets of
TMBR/Sharp bylaws, the board of directors may Patterson-UTI which are by law available
declare dividends upon the outstanding shares therefore, in cash, property or securities of
TMBR/Sharp Shares, subject to the provisions Patterson-UTI.
of the TBCA and the articles of
incorporation, at any regular or special
meeting. Dividends may be declared and paid
in cash, in property, or in TMBR/Sharp
Shares, or in any combination thereof.
LIQUIDATION RIGHTS
TMBR/Sharp Patterson-UTI
Under the TBCA, a corporation liquidating its Under the DGCL, a dissolved corporation or
assets must satisfy its debts and liabilities successor entity must pay claims against the
before making distributions to its corporation before making distributions to
shareholders according to their respective its stockholders.
rights and interests. Under TMBR/Sharp's
articles of incorporation, the shareholders
of TMBR/Sharp shall be entitled to receive
ratably any or all assets remaining to be
paid or distributed after payment or
provision for payment of the debts and other
liabilities of TMBR/Sharp and payment or
setting aside for payment of any preferential
amount due to the holders of any other class
or series of stock.
RIGHTS PLAN
TMBR/Sharp Patterson-UTI
TMBR/Sharp has not adopted a "shareholder Patterson-UTI has adopted a stockholder
rights plan," pursuant to which a person or rights plan pursuant to which a person or
group attempting to acquire, or merge with, group attempting to acquire, or merge with,
TMBR/Sharp could experience substantial Patterson-UTI could experience substantial
dilution of its ownership of TMBR/Sharp. dilution of its ownership of Patterson-UTI.
The Patterson-UTI board of directors has
adopted a stockholder rights plan, which
provides each Patterson-UTI Share's holder a
preferred share purchase right (the
"Rights"). The Rights permit the holder to
purchase one one-thousandth of a share (a
unit) of Series A preferred stock at an
initial exercise price of $75 per share under
certain circumstances. The purchase price,
the number of units of preferred stock and
the type of securities issuable upon exercise
of the Rights are subject to adjustment. The
Rights expire on October 23, 2011 unless
earlier redeemed or exchanged. Until a Right
is exercised, the holder thereof has no
rights as a
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TMBR/Sharp Patterson-UTI
stockholder of Patterson-UTI, including the
right to vote or receive dividends. The
Rights become exercisable on the earlier to
occur of (i) the acquisition by a person or
group of affiliated or associated persons of
15% or more of the outstanding Patterson-UTI
Shares, or (ii) 10 business days following
the commencement of or announcement of an
intention to acquire 15% or more of the
outstanding Patterson-UTI Shares through a
tender offer or exchange offer.
AMENDMENT OF GOVERNING DOCUMENTS
TMBR/Sharp Patterson-UTI
Under the TBCA, an amendment of the articles Under the DGCL, an amendment to a
of incorporation requires a resolution of the corporation's certificate of incorporation
board of directors setting forth the proposed requires a resolution of the board of
amendment and directing that it be submitted directors setting forth the proposed
to the shareholders for approval and the amendment and declaring its advisability, the
approval of the holders of at least board directing that the amendment be
two-thirds of the outstanding shares of stock considered at a special meeting or annual
entitled to vote on the amendment. Each class meeting of stockholders and the approval of a
or series of stock affected must also approve majority of all shares of stock entitled to
by at least a two-thirds vote amendments vote on the amendment, voting together as a
affecting the rights of that class or series. single class, and the approval of a majority
The TMBR/Sharp articles of incorporation do of the outstanding stock of each class
not contain provisions regarding amendments entitled to vote separately on the amendment
to the articles of incorporation. unless a higher vote is required in the
corporation's certificate of incorporation.
Under the TBCA, a corporation's board of The Patterson-UTI restated certificate of
directors may amend or repeal the incorporation provides that Patterson-UTI
corporation's bylaws or adopt new bylaws reserves the right to amend, alter or repeal
unless (1) the articles of incorporation any provision contained in the restated
reserve the power exclusively to the certificate of incorporation in the manner
shareholders in whole or in part or (2) the prescribed by statute.
shareholders in amending, repealing or
adopting a particular bylaw expressly provide Under the DGCL, stockholders have the power
that the board of directors may not amend or to amend, adopt or repeal a corporation's
repeal that bylaw. Unless the articles of bylaws and the certificate of incorporation
incorporation or a bylaw adopted by the can confer the power to adopt, amend or
shareholders provide otherwise, the repeal the bylaws upon the board of
shareholders may amend, repeal or adopt directors. The Patterson-UTI amended and
bylaws even though the bylaws may also be restated bylaws provide that such bylaws may
amended, repealed or adopted by the board of be altered, amended, repealed, or new bylaws
directors. The TMBR/Sharp bylaws provide that may be adopted, either by the affirmative
they may be altered, amended or repealed, or vote or written consent of a majority of the
new bylaws may be adopted, by the affirmative whole board of directors, or by the
vote of a majority of the directors present affirmative vote of a majority of the
at any meeting of the board of directors at outstanding stock of Patterson-UTI, present
which a quorum is present or by unanimous in person or represented by proxy, given at
written consent of all of the directors, an annual meeting or at any special meeting
subject to repeal or change by action of the at which a quorum shall be present. The
shareholders. The TMBR/Sharp articles of Patterson-UTI restated certificate of
incorporation provide that the board of incorporation provides that the board of
directors is expressly authorized to alter, directors is authorized to make, alter or
amend or repeal the bylaws or to adopt new repeal the bylaws.
bylaws without any action on the part of the
shareholders, but the bylaws made by the
directors and the powers so conferred may be
altered or repealed by the shareholders.
70
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL DATA OF PATTERSON-UTI
The following unaudited condensed combined pro forma financial statements
and explanatory notes have been prepared to give effect to the proposed merger.
At the effective time of the proposed merger, TMBR/Sharp will be merged with and
into Sub. If the merger is completed, each TMBR/Sharp Share (except those shares
owned directly or indirectly by TMBR/Sharp or Patterson-UTI, and those shares
held by dissenting shareholders), will be converted into the right to receive
$9.09 in cash and 0.312166 of a Patterson-UTI Share. The transaction is being
accounted for as a purchase business combination.
An unaudited condensed combined pro forma balance sheet as of September 30,
2003 and unaudited condensed combined pro forma statements of operations for the
nine months ended September 30, 2003 and the year ended December 31, 2002, have
been prepared to reflect the proposed merger. The following unaudited condensed
combined pro forma financial statements have been prepared based upon historical
financial statements of Patterson-UTI and TMBR/Sharp. Patterson-UTI's fiscal
year ends on December 31 and TMBR/Sharp's fiscal year ends on March 31. The
unaudited condensed combined pro forma financial statements reflect certain
balance sheet and statement of operations reclassifications made to conform
TMBR/Sharp's presentations to those of Patterson-UTI. The unaudited condensed
combined pro forma financial statements should be read in conjunction with:
- Patterson-UTI's historical audited consolidated financial statements for
the year ended December 31, 2002, and its unaudited consolidated
financial statements as of September 30, 2003 and for the nine months
ended September 30, 2003; and
- TMBR/Sharp's historical audited financial statements for the fiscal year
ended March 31, 2003, and its unaudited financial statements as of
September 30, 2003 and for the six months ended September 30, 2003.
The unaudited condensed combined pro forma balance sheet was prepared by
combining Patterson-UTI's historical unaudited consolidated balance sheet as of
September 30, 2003 and TMBR/Sharp's historical unaudited balance sheet as of
September 30, 2003, adjusted to reflect the proposed merger, as if it had
occurred at September 30, 2003.
The unaudited condensed combined pro forma statements of operations were
prepared using the historical consolidated statements of operations for
Patterson-UTI and the historical statements of operations for TMBR/Sharp
assuming the proposed merger had occurred on January 1, 2002. The unaudited
condensed combined pro forma statement of operations for the year ended December
31, 2002 was prepared by combining the historical audited consolidated statement
of operations of Patterson-UTI for the year ended December 31, 2002 and the
historical audited statement of operations of TMBR/Sharp for the fiscal year
ended March 31, 2003. The unaudited condensed combined pro forma statement of
operations for the nine months ended September 30, 2003 was prepared by
combining the historical unaudited consolidated statement of operations of
Patterson-UTI for the nine month period ended September 30, 2003 and the
historical unaudited statement of operations of TMBR/Sharp for the six months
ended September 30, 2003 combined with the TMBR/Sharp operating results for the
three months ended March 31, 2003. The unaudited condensed combined pro forma
statements of operations give effect to the costs related to the proposed
merger, and the impact of other purchase accounting adjustments.
The unaudited condensed combined pro forma financial statements are
prepared for illustrative purposes only, and are not necessarily indicative of
the operating results or financial position that would have occurred if the
merger transaction described above had been consummated at the beginning of the
periods or the dates indicated, nor are they necessarily indicative of any
future operating results or financial position. The unaudited condensed combined
pro forma financial statements do not include any adjustments related to any
restructuring charges, profit improvements, potential cost savings or one-time
charges which may result from the proposed merger or the result of final
valuations of tangible and intangible assets and liabilities.
The proposed merger had not been consummated as of the preparation of these
unaudited condensed combined pro forma financial statements.
71
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
AT SEPTEMBER 30, 2003
PATTERSON-UTI TMBR/SHARP
ENERGY, INC. DRILLING, INC. PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, -------------------------
2003 2003 ADJUSTMENTS COMBINED
------------- -------------- ----------- -----------
(IN THOUSANDS)
Current assets:
Cash and cash equivalents...................... $ 111,317 $ 6,653 $(40,405)A $ 72,856
(4,709)B
Accounts receivable............................ 141,066 7,284 -- 148,350
Inventory...................................... 15,989 197 -- 16,186
Deposits....................................... -- 782 -- 782
Deferred tax assets............................ 19,350 -- -- 19,350
Other.......................................... 5,418 1,415 -- 6,833
----------- -------- -------- -----------
Total current assets.................... 293,140 16,331 (45,114) 264,357
Property and equipment, at cost, net............. 675,625 33,255 50,745 B 759,625
Goodwill and other intangible assets, net........ 51,203 -- 33,924 B 85,127
Investment in equity securities.................. 18,371 -- (17,681)A --
(690)C
Deferred tax asset............................... -- 5,928 666 B 6,594
Other............................................ 2,508 174 -- 2,682
----------- -------- -------- -----------
Total assets............................ $ 1,040,847 $ 55,688 $ 21,850 $ 1,118,385
=========== ======== ======== ===========
Current liabilities:
Accounts payable:
Trade........................................ $ (40,008) $ (3,941) $ -- $ (43,949)
Accrued revenue distribution................. (8,897) -- -- (8,897)
Other........................................ (2,812) -- -- (2,812)
Federal and state income taxes payable, net.... (6,796) -- -- (6,796)
Accrued expenses............................... (52,565) (2,299) (4,200)A (59,064)
----------- -------- -------- -----------
Total current liabilities............... (111,078) (6,240) (4,200) (121,518)
Deferred tax liabilities......................... (130,839) -- (17,850)B (148,431)
258 C
Other............................................ (3,775) (485) -- (4,260)
----------- -------- -------- -----------
Total liabilities....................... (245,692) (6,725) (21,792) (274,209)
----------- -------- -------- -----------
Stockholders' equity:
Preferred stock................................ -- -- -- --
Common stock................................... (824) (677) (14)A (838)
677 B
Additional paid-in capital..................... (504,776) (72,644) (49,439)A (554,215)
72,644 B
Retained earnings.............................. (295,924) 24,208 (24,208)B (295,924)
Accumulated other comprehensive income......... (5,286) -- 432 C (4,854)
Treasury stock................................. 11,655 150 (150)B 11,655
----------- -------- -------- -----------
Total stockholders' equity.............. (795,155) (48,963) (58) (844,176)
----------- -------- -------- -----------
Total liabilities and stockholders'
equity................................ $(1,040,847) $(55,688) $(21,850) $(1,118,385)
=========== ======== ======== ===========
72
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
PATTERSON-UTI TMBR/SHARP
ENERGY, INC. DRILLING, INC. PRO FORMA
DECEMBER 31, MARCH 31, ----------------------
2002 2003 ADJUSTMENTS COMBINED
------------- -------------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues:
Drilling................................... $410,295 $31,310 $ -- $441,605
Drilling and completion fluids............. 69,943 -- -- 69,943
Pressure pumping........................... 32,996 -- -- 32,996
Oil and natural gas........................ 14,723 6,891 -- 21,614
-------- ------- ------- --------
527,957 38,201 -- 566,158
-------- ------- ------- --------
Operating costs and expenses:
Drilling................................... 318,201 21,563 -- 339,764
Drilling and completion fluids............. 60,762 -- -- 60,762
Pressure pumping........................... 19,802 -- -- 19,802
Oil and natural gas........................ 3,956 2,618 -- 6,574
Depreciation, depletion and amortization... 91,216 7,409 1,300 D 99,925
General and administrative................. 26,140 3,981 -- 30,121
Bad debt expense........................... 320 -- -- 320
Merger costs............................... -- -- -- --
Restructuring and other charges............ 4,700 -- -- 4,700
Other...................................... (538) (475) -- (1,013)
-------- ------- ------- --------
524,559 35,096 1,300 560,955
-------- ------- ------- --------
Operating income............................. 3,398 3,105 (1,300) 5,203
-------- ------- ------- --------
Other income (expense):
Interest income............................ 1,110 30 (808)E 332
Interest expense........................... (532) -- -- (532)
Other, net................................. (137) 122 -- (15)
-------- ------- ------- --------
441 152 (808) (215)
-------- ------- ------- --------
Income before income taxes................... 3,839 3,257 (2,108) 4,988
Income tax expense (benefit):................ 1,670 (6,855) 7,080 F 1,895
-------- ------- ------- --------
Net income................................... $ 2,169 $10,112 $(9,188) $ 3,093
======== ======= ======= ========
Net income per common share:
Basic...................................... $ 0.03 $ 1.86 $ 0.04
======== ======= ========
Diluted.................................... $ 0.03 $ 1.78 $ 0.04
======== ======= ========
Weighted average number of common shares
outstanding:
Basic...................................... 78,705 5,427 80,069
======== ======= ========
Diluted.................................... 81,252 5,676 82,693
======== ======= ========
73
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
PATTERSON-UTI TMBR/SHARP
ENERGY, INC. DRILLING, INC.
NINE MONTHS NINE MONTHS
ENDED ENDED PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, ----------------------
2003 2003 ADJUSTMENTS COMBINED
------------- -------------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues:
Drilling.................................. $468,609 $25,422 $ -- $494,031
Drilling and completion fluids............ 51,431 -- -- 51,431
Pressure pumping.......................... 31,509 -- -- 31,509
Oil and natural gas....................... 16,329 7,405 -- 23,734
-------- ------- ------- --------
567,878 32,827 -- 600,705
-------- ------- ------- --------
Operating costs and expenses:
Drilling.................................. 353,893 17,816 -- 371,709
Drilling and completion fluids............ 45,483 -- -- 45,483
Pressure pumping.......................... 18,032 -- -- 18,032
Oil and natural gas....................... 3,509 2,273 -- 5,782
Depreciation, depletion and
amortization........................... 73,825 6,190 341 D 80,356
General and administrative................ 20,560 3,123 -- 23,683
Bad debt expense.......................... 259 -- -- 259
Merger costs.............................. -- -- -- --
Restructuring and other charges........... (2,452) -- -- (2,452)
Other..................................... (1,582) (84) -- (1,666)
-------- ------- ------- --------
511,527 29,318 341 541,186
-------- ------- ------- --------
Operating income............................ 56,351 3,509 (341) 59,519
-------- ------- ------- --------
Other income (expense):
Interest income........................... 808 20 (606)E 222
Interest expense.......................... (216) -- -- (216)
Other, net................................ 137 (766) -- (629)
-------- ------- ------- --------
729 (746) (606) (623)
-------- ------- ------- --------
Income before income taxes.................. 57,080 2,763 (947) 58,896
Income tax expense (benefit):............... 21,690 (5,926) 6,616 F 22,380
-------- ------- ------- --------
Net income.................................. $ 35,390 $ 8,689 $(7,563) $ 36,516
======== ======= ======= ========
Net income per common share:
Basic..................................... $ 0.44 $ 1.58 $ 0.45
======== ======= ========
Diluted................................... $ 0.43 $ 1.51 $ 0.44
======== ======= ========
Weighted average number of common shares
outstanding:
Basic..................................... 80,535 5,494 81,919
======== ======= ========
Diluted................................... 82,261 5,750 83,725
======== ======= ========
74
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. PRO FORMA FINANCIAL STATEMENTS
The basis of the unaudited pro forma condensed combined balance sheet
reflects the purchase of all outstanding TMBR/Sharp Shares in exchange for cash
and Patterson-UTI Shares on the conversion ratio of one TMBR/Sharp Share for
$9.09 in cash and 0.312166 of a Patterson-UTI Share. The pro forma condensed
combined financial statements also reflect 1,059 TMBR/Sharp Shares owned by
Patterson-UTI prior to the announcement of the merger which had a cost basis of
$17,681. At September 30, 2003, 5,504 TMBR/Sharp Shares were outstanding.
2. PERIODS PRESENTED
The unaudited pro forma condensed combined statements of operations for the
twelve months ended December 31, 2002 were prepared using Patterson-UTI's
historical audited consolidated statement of operations for the period ended
December 31, 2002 and the TMBR/Sharp audited historical statement of operations
for the year ended March 31, 2003. The unaudited pro forma condensed combined
statement of operations for the nine months ended September 30, 2003 was
prepared using Patterson-UTI's unaudited consolidated statement of operations
for the nine-month period ended September 30, 2003 and TMBR/Sharp's unaudited
statement of operations for the six-month period ended September 30, 2003
combined with TMBR/Sharp's operating results for the three months ended March
31, 2003. The three months activity was determined by subtracting the results of
operations for the nine months ended December 31, 2002 from the twelve month
results reflected in the TMBR/Sharp statement of operations for the twelve month
period ended March 31, 2003.
3. PRO FORMA ADJUSTMENTS
A. Based on a price of $35.64 per Patterson-UTI Share, which represents the
five day average price of Patterson-UTI Shares using the closing price of
Patterson-UTI Shares on the two business days before, the day of and the two
business days after the announcement of the merger on May 27, 2003, the purchase
price was calculated as follows:
Cash of $9.09 per share for the 4,445 TMBR/Sharp Shares
outstanding at September 30, 2003, excluding the 1,059
TMBR/Sharp Shares owned by Patterson-UTI.................. $ 40,405
Patterson-UTI Shares issued at $35.64 per share (4,445
TMBR/Sharp Shares X .312166 X $35.64)..................... 49,453
1,059 TMBR/Sharp Shares previously acquired by
Patterson-UTI, at cost (see also tickmark "C" on page
76)....................................................... 17,681
Estimated acquisition costs................................. 4,200
--------
Total estimated purchase price.............................. $111,739
========
75
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA
FINANCIAL STATEMENTS -- (CONTINUED)
B. The purchase price was allocated to assets acquired and liabilities
assumed based upon their estimated fair market values. This allocation is
preliminary based on the current estimates of fair value. The final purchase
accounting allocation will be based on the fair value of assets and liabilities
actually purchased when the merger is consummated. The allocation of the
purchase price is as follows:
HISTORICAL
AMOUNT PURCHASE PRICE PRO FORMA
OF TMBR/SHARP ALLOCATION ADJUSTMENTS
------------- -------------- -----------
DEBIT (CREDIT)
Cash......................................... $ -- $ (4,709) $ (4,709)(1)
Current assets............................... 16,331 16,331 --
Property & equipment......................... 33,255 84,000 50,745 (2)
Goodwill..................................... -- 33,924 33,924 (3)
Deferred tax asset........................... 5,928 6,594 666 (4)
Other long-term assets....................... 174 174 --
Current liabilities.......................... (6,240) (6,240) --
Other long term liabilities.................. (485) (485) --
Deferred tax liability....................... -- (17,850) (17,850)(5)
Common stock................................. (677) -- 677 (6)
Additional paid-in capital................... (72,644) -- 72,644 (6)
Accumulated deficit.......................... 24,208 -- (24,208)(6)
Treasury stock............................... 150 -- (150)(6)
-------- -------- --------
$ -- $111,739 $111,739
======== ======== ========
---------------
(1) Amount estimated to be paid by TMBR/Sharp to purchase outstanding options to
purchase TMBR/Sharp Shares.
(2) Adjustment to increase the carrying value of property and equipment to its
estimated fair market value.
(3) The excess of the aggregate purchase price over the estimated fair market
value of the identifiable assets acquired and liabilities assumed.
(4) Adjustment to adjust deferred tax assets to recognize the estimated net
realizable value of existing NOL carryforwards.
(5) Adjustment to record an estimated deferred tax liability due to the
difference in the fair market value of the property and equipment and the
estimated tax basis of the same assets.
(6) Adjustment to eliminate historical stockholders' equity of TBMR/Sharp.
C. Reversal of recognized gain of $690, deferred taxes of $258 and other
comprehensive income of $432 associated with 1,059 TMBR/Sharp Shares previously
acquired by Patterson-UTI.
D. To record additional depreciation and depletion expense due to
adjustment of property and equipment to fair market value. The portion of the
purchase price allocated to equipment (rigs) is depreciated using 10 year lives.
E. Adjustment to interest income to provide for decreased cash on hand as a
result of purchase.
F. Adjustment to income tax expense (benefit) to reflect Patterson-UTI's
estimated effective tax rate of 38%.
76
LEGAL MATTERS
The validity of the Patterson-UTI Shares to be delivered to TMBR/Sharp
shareholders in connection with the merger and certain other legal matters in
connection with the merger will be passed upon by Fulbright & Jaworski L.L.P.,
counsel to Patterson-UTI.
Certain legal matters in connection with the merger will be passed upon for
TMBR/Sharp by Haynes and Boone, LLP and Lynch, Chappell & Alsup, P.C.
EXPERTS
The consolidated financial statements of TMBR/Sharp as of March 31, 2003
and 2002 and for each of the years in the two-year period ended March 31, 2003
have been incorporated in this proxy statement/prospectus by reference to
TMBR/Sharp's Annual Report on Form 10-K for the fiscal year ended March 31,
2003, in reliance on the report of KPMG LLP, independent accountants,
incorporated by reference herein and upon the authority of that firm as experts
in accounting and auditing. Such financial statements have been audited by KPMG
LLP independent certified public accountants, to the extent and with respect to
the periods indicated in respect thereon.
The consolidated financial statements as of March 31, 2001 and for the
fiscal year ended March 31, 2001 incorporated in this proxy statement/prospectus
by reference to TMBR/Sharp's Annual Report on Form 10-K for the fiscal year
ended March 31, 2001 have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report. Arthur Andersen LLP has not
consented to the inclusion of their report in this proxy statement/prospectus,
and we have dispensed with the requirement to file their consent in reliance
upon Rule 437a of the Securities Act of 1933. Because Arthur Andersen LLP has
not consented to the inclusion of their report in this prospectus, you will not
be able to recover against Arthur Andersen LLP under Section 11 of the
Securities Act for any untrue statements of a material fact contained in the
financial statements audited by Arthur Andersen LLP or any omissions to state a
material fact required to be stated therein.
The estimated reserve evaluations and related calculations of Joe C. Neal &
Associates, Midland, Texas, an independent petroleum engineering firm,
incorporated in this proxy statement/prospectus by reference from TMBR/Sharp's
Annual Report on Form 10-K for the fiscal year ended March 31, 2003, have been
so incorporated in reliance upon the authority of Joe C. Neal & Associates as an
expert in petroleum engineering.
The consolidated financial statements of Patterson-UTI as of December 31,
2002 and 2001 and for each of the years in the three-year period ended December
31, 2002 incorporated in this proxy statement/prospectus by reference to
Patterson-UTI's Annual Report on Form 10-K for the year ended December 31, 2002,
except as they relate to UTI Energy Corp. as of December 31, 2000 and the year
then ended, have been audited by PricewaterhouseCoopers LLP, independent
auditors, and, insofar as they relate to UTI Energy Corp., by Ernst & Young LLP,
independent auditors, whose reports thereon appear therein. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
reports given on the authority of said firms as experts in auditing and
accounting.
The estimated reserve evaluations and related calculations of Mr. Brian
Wallace, P.E., Dallas, Texas, an independent petroleum engineer, incorporated in
this proxy statement/prospectus by reference from Patterson-UTI's Annual Report
on Form 10-K for the year ended December 31, 2002, have been so incorporated in
reliance upon the authority of Mr. Wallace as an expert in petroleum
engineering.
77
WHERE YOU CAN FIND MORE INFORMATION
Patterson-UTI and TMBR/Sharp file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy materials that Patterson-UTI and TMBR/Sharp
have filed with the Securities and Exchange Commission at the following
Securities and Exchange Commission public reference room:
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference room.
The Patterson-UTI Shares and the TMBR/Sharp Shares are traded on Nasdaq
National Market under the symbols "PTEN" and "TBDI", respectively, and our
Securities and Exchange Commission filings can also be read at the following
address:
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006
Our Securities and Exchange Commission filings are also available to the
public on the Securities and Exchange Commission's internet website at
http://www.sec.gov. In addition, Patterson-UTI's Securities and Exchange
Commission filings are also available to the public on Patterson/UTI's website,
http://www.patenergy.com. TMBR/Sharp does not maintain a corporate website.
We incorporate by reference into this proxy statement/prospectus the
documents listed below and any future filings Patterson-UTI or TMBR/Sharp make
with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, including any filings
after the date of this proxy statement/prospectus, until the special meeting and
the effective time of the merger. The information incorporated by reference is
an important part of this proxy statement/prospectus. Any statement in a
document incorporated by reference into this proxy statement/prospectus will be
deemed to be modified or superseded to the extent a statement contained in (1)
this proxy statement/prospectus or (2) any other subsequently filed document
that is incorporated by reference into this proxy statement/prospectus modifies
or supersedes such statement.
PATTERSON-UTI SEC FILINGS
- Patterson-UTI's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.
- Patterson-UTI's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2003.
- Patterson-UTI's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2003.
- Patterson-UTI's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2003.
- Patterson-UTI's definitive proxy statement filed on March 24, 2003.
- Patterson-UTI's Current Report on Form 8-K filed on May 27, 2003.
TMBR/SHARP SEC FILINGS
- TMBR/Sharp's Annual Report on Form 10-K for the fiscal year ended March
31, 2003.
- TMBR/Sharp's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2003.
- TMBR/Sharp's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2003.
78
You may request a copy of these filings, at no cost, by writing to or
telephoning to us at the following address:
Patterson-UTI Energy, Inc. TMBR/Sharp Drilling, Inc.
P.O. Box 1416 4607 West Industrial Boulevard
Snyder, Texas 79550 Midland, Texas 79703
Attention: Jonathan D. Nelson Attention: Patricia R. Elledge
Chief Financial Officer Tel. No.: (432) 699-5050
Tel. No.: (325) 574-6300
79
ANNEX A -- MERGER AGREEMENT
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PATTERSON-UTI ENERGY, INC.,
PATTERSON-UTI ACQUISITION, LLC
AND
TMBR/SHARP DRILLING, INC.
MAY 26, 2003
A-1
TABLE OF CONTENTS
PAGE
-------
ARTICLE 1 THE MERGER..................................................... A-6
1.1 The Merger.................................................. A-6
1.2 Effective Time.............................................. A-6
1.3 Effects of the Merger....................................... A-6
1.4 Articles of Organization and Regulations.................... A-6
1.5 Officers.................................................... A-7
1.6 Further Assurances.......................................... A-7
1.7 Closing..................................................... A-7
ARTICLE 2 EFFECT OF THE MERGER ON THE CAPITAL STOCK AND MEMBERSHIP
INTERESTS OF THE CONSTITUENT COMPANIES; EXCHANGE OF
CERTIFICATES.............................................................. A-7
2.1 Effect on Capital Stock and Membership Interests............ A-7
2.2 Surviving Company to Make Certificates Available............ A-8
2.3 Dividends; Transfer Taxes................................... A-9
2.4 No Fractional Shares........................................ A-9
2.5 Return of Exchange Fund..................................... A-9
2.6 Further Ownership Rights in Company Common Stock............ A-10
2.7 Closing of the Company Transfer Books....................... A-10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES................................. A-10
3.1 Representations and Warranties of the Company............... A-10
3.2 Representations and Warranties of Parent and Sub............ A-21
ARTICLE 4 COVENANTS RELATING TO CONDUCT OF BUSINESS...................... A-25
4.1 Conduct of Business of the Company.......................... A-25
ARTICLE 5 ADDITIONAL AGREEMENTS.......................................... A-27
5.1 Shareholder Approval; Preparation and Filing of the S-4 and
Proxy Statement/ Prospectus................................. A-27
5.2 Access to Information....................................... A-28
5.3 Reasonable Efforts; Notification............................ A-29
5.4 Indemnification............................................. A-30
5.5 Letter of the Company's Accountants......................... A-31
5.6 Report of Independent Petroleum Engineers................... A-31
5.7 Letter of Parent's Accountants.............................. A-32
5.8 Fees and Expenses........................................... A-32
5.9 Company Stock Options....................................... A-32
5.10 Public Announcements........................................ A-32
5.11 Agreement to Defend......................................... A-32
5.12 Nasdaq National Market...................................... A-32
5.13 Employee Benefit Plans...................................... A-32
5.14 Agreements of Others........................................ A-33
ARTICLE 6 CONDITIONS PRECEDENT........................................... A-33
6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-33
6.2 Conditions to Obligations of Parent and Sub................. A-33
6.3 Condition to Obligations of the Company..................... A-34
A-2
PAGE
-------
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER.............................. A-35
7.1 Termination................................................. A-35
7.2 Procedure for Termination, Amendment, Extension or Waiver... A-36
7.3 Effect of Termination....................................... A-36
7.4 Amendment................................................... A-36
7.5 Extension; Waiver........................................... A-36
ARTICLE 8 SPECIAL PROVISIONS AS TO CERTAIN MATTERS....................... A-36
8.1 Takeover Defenses of the Company............................ A-36
8.2 No Solicitation............................................. A-37
8.3 Fee and Expense Reimbursements.............................. A-38
ARTICLE 9 GENERAL PROVISIONS............................................. A-38
9.1 Nonsurvival of Representations and Warranties............... A-38
9.2 Notices..................................................... A-39
9.3 Definitions................................................. A-40
9.4 Interpretation.............................................. A-40
9.5 Counterparts................................................ A-40
9.6 Entire Agreement; No Third-Party Beneficiaries.............. A-40
9.7 Governing Law............................................... A-40
9.8 Assignment.................................................. A-40
9.9 Enforcement of the Agreement................................ A-40
9.10 Performance by Sub.......................................... A-41
9.11 Severability................................................ A-41
Exhibit A -- Form of opinion of counsel to the Company.................... A-1
Exhibit B -- Form of opinion of counsel to Parent and Sub................. B-1
Exhibit C -- Form of Affiliate Agreement.................................. C-1
Schedule I -- Company Disclosure Schedule................................. S-I-1
Schedule II -- Certain Officers of the Company............................ S-II-1
Schedule III -- Certain Officers of Parent................................ S-III-1
A-3
INDEX OF DEFINED TERMS
SECTION
------------
affiliate................................................... 9.3(a)
Agreement................................................... Preamble
Applicable Period........................................... 8.2(a)
Acquisition Proposal........................................ 8.2(a)
Articles of Merger.......................................... 1.2
Cash Consideration.......................................... 2.1(c)
Certificates................................................ 2.2(a)
Closing..................................................... 1.8
Closing Price............................................... 2.4
Code........................................................ Preamble
Company..................................................... Introduction
Company Balance Sheet....................................... 3.1(e)
Company Balance Sheet Date.................................. 3.1(e)
Company Benefit Plan........................................ 3.1(l)
Company Charter Documents................................... 3.1(d)
Company Disclosure Schedule................................. 3.1
Company Financial Advisor................................... 3.1(u)
Company Permits............................................. 3.1(p)
Company Regulatory Documents................................ 5.3(c)
Company Representatives..................................... 8.2
Company SEC Documents....................................... 3.2(e)
Company Shareholder Approval................................ 3.1(j)
Company Share and Company Shares............................ Preamble
Company Stock Option........................................ 5.6
Company's Stock Plans....................................... 3.1(c)
Dissenting Shareholders..................................... Preamble
Dissenting Shares........................................... 2.1(e)
Effective Time.............................................. 1.2
Employer.................................................... 3.1(l)
Environmental Claim......................................... 3.1(o)
Environmental Permits....................................... 3.1(o)
Environmental Laws.......................................... 3.1(o)
ERISA....................................................... 3.1(l)
Exchange Act................................................ 3.1(d)
Exchange Agent.............................................. 2.2(a)
Exchange Fund............................................... 2.2(a)
Exchange Ratio.............................................. 2.1(c)
Fairness Opinion............................................ 3.1(u)
Governmental Entity......................................... 3.1(d)
Hazardous Materials......................................... 3.1(o)
hereof, herein and hereunder................................ 9.4
HSR Act..................................................... 3.1(d)
A-4
SECTION
------------
include, includes or including.............................. 9.4
Indemnified Parties......................................... 5.4(a)
IRS......................................................... 3.1(l)
knowledge................................................... 9.3(b)
Liens....................................................... 3.1(d)
material adverse effect or material adverse change.......... 9.3(c)
Merger...................................................... Preamble
Merger Consideration........................................ 2.1(c)
Nasdaq National Market...................................... 2.4
Notice of Superior Proposal................................. 8.2(b)
Parent...................................................... Introduction
Parent Balance Sheet........................................ 3.2(d)
Parent Balance Sheet Date................................... 3.2(d)
Parent Charter Documents.................................... 3.1(c)
Parent Common Stock......................................... Preamble
Parent Preferred Stock...................................... 3.2(b)
Parent Regulatory Documents................................. 5.3(c)
Parent Rights Agreements.................................... 2.1(c)
Parent SEC Documents........................................ 3.2(d)
person...................................................... 9.3(d)
Proxy Statement/Prospectus.................................. 3.1(d)
S-4......................................................... 3.2(f)
S-8 Registration Statement.................................. 5.6
Sarbanes-Oxley.............................................. 3.1(e)
SARs........................................................ 3.1(c)
SEC......................................................... 3.1(d)
Securities Act.............................................. 3.1(e)
Shareholder Meeting......................................... 3.1(f)
Sub......................................................... Introduction
subsidiary.................................................. 9.3(e)
superior proposal........................................... 8.2(c)
Surviving Company........................................... 1.1
Tax or Taxes................................................ 3.1(m)
Tax Return.................................................. 3.1(m)
TBCA........................................................ 1.1
Trading Day................................................. 2.4
A-5
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is dated as of May 26, 2003, among
Patterson-UTI Energy, Inc., a Delaware corporation ("Parent"), Patterson-UTI
Acquisition, LLC, a Texas limited liability company ("Sub") and a wholly owned
subsidiary of Parent, and TMBR/Sharp Drilling, Inc., a Texas corporation (the
"Company").
WHEREAS, the respective Boards of Directors of each of Parent and the
Company, and the sole member of Sub, have approved the acquisition of the
Company by Parent on the terms and subject to the conditions of this Agreement
and Plan of Merger (this "Agreement");
WHEREAS, in order to effect such acquisition of the Company, the respective
Boards of Directors of each of Parent and the Company, and the sole member of
Sub, have approved the merger of the Company with and into Sub (the "Merger"),
upon the terms and subject to the conditions of this Agreement, whereby each
issued and outstanding share of common stock, $.10 par value per share, of the
Company (singularly, "Company Share", and plurally, "Company Shares") not owned
directly or indirectly by Parent or the Company, except Company Shares held by
persons who object to the Merger and comply with all of the provisions of Texas
law concerning the right of holders of Company Shares to dissent from the Merger
and require appraisal of their Company Shares ("Dissenting Shareholders") will
be converted into the right to receive $9.09 in cash and 0.312166 of a share of
common stock, $0.01 par value per share, of Parent (the "Parent Common Stock");
WHEREAS, the parties intend that the Merger will qualify as a
reorganization described in Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code"); and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof and
in accordance with the Texas Business Corporation Act (the "TBCA"), the Company
shall be merged with and into Sub at the Effective Time (as defined below).
Following the Merger, the separate corporate existence of the Company shall
cease and Sub shall continue as the Surviving Company (the "Surviving Company")
and shall succeed to and assume all the rights and obligations of the Company in
accordance with the TBCA.
1.2 Effective Time. As soon as practicable following the satisfaction or
waiver of the conditions set forth in ARTICLE 6, the parties shall file articles
of merger or other appropriate documents with the Secretary of State of Texas
(the "Articles of Merger") executed in accordance with the relevant provisions
of the TBCA. The Merger shall become effective at such time as the Articles of
Merger are duly filed with the Secretary of State of Texas or at such other time
as Parent, Sub and the Company shall agree should be specified in the Articles
of Merger (the time the Merger becomes effective being the "Effective Time").
1.3 Effects of the Merger. The Merger shall have the effects set forth in
Article 5.06 of the TBCA.
1.4 Articles of Organization and Regulations.
(a) The Articles of Organization of Sub, as in effect at the Effective
Time, shall be the Articles of Organization of the Surviving Company until
thereafter changed or amended as provided therein or by applicable law, provided
that such Articles of Organization shall be amended hereby as of the Effective
Time to change the name of the Surviving Company to TMBR/Sharp Drilling, LLC.
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(b) The regulations of Sub as in effect at the Effective Time shall be the
regulations of the Surviving Company until thereafter changed or amended as
provided therein or by applicable law.
1.5 Officers. The officers of Sub at the Effective Time shall be the
officers of the Surviving Company and shall hold office until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
1.6 Further Assurances. If at any time after the Effective Time, the
Surviving Company shall consider or be advised that any deeds, bills of sale,
assignments or assurances or any other acts or things are necessary, desirable
or proper (a) to vest, perfect or confirm, of record or otherwise, in the
Surviving Company, its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of either of the
constituent corporations to the Merger or (b) otherwise to carry out the
purposes of this Agreement, the Surviving Company and its appropriate officers
and directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of either of the constituent corporations to the Merger,
all such deeds, bills of sale, assignments and assurances and do, in the name
and on behalf of such constituent corporations, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of such constituent corporation and otherwise to carry out
the purposes of this Agreement.
1.7 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Fulbright &
Jaworski L.L.P., 1301 McKinney Street, Suite 5100, Houston, Texas 77010, at
10:00 a.m., Houston time, on the second business day after the day on which the
last of the conditions set forth in ARTICLE 6 shall have been fulfilled or
waived or at such other time and place as Parent, Sub and the Company shall
agree.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK AND MEMBERSHIP INTERESTS
OF THE CONSTITUENT COMPANIES; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock and Membership Interests. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of any of the Company Shares:
(a) Membership Interests of Sub. Each issued and outstanding
membership interest of Sub shall be converted into and become an equivalent
fully paid and nonassessable membership interest of the Surviving Company.
(b) Cancellation of Treasury Shares and Parent Owned Shares. All
Company Shares that are owned directly or indirectly by the Company as
treasury stock and any Company Shares owned by Parent, Sub or any other
wholly owned subsidiary of Parent shall be canceled, and no consideration
shall be delivered in exchange therefor.
(c) Conversion of Company Shares. Subject to the provisions of
Sections 2.1(e), 2.1(f) and 2.4, each Company Share issued and outstanding
immediately prior to the Effective Time (other than shares to be canceled
in accordance with Section 2.1(b)) shall be converted into $9.09 in cash
(the "Cash Consideration") and 0.312166 (the "Exchange Ratio") of a validly
issued, fully paid and nonassessable share of Parent Common Stock
(collectively, the "Merger Consideration"). Pursuant to the Rights
Agreement between Parent and Continental Stock Transfer & Trust Company, as
Rights Agent, dated January 2, 1997, as amended ("Parent Rights
Agreement"), each share of Parent Common Stock shall be accompanied by a
right under the Parent Rights Agreement. All Company Shares, when so
converted, shall no longer be outstanding and shall automatically be
canceled and retired and each holder of a Certificate (as defined in
Section 2.2(a)) representing any such shares shall cease to have any rights
with respect thereto, except the right to receive certain dividends and
other distributions as contemplated by Section 2.3, the Cash Consideration,
shares of Parent Common
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Stock and any cash, without interest, in lieu of fractional shares to be
issued or paid in consideration therefor upon the surrender of such
Certificate in accordance with Section 2.2.
(d) Treatment of Stock Options. Each outstanding Company Stock Option
(as defined in Section 5.9) shall be treated as provided in Section 5.9.
(e) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Company Shares that are outstanding immediately prior to the
Effective Time and that are held by Dissenting Shareholders who shall have
perfected dissenters' rights in accordance with Article 5.12 of the TBCA
(the "Dissenting Shares") shall not be converted into or represent the
right to receive the Merger Consideration (but instead shall be converted
into the right to receive payment from the Surviving Company with respect
to such Dissenting Shares in accordance with the TBCA), unless and until
such Dissenting Shareholder shall have failed to perfect or shall have
effectively withdrawn or lost such holder's rights to appraisal under the
TBCA. If any such Dissenting Shareholder shall have failed to perfect or
shall have effectively withdrawn or lost such holder's rights to appraisal
of such Company Shares under the TBCA, such Dissenting Shareholder's
Company Shares shall thereupon be deemed to have been converted into and to
have become exchangeable for, at the Effective Time, the right to receive,
upon surrender as provided above, the Merger Consideration for the
Certificate or Certificates that formerly evidenced such Company Shares.
The Company shall, prior to the Effective Time, use all reasonable efforts
to give Parent and Sub prompt notice of any written demands for payment of
the fair value of any Company Shares, withdrawals of such demands, and any
other instruments served on the Company pursuant to the TBCA received by
the Company relating to shareholders' rights of appraisal. Except with the
prior written consent of Parent and Sub, the Company shall not voluntarily
make any payment with respect to any demands for appraisal, or settle or
offer to settle any such demands.
(f) Adjustment of Exchange Ratio. In the event of any
reclassification, recapitalization, stock split, stock combination, stock
dividend or share exchange with respect to Parent Common Stock or Company
Shares, as the case may be, (or if a record date with respect to any of the
foregoing should occur) subsequent to the date of this Agreement but prior
to the Effective Time, appropriate and proportionate adjustments, if any,
shall be made to the Exchange Ratio, and all references to the Exchange
Ratio in this Agreement shall be deemed to be the Exchange Ratio as so
adjusted.
2.2 Surviving Company to Make Certificates Available.
(a) Exchange of Certificates. The Company and Parent shall authorize
Continental Stock Transfer & Trust Company, New York, New York (or such other
person or persons as shall be reasonably acceptable to the Company and Parent)
to act as Exchange Agent hereunder (the "Exchange Agent"). As soon as
practicable after the Effective Time, Sub shall deposit with the Exchange Agent
for the benefit of the holders of certificates, which immediately prior to the
Effective Time represented Company Shares (the "Certificates"), the Cash
Consideration and certificates representing the shares of Parent Common Stock
(such Cash Consideration and shares of Parent Common Stock, together with any
dividends or distributions with respect thereto payable as provided in Section
2.3, being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.1(c) in exchange for outstanding Company Shares.
(b) Exchange Procedures. Promptly after the Effective Time, the Exchange
Agent shall mail to each holder of record of a Certificate whose shares were
converted pursuant to Section 2.1 into shares of Parent Common Stock a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon actual and proper
delivery of the Certificates to the Exchange Agent and shall contain
instructions for use in effecting the surrender of the Certificates in exchange
for the Cash Consideration and certificates representing shares of Parent Common
Stock and shall be in such form and contain such other provisions as the Company
and Parent may reasonably specify). Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the Cash Consideration and a certificate representing that
number of whole shares of Parent Common Stock which such holder has the right to
receive pursuant to this Article 2, and the Certificate
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so surrendered shall forthwith be canceled. Until surrendered as contemplated by
this Section 2.2, each Certificate shall, at and after the Effective Time, be
deemed to represent only the right to receive, upon surrender of such
Certificate, the Cash Consideration, the certificate representing the
appropriate number of shares of Parent Common Stock, cash in lieu of fractional
shares, if any, as provided in Section 2.4 and certain dividends and other
distributions as contemplated by Section 2.3.
2.3 Dividends; Transfer Taxes. No dividends or other distributions that
may be declared on or after the Effective Time on Parent Common Stock or are
payable to the holders of record thereof on or after the Effective Time will be
paid to persons entitled by reason of the Merger to receive certificates
representing Parent Common Stock until such persons surrender their
Certificates, as provided in Section 2.2, and no Cash Consideration or cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 2.4 until such holder of such Certificate shall so surrender such
Certificate. Subject to the effect of applicable law, there shall be paid to the
record holder of the certificates representing such Parent Common Stock (a) at
the time of such surrender or as promptly as practicable thereafter, the amount
of any dividends or other distributions theretofore paid with respect to whole
shares of such Parent Common Stock and having a record date on or after the
Effective Time and a payment date prior to such surrender and (b) at the
appropriate payment date or as promptly as practicable thereafter, the amount of
dividends or other distributions payable with respect to whole shares of Parent
Common Stock and having a record date on or after the Effective Time but prior
to surrender and a payment date subsequent to surrender. In no event shall the
person entitled to receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions. If any cash or
certificate representing shares of Parent Common Stock is to be paid to or
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the Certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange shall pay
to the Exchange Agent any transfer or other taxes required by reason of the
issuance of certificates for such shares of Parent Common Stock in a name other
than that of the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not applicable.
2.4 No Fractional Shares. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates pursuant to this Article 2, and no Parent dividend or
other distribution or stock split or combination shall relate to any fractional
security, and such fractional interests shall not entitle the owner thereof to
vote or to any rights of a security holder of Parent. In lieu of any such
fractional securities, each holder of Company Shares who would otherwise have
been entitled to receive a fraction of a share of Parent Common Stock (after
taking into account all Company Shares then held of record by such holder) shall
receive cash (without interest) in an amount equal to the product of such
fractional part of a share of Parent Common Stock multiplied by the Closing
Price and rounded to the nearest cent. As used in this Agreement, (a) "Closing
Price" means the average of the midpoint of the daily high and low trading
prices of Parent Common Stock, rounded to four decimal places, as reported under
Nasdaq National Market Issues Reports in The Wall Street Journal for each of the
first 20 consecutive Trading Days in the period commencing twenty-five (25)
Trading Days prior to the date of the Closing and (b) "Trading Day" means a day
on which the National Association of Securities Dealers, Inc. National Market
("Nasdaq National Market") is open for trading.
2.5 Return of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the former shareholders of the Company for one year
after the Effective Time shall be delivered to Parent, upon demand of Parent,
and any former shareholders of the Company who have not theretofore complied
with this Article 2 shall thereafter look only to Parent for payment of their
claim for Parent Common Stock, Cash Consideration, any cash in lieu of
fractional shares of Parent Common Stock and any dividends or distributions with
respect to Parent Common Stock. None of the Company, Parent nor the Surviving
Company shall be liable to any holder of Company Shares for shares (or dividends
or distributions with respect thereto) or cash in lieu of fractional shares of
Parent Common Stock delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
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2.6 Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash paid pursuant to Sections
2.3 or 2.4) shall be deemed to have been issued in full satisfaction of all
rights pertaining to the Company Shares, subject, however, to the Surviving
Company's obligation to pay any dividends or make any other distribution with a
record date prior to the Effective Time which may have been declared or made by
the Company on Company Shares in accordance with the terms of this Agreement.
2.7 Closing of the Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of Company
Shares shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Company, they shall be canceled and exchanged as
provided in this Article 2.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Sub as follows, subject to any exceptions specified
in the Company Disclosure Schedule in the form attached hereto as Schedule I to
the extent that such exceptions reference a specific section of this Article 3
(the "Company Disclosure Schedule"):
(a) Organization, Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas and has the requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Company is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
other than in such jurisdictions where the failure to be so qualified to do
business or in good standing (individually or in the aggregate) would not
have, or would not reasonably be likely to have, a material adverse effect
(as defined in Section 9.3(c)) on the Company.
(b) No Subsidiaries. The Company has no subsidiaries, and does not
own, directly or indirectly, any capital stock, equity interest or other
ownership interest in any corporation, partnership, association, joint
venture, limited liability company or other entity.
(c) Capital Structure. As of the date hereof, the authorized capital
stock of the Company consists of 50,000,000 Company Shares and 10,000,000
of preferred stock, par value $0.10 per share. At the close of business on
May 23, 2003, (i) 5,494,136 Company Shares and no shares of preferred stock
were issued and outstanding; (ii) 584,250 Company Shares were reserved for
issuance by the Company pursuant to options or stock awards granted under
the following plans:
SHARES
PLAN RESERVED
---- --------
1994 Stock Option Plan...................................... 240,000
1998 Stock Option Plan...................................... 344,250
Directors' Fee Stock Plan................................... 0
(collectively, the "Company's Stock Plans"), (iii) 276,000 Company Shares
were reserved for issuance pursuant to options or stock awards not yet
granted under the Company's Stock Plans and (iv) 1,268,739 Company Shares
were held by the Company in its treasury. The Company has no outstanding
stock appreciation rights ("SARs"). The Company Shares are listed on the
Nasdaq National Market. Except as set forth above, no shares of capital
stock or other equity or voting securities of the Company are reserved for
issuance or are outstanding. All outstanding shares of capital stock of the
Company are, and all Company Shares issuable upon the exercise of stock
options will be when issued thereunder, validly issued, fully paid and
nonassessable and not subject to
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preemptive rights. No capital stock has been issued by the Company since
the Company Balance Sheet Date (as defined in Section 3.1(e)), other than
Company Shares issued pursuant to options outstanding on or prior to such
date in accordance with their terms at such date. Except for options
described above, as of the date hereof there are no outstanding or
authorized securities, options, warrants, calls, rights, commitments,
preemptive rights, agreements, arrangements or undertakings of any kind to
which the Company is a party, or by which it is bound, obligating the
Company to issue, deliver or sell, or cause to be issued, delivered or
sold, any shares of capital stock or other equity or voting securities of,
or other ownership interests in, the Company or obligating the Company to
issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking. There are
not as of the date of this Agreement and there will not be at the Effective
Time any shareholder agreements, voting trusts or other agreements or
understandings to which the Company is a party or by which it is bound
relating to the voting of any shares of the capital stock of the Company.
True and correct copies of all agreements, instruments and other governing
documents relating to the Company's Stock Plans have been furnished to
Parent.
(d) Authority; Non-contravention. The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to
Company Shareholder Approval (as defined in Section 3.1(j)), to consummate
the Merger and other transactions contemplated hereby and to take such
actions, if any, as shall have been taken with respect to the matters
referred to in Section 3.1(j). The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of the Company, subject to Company Shareholder Approval.
This Agreement has been duly and validly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws or judicial decisions now or hereafter in
effect relating to creditors' rights generally and (ii) the remedy of
specific performance and injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought. The execution and delivery of this Agreement by
the Company do not, and the consummation of the transactions contemplated
hereby and compliance with the provisions hereof will not, conflict with,
or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of or "put" right with respect to any
obligation or to loss of a material benefit under, or result in the
creation of any lien, mortgage, pledge, security interest, charge, claim or
other encumbrance of any kind or nature ("Liens") on any of the properties
or assets of the Company under, any provision of (i) the Articles of
Incorporation or bylaws of the Company, each as amended through the date
hereof (the "Company Charter Documents"), (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease, or other agreement,
instrument, permit, concession, franchise or license applicable to the
Company or its properties or assets or (iii) subject to governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation or
arbitration award applicable to the Company or its properties or assets,
other than, in the case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights or Liens that individually or in the aggregate
would not have, or would not reasonably be likely to have, a material
adverse effect on the Company and would not, or would not reasonably be
likely to, materially impair the ability of the Company to perform its
obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
agency, domestic or foreign, including local authorities (a "Governmental
Entity"), is required by or with respect to the Company in connection with
the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby, except
for (i) the filing of a premerger notification and report form by the
Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (ii) the filing with the Securities and Exchange
Commission (the "SEC") of (A) a proxy statement relating to the
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Company Shareholder Approval (such proxy statement as amended or
supplemented from time to time, the "Proxy Statement/Prospectus"), (B)
filings under Rule 14a-12 promulgated under the Exchange Act and (C) such
reports under Section 13(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be filed in connection with this
Agreement and the transactions contemplated hereby, (iii) the filing of the
Articles of Merger with the Secretary of State of Texas with respect to the
Merger as provided in the TBCA and appropriate documents with the relevant
authorities of other jurisdictions in which the Company is qualified to do
business and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained
or made would not have, or would not reasonably be likely to have, a
material adverse effect on the Company.
(e) Company SEC Documents. The Company has filed all required
reports, schedules, forms, statements and other documents with the SEC
since April 1, 1999 (such documents, together with all exhibits and
schedules thereto and documents incorporated by reference therein,
collectively referred to herein as the "Company SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to the Company
SEC Documents, and none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The Company's disclosure controls and procedures (as defined in Sections
13a-14(c) and 15d-14(c) of the Exchange Act) effectively enable the Company
to comply with, and the appropriate officers of the Company to make all
certifications required under, the Sarbanes-Oxley Act of 2002 and the
regulations promulgated thereunder (the "Sarbanes-Oxley Act"). The
financial statements of the Company included in the Company SEC Documents
comply in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments and other
adjustments described therein). There is no liability or obligation of any
kind, whether accrued, absolute, determined, determinable or otherwise, of
the Company that is required by generally accepted accounting principles to
be reflected or reserved against or otherwise disclosed in the most recent
financial statements of the Company included in the Company SEC Documents
which is not so reflected or reserved against that individually or in the
aggregate would have a material adverse effect on the Company. For purposes
of this Agreement, "Company Balance Sheet" means the balance sheet as of
December 31, 2002 set forth in the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 2002 and "Company Balance Sheet Date"
means December 31, 2002. To the Company's knowledge, (i) its appropriate
officers will be able to make the certifications required under the
Sarbanes-Oxley Act with respect to its Annual Report on Form 10-K for the
year ended March 31, 2003 and (ii) the report of KPMG LLP on its audited
financial statements included therein will be unqualified.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company in writing for inclusion or incorporation by
reference in the Registration Statement on Form S-4 to be filed with the
SEC in connection with the issuance of shares of Parent Common Stock in the
Merger (the "S-4") will, at the time the S-4 is filed with the SEC or when
it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
none of the information supplied or to be supplied by the Company in
writing for inclusion or incorporation by reference in the Proxy
Statement/Prospectus relating to the Shareholder Meeting (defined below)
will, at the date the Proxy Statement/Prospectus is mailed to the Company's
shareholders and at the
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time of the Company's shareholders meeting convened for the purpose of
obtaining the Company Shareholder Approval (the "Shareholder Meeting"),
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement/Prospectus, as it relates to the
Shareholder Meeting, will comply as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made by the
Company in this Section 3.1(f) with respect to statements made or
incorporated by reference therein based on information supplied by Parent
or Sub in writing for inclusion or incorporation by reference in the S-4 or
the Proxy Statement/Prospectus.
(g) Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents filed with the SEC prior to the date hereof, since
the Company Balance Sheet Date, the Company has conducted its business only
in the ordinary course consistent with past practice and as permitted by
Article 4, and there has not been
(i) any event, occurrence, circumstance or development that has
had, or has been reasonably likely to have, a material adverse effect
with respect to the Company;
(ii) any declaration, setting aside or payment of any dividend
(whether in cash, stock or property) with respect to any of the
Company's capital stock or any repurchase, redemption or other
acquisition by the Company of any amount of outstanding shares of
capital stock or other equity securities of, or other ownership
interests in, the Company;
(iii) any amendment of any term of any outstanding security of the
Company that would materially increase the obligations of the Company
under such security;
(iv) (A) any incurrence or assumption by the Company of any
indebtedness for borrowed money other than under existing credit
facilities (or any renewals, replacements or extensions thereof that do
not materially increase the commitments thereunder) or otherwise by the
Company in the ordinary course of business consistent with past
practices, or (B) any guaranty, endorsement or other incurrence or
assumption of liability, whether directly, contingently or otherwise, by
the Company for the obligations of any other person, other than in the
ordinary course of business consistent with past practice or in
connection with the obligations of the Company assumed at the Effective
Time;
(v) any creation or assumption by the Company of any Lien on any
material asset of the Company other than in the ordinary course of
business consistent with past practices;
(vi) any making of any loan, advance or capital contribution to or
material investment in any person by the Company other than loans,
advances, capital contributions or investments, in each case not
exceeding $10,000;
(vii) (A) any contract or agreement entered into by the Company on
or prior to the date hereof relating to any material acquisition or
disposition of any assets or business or (B) any modification,
amendment, assignment, termination or relinquishment by the Company of
any contract, license or other right (including any insurance policy
naming it as a beneficiary or loss payable payee) that reasonably would
be likely to have a material adverse effect on the Company, other than
transactions, commitments, contracts or agreements in the ordinary
course of business consistent with past practices and those contemplated
by this Agreement;
(viii) (A) any granting by the Company to any officer of the
Company of any increase in compensation, except in the ordinary course
of business consistent with prior practice or as was required under
employment agreements in effect as of the Company Balance Sheet Date,
(B) any granting by the Company to any such officer of any increase in
severance or termination pay, except as was required under employment,
severance or termination agreements in effect as of the Company Balance
Sheet Date, or (C) except in accordance with past practice as to
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officers, any entry by the Company into any employment, severance or
termination agreement with any such officer;
(ix) any damage, destruction or loss, whether or not covered by
insurance, that has or reasonably could be expected to have a material
adverse effect on the Company;
(x) any change in accounting methods, principles or practices by
the Company materially affecting its assets, liabilities or business,
except insofar as may have been required by a change in generally
accepted accounting principles; or
(xi) any event which, if it had taken place following the execution
of this Agreement, would not have been permitted by Section 4.1.
(h) No Undisclosed Material Liabilities. There have been no
liabilities or obligations, whether pursuant to contracts or otherwise, of
any kind whatsoever incurred by the Company whether accrued, contingent,
absolute, determined, determinable or otherwise, other than:
(i) liabilities or obligations (A) disclosed or provided for in the
Company Balance Sheet or (B) disclosed in the Company SEC Documents
filed with the SEC prior to the date of this Agreement;
(ii) liabilities or obligations which, individually and in the
aggregate, have not had and are not reasonably likely to have a material
adverse effect on the Company; or
(iii) liabilities or obligations under this Agreement or incurred
in connection with the transactions contemplated hereby.
(i) No Default. The Company is not in default or violation (and no
event has occurred which, with notice or the lapse of time or both, would
constitute a default or violation) of any term, condition or provision of
(i) the Company Charter Documents, (ii) any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which
the Company is now a party or by which the Company or any of its properties
or assets may be bound or (iii) any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company, except in the case
of clauses (ii) and (iii) for defaults or violations which in the aggregate
would not have a material adverse effect on the Company.
(j) State Takeover Statutes; Absence of Supermajority Provision. The
Company has taken all action to assure that Article 13.03 of the TBCA shall
not apply to the Merger or any of the other transactions contemplated
hereby. Except for the approval of the Merger by the holders of two-thirds
of the outstanding Company Shares, voting together as a class pursuant to
which each share of Company Share is entitled to one vote ("Company
Shareholder Approval"), no other shareholder action on the part of the
Company is required for approval of the Merger Agreement and the
transactions contemplated hereby. The Company has taken such action with
respect to any other anti-takeover provisions in the Company Charter
Documents to the extent necessary to consummate the Merger on the terms set
forth in this Agreement.
(k) Litigation. There is no suit, action, proceeding or investigation
presently pending or, to the Company's knowledge, threatened against or
affecting the Company that has had or could reasonably be expected to have
a material adverse effect on the Company or prevent, hinder or materially
delay the ability of the Company to consummate the transactions
contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company which has had, or which, insofar as
reasonably can be foreseen, in the future could have, any such effect.
(l) Employee Benefit Matters. As used in this Section 3.1(l), the
term "Employer" shall mean the Company as defined in the preamble of this
Agreement and any member of a controlled group or affiliated service group,
as defined in sections 414(b), (c), (m) and (o) of the Code, or section
4001 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") of which the
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Company is a member. As used in this Section 3.1(l), "Company Benefit Plan"
shall mean (1) any employee welfare benefit plan or employee pension
benefit plan as defined in sections 3(1) and 3(2) of ERISA, including, but
not limited to, a plan that provides retirement income or results in
deferrals of income by employees for periods extending to their
terminations of employment or beyond, and a plan that provides medical,
surgical or hospital care benefits or benefits in the event of sickness,
accident, disability, death or unemployment and (2) any other employee
benefit agreement or arrangement that is not an ERISA plan, including
without limitation, any deferred compensation plan, incentive plan, bonus
plan or arrangement, stock option plan, stock purchase plan, stock award
plan, golden parachute agreement, severance pay plan, dependent care plan,
flexible benefit plan, cafeteria plan, employee assistance program,
scholarship program, employment contract, retention incentive agreement,
noncompetition agreement, consulting agreement, confidentiality agreement,
vacation policy, or other similar plan or agreement or arrangement that has
been maintained by, participated in, or contributed to by the Employer at
any time during the three-year period ending on the date of this Agreement,
or with respect to which the Employer may have any liability.
(i) Section 3.1(l)(i) of the Company Disclosure Schedule contains a
complete and correct list of all Company Benefit Plans. With respect to
each Company Benefit Plan, except as disclosed in Section 3.1(l)(i) of
the Company Disclosure Schedule, to the extent applicable: (A) the plan
is in compliance with the Code and ERISA, including all reporting and
disclosure requirements of Part 1 of Subtitle B of Title I of ERISA; (B)
the appropriate Form 5500 has been timely filed for each year of its
existence or a "top-hat" statement was timely filed with the Department
of Labor pursuant to Department of Labor Regulation section 2520.104-23;
(C) there has been no transaction described in section 406 or section
407 of ERISA or section 4975 of the Code unless exempt under section 408
of ERISA or section 4975 of the Code, as applicable; (D) the bonding
requirements of section 412 of ERISA have been satisfied; (E) there is
no issue pending nor any issue resolved adversely to the Employer which
may subject the Employer to the payment of a penalty, interest, tax or
other amount, (F) each Company Benefit Plan can be unilaterally
terminated or amended by the Employer on no more than 90 days notice;
(G) all contributions or other amounts payable by the Employer as of the
Effective Time with respect to each Company Benefit Plan have either
been paid or accrued in the Employer's most recent financial statements
included in the SEC Documents and (H) no notice has been given or
received by the Employer of an increase or proposed increase in the cost
of the plan. There are no pending or, to the Company's knowledge,
threatened or anticipated claims (other than routine claims for
benefits), actions, arbitrations, audits, investigations or suits by, on
behalf of, against or relating to any Company Benefit Plan or their
related trusts. With respect to each Company Benefit Plan, the Company
has provided to Parent true and correct copies of each of the following
documents:
(A) the Company Benefit Plan and any amendments thereto (or if
the Company Benefit Plan is not a written agreement, a description
thereof);
(B) the three most recent annual Form 5500 reports filed with
the Internal Revenue Service ("IRS");
(C) a written summary of the legal basis for an exemption from
the obligation to file annual Form 5500 reports;
(D) the most recent summary plan description and summaries of
material modifications thereof; and
(E) the funding agreement that provides for the funding of the
Company Benefit Plan.
(ii) Neither the Company nor any entity (whether or not
incorporated) that was at any time during the six years before the date
of this Agreement treated as a single employer together with the Company
under section 414 of the Code or section 4001 of ERISA has ever
maintained, had any obligation to contribute to or incurred any
liability with respect to a pension
A-15
plan that is or was subject to the provisions of Title IV of ERISA or
section 412 of the Code. During the last six years, the Employer has not
maintained, had an obligation to contribute to or incurred any liability
with respect to a voluntary employees beneficiary association that is or
was intended to satisfy the requirements of section 501(c)(9) of the
Code. No plan, arrangement or agreement with any one or more employees
will cause the Employer to have liability for severance pay as a result
of the Merger, except as disclosed in Section 3.1(l)(ii) of the Company
Disclosure Schedule. Except as disclosed in Section 3.1(l)(ii) of the
Company Disclosure Schedule, the Employer does not provide employee
benefits, including without limitation, death, post-retirement medical
or health coverage (whether or not insured) or contribute to or maintain
any employee benefit plan which provides for benefit coverage following
termination of employment except as is required by section 4980B(f) of
the Code or other similar applicable statute, nor has it made any
representations, agreements, covenants or commitments to provide that
coverage. Any employee benefit plan that is disclosed on Section
3.1(l)(ii) of the Company Disclosure Schedule has, at all times since
its inception, provided that the sponsor of the plan has the right to
amend and terminate the plan at any time without the consent of any
party and no statements have been made to plan participants or their
dependents that would lead such persons to reasonably conclude the plan
may not be amended or terminated without their consent. All Company
Benefit Plans that are group health plans have been operated in material
compliance with section 4980B(f) of the Code.
(iii) The Company does not maintain or contribute to, and has not
maintained or contributed to for the three-year period ending on the
date of this Agreement, a pension plan that is intended to qualify under
section 401(a) of the Code or a pension plan described in section 3(2)
of ERISA. Any pension plan described in section 3(2) of ERISA previously
maintained by the Company was terminated in accordance with ERISA and
the Code.
(iv) The transactions contemplated by this Agreement, either alone
or in conjunction with another event (such as termination of employment)
will not accelerate the time of payment of any contribution to a Company
Benefit Plan, accelerate vesting under a Company Benefit Plan, increase
the amount of compensation directly or indirectly due any person from
the Employer, or increase the cost of any Company Benefit Plan.
(v) With respect to any entity (whether or not incorporated) that
is both treated as a single employer together with the Company under
section 414 of the Code or section 4001 of ERISA and located outside of
the United States, any benefit plans maintained by it for the benefit of
its directors, officers, employees or former employees (or any of their
beneficiaries) are in compliance with applicable laws pertaining to such
plans in the jurisdiction of such entity, except where such failure to
be in compliance would not, either individually or in the aggregate,
have a material adverse effect on the Company.
(m) Taxes. The Company has timely filed (taking into account any
extensions) all Tax Returns required to be filed by it on or before the
Effective Time and has timely paid or deposited all Taxes and estimated
Taxes which are required to be paid or deposited on or before the Effective
Time. Each of the Tax Returns filed by the Company is accurate and complete
in all material respects and has been completed in all material respects in
accordance with applicable laws, regulations and rules. The Company Balance
Sheet reflects an adequate reserve for all Taxes for which the Company may
be liable for all taxable periods and portions thereof through the date
thereof. The Company has not waived any statute of limitations in respect
of Taxes of the Company. No material deficiencies for any Taxes have been
proposed, asserted or assessed against the Company, no requests for waivers
of the time to assess any such Taxes have been granted or are pending, and
there are no Tax Liens upon any assets of the Company (except for liens for
ad valorem Taxes not yet delinquent and other Taxes not yet due and
payable). There are no current examinations of any Tax Return of the
Company being conducted by any governmental authority and there are no
settlements of any prior examinations which could reasonably be expected to
adversely affect any taxable period for which the statute of limitations
has not run. The Company is not a party to a Tax
A-16
allocation agreement, Tax sharing agreement, Tax indemnity agreement or
similar agreement or arrangement. The Company has complied in all material
respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes and has in all respects timely withheld
from employee wages and paid over such Taxes to the appropriate
governmental entity. As used herein, "Tax" or "Taxes" shall mean all taxes
of any kind, including, without limitation, those on or measured by or
referred to as federal, state, local or foreign income, gross receipts,
property, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, alternative or added minimum, employment, estimated, excise,
transfer, severance, stamp, occupation, premium, value added, or windfall
profits taxes, customs, duties or similar fees, assessments or charges of
any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any Governmental Entity.
As used herein, "Tax Return" shall mean any return, report, statement or
information required to be filed with any Governmental Entity with respect
to Taxes.
(n) No Excess Parachute Payments. No amount that could be paid
(whether in cash or property or the vesting of property) as a result of any
of the transactions contemplated by this Agreement to any person who is
properly characterized as a "disqualified individual" (as such term is
defined by the IRS in proposed Treasury Regulation section 1.280G-1) under
any employment, severance or termination agreement, other compensation
arrangement or other Company Benefit Plan currently in effect would be
characterized as an "excess parachute payment" (as such term is defined in
section 280G(b)(1) of the Code).
(o) Environmental Matters. Except to the extent that the inaccuracy
of any of the following, individually or in the aggregate, would not have a
material adverse effect on the Company:
(i) the Company holds, and is in compliance with and has been in
compliance with, all Environmental Permits required under applicable
Environmental Laws for the operation or use of its assets and properties
or the conduct its business, and is otherwise in compliance and has been
in compliance with all applicable Environmental Laws;
(ii) there are no existing or, to the knowledge of the Company,
proposed requirements under Environmental Laws that will require the
Company to make capital improvements to its assets or properties or make
other expenditures to remain in compliance with Environmental Laws;
(iii) the Company has not received any Environmental Claim, nor has
any Environmental Claim been threatened against the Company;
(iv) the Company has not entered into or agreed to, or is not
subject to any outstanding judgment, decree, order or consent
arrangement with any governmental authority under any Environmental
Laws, including without limitation those relating to compliance with any
Environmental Laws or to the investigation, cleanup, remediation or
removal of Hazardous Materials;
(v) there are no agreements with any person pursuant to which the
Company would be required to defend, indemnify, hold harmless, or
otherwise be responsible for any violation by or other liability or
expense of such person, or alleged violation by or other liability or
expense of such person, arising out of any Environmental Law;
(vi) to the Company's knowledge, there are no other facts,
circumstances or conditions that are reasonably likely to give rise to
liability of the Company under any Environmental Laws or to result in
the assertion of an Environmental Claim against the Company; and
(vii) the Company has provided the Parent copies of all
environmental audits, assessments or other evaluations, if any, of the
Company or any of its assets, properties or business operations.
A-17
For purposes of this Agreement, the terms below shall have the following
meanings:
"Environmental Claim" means any complaint, notice, claim, demand, action,
suit or judicial, administrative or arbitral proceeding by any person to,
against or involving the Company asserting liability or potential liability
(including without limitation, liability or potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damage, personal injury, fines or penalties) arising
out of, relating to, based on or resulting from (i) the use, presence, disposal,
discharge, emission, release or threatened release of any Hazardous Materials at
any location, (ii) circumstances forming the basis of any violation or alleged
violation of any Environmental Laws or Environmental Permits, or (iii) otherwise
relating to obligations or liabilities of the Company under any Environmental
Law or in connection with Hazardous Materials.
"Environmental Permits" means all permits, licenses, registrations,
exemptions and other governmental authorizations required under Environmental
Laws for the Company to conduct its operations as presently conducted.
"Environmental Laws" means all applicable foreign, federal, state and local
statutes, rules, regulations, ordinances, orders, decrees and common law
relating in any manner to pollution, protection of the environment or the use,
storage, treatment or disposal of Hazardous Materials.
"Hazardous Materials" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction thereof)
and petroleum products, asbestos and asbestos-containing materials, pollutants,
contaminants and all other materials and substances, including but not limited
to radioactive materials, regulated pursuant to any Environmental Laws.
(p) Compliance with Laws; Permits. The Company holds all required,
necessary or applicable federal, state, provincial, local or foreign
permits, licenses, variances, exemptions, orders, franchises and approvals
of all Governmental Entities, except where the failure to so hold would not
have a material adverse effect on the Company (the "Company Permits"). The
Company is in compliance with the terms of the Company Permits except where
the failure to so comply would not have a material adverse effect on the
Company. The Company has not received notice of any revocation or
modification of any of the Company Permits, the revocation or modification
of which would have a material adverse effect on the Company. The Company
has not violated or failed to comply with any statute, law, ordinance,
regulation, rule, permit or order of any Governmental Entity, or any
arbitration award or any judgment, decree or order of any Governmental
Entity, applicable to the Company or its business, assets or operations,
except for violations and failures to comply that could not, individually
or in the aggregate, reasonably be expected to have a material adverse
effect on the Company. To the knowledge of the Company, no investigation or
review by any Governmental Entity with respect to the Company is pending or
threatened, other than those the outcome of which would not have a material
adverse effect on the Company.
(q) Material Contracts and Agreements. Except contracts, agreements
and arrangements made in the ordinary course of business, the Company is
not bound by any oral or written material contract (as defined in Item
601(b)(10) of SEC Regulation S-K) to be performed after the date hereof
that has not been filed with or incorporated by reference in the Company
SEC Documents filed with the SEC prior to the date of this Agreement.
Section 3.1(q) of the Company Disclosure Schedule lists (i) each guaranty
of the Company, (ii) each oral or written contract, agreement and
arrangement to which the Company is a party or any of its assets are bound
which, as of the date of this Agreement, would be required to be filed as
exhibits to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2003 or Quarterly Report on Form 10-Q for the quarterly
period ending June 30, 2003 and (iii) each oral or written contract,
agreement and arrangement between the Company and any employee or
consultant.
(r) Title to Properties.
(i) The Company has good and defensible title to, or valid
leasehold interests in, all of its material assets and properties
purported to be owned by it in the Company SEC Documents,
A-18
except for such assets and properties as are no longer used or useful in
the conduct of its businesses or as have been disposed of in the
ordinary course of business and except for (A) defects in title set
forth on Section 3.1(r)(i) of the Company Disclosure Schedule and (B)
such imperfections of title, easements, rights of way and similar liens
or other matters and failures of title as would not, individually or in
the aggregate, have a material adverse effect on the Company or
materially interfere with the Company's use of such assets or
properties. All such assets and properties, other than assets and
properties in which the Company has leasehold interests, are free and
clear of all Liens, other than those (w) set forth in the Company SEC
Documents and (x) Liens set forth in the Company Disclosure Schedule,
(y) Liens for current Taxes not yet due and payable and except for
Liens, that, in the aggregate, do not and will not materially interfere
with the ability of the Company to conduct business as currently
conducted or as reasonably expected to be conducted.
(ii) Except as would not have a material adverse effect on the
Company, the Company has complied in all material respects with the
terms of all leases to which it is a party and under which it is in
occupancy, and all such leases are in full force and effect. The Company
enjoys peaceful and undisturbed possession under all such leases.
(s) Intellectual Property. The Company owns, or is licensed or
otherwise has the right to use, all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, service
mark rights, copyrights, technology, know-how, processes and other
proprietary intellectual property rights and computer programs which are
material to the condition (financial or otherwise) or conduct of the
business and operations of the Company. To the Company's knowledge, (i) the
use of such patents, patent rights, trademarks, trademark rights, service
marks, service mark rights, trade names, copyrights, technology, know-how,
processes and other proprietary intellectual property rights and computer
programs by the Company in its current operations does not infringe on the
intellectual property rights of any person, subject to such claims and
infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a material adverse effect on the
Company, and (ii) no person is, in any manner that could have a material
adverse effect on the Company, infringing on any right of the Company with
respect to any such patents, patent rights, trademarks, trademark rights,
service marks, service mark rights, trade names, copyrights, technology,
know-how, processes and other proprietary intellectual property rights and
computer programs. No claims are pending or, to the Company's knowledge,
threatened that the Company is infringing or otherwise adversely affecting
the rights of any person with regard to any patent, license, trademark,
trade name, service mark, copyright or other intellectual property right.
(t) Labor Matters.
(i) The Company is not a party to any collective bargaining
agreement or other material contract or agreement with any labor
organization or other representative of employees nor is any such
contract being negotiated;
(ii) there is no material unfair labor practice charge or complaint
pending nor, to the knowledge of the Company, threatened, with regard to
employees of the Company;
(iii) there is no labor strike, material slowdown, material work
stoppage or other material labor controversy in effect, or, to the
knowledge of the Company, threatened against the Company;
(iv) to the knowledge of the Company, as of the date hereof, no
representation question exists, nor are there any campaigns being
conducted to solicit cards from the employees of the Company to
authorize representation by any labor organization;
(v) the Company is not a party to, or is not otherwise bound by,
any consent decree with any governmental authority relating to employees
or employment practices of the Company;
A-19
(vi) the Company has not incurred any liability under, and the
Company has complied in all respects with, the Worker Adjustment
Retraining Notification Act, and no fact or event exists that could give
rise to liability under such Act;
(vii) the Company is in compliance with all applicable agreements,
contracts and policies relating to employment, employment practices,
wages, hours and terms and conditions of employment of the employees,
except where the failure to be in compliance with each such agreement,
contract and policy would not, either singly or in the aggregate, have a
material adverse effect on the Company;
(viii) there is no complaint, lawsuit or proceeding pending or to
the knowledge of the Company, threatened in any forum by any
Governmental Entity, by or on behalf of any present or former employee,
any applicant for employment or any classes of the foregoing alleging
breach of any express or implied contract of employment, any law or
regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the
employment relationship against the Company pending, or, to the best
knowledge of the Company, threatened, that has, or would have, a
material adverse effect on the Company;
(ix) there is no ongoing or pending proceeding or investigation
under, and the Company has not received any notice of a violation of,
the Occupational Safety and Health Act of 1970 and the regulations
promulgated thereunder;
(x) the Company is in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health,
except for non-compliance that does not have, and would not have, a
material adverse effect on the Company; and (x) to the knowledge of the
Company, there is no proceeding, claim, suit, action or governmental
investigation pending or threatened, in respect to which any current or
former director, officer, employee or agent of the Company is or may be
entitled to claim indemnification from the Company (A) pursuant to the
Company Charter Documents (B) as provided in any indemnification
agreement to which the Company is a party; or (C) pursuant to applicable
law that has, or would have, a material adverse effect on the Company;
(xi) there are no worker's compensation claims pending or
threatened against the Company other than claims (A) which are fully
covered by insurance or (B) for which adequate accruals have been made
in the Company Balance Sheet; and
(xii) set forth in Section 3.1(t)(xii) of the Company Disclosure
Schedule is a list of all salaried employees and set forth opposite the
name of each such employee is the annual salary of such employee as of
the date hereof.
(u) Report of Independent Petroleum Engineers. The Company has
furnished Parent with the most recent report of independent petroleum
engineers relating to the Company's oil and gas properties (dated March 31,
2003) and, since the date thereof, to the knowledge of the Company, there
has not been any material adverse change to the Company's oil and gas
properties or the reserve estimates thereof.
(v) Opinion of Financial Advisor. On the date of this Agreement, the
Company has received the written opinion (the "Fairness Opinion") of Energy
Capital Solutions, LLC (the "Company Financial Advisor"), to the effect
that, as of the date of this Agreement, the Merger Consideration is fair to
the holders of Company Shares from a financial point of view, and such
opinion has not been amended, modified, revoked or otherwise withdrawn.
Subject to the prior review and consent by the Company Financial Advisor,
the Fairness Opinion shall be included in the S-4 and the Proxy
Statement/Prospectus.
(w) Insurance. The Company has delivered to Parent an insurance
schedule of the Company's directors' and officers' liability insurance and
primary and excess casualty insurance policies, providing
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coverage for bodily injury and property damage to third parties, including
products liability and completed operations coverage, and worker's
compensation, in effect as of the date hereof. The Company maintains
insurance coverage reasonably adequate for the operation of the business of
the Company (taking into account the cost and availability of such
insurance), and, to the knowledge of the Company, the transactions
contemplated hereby will not materially adversely affect such coverage.
(x) Brokers. No broker, investment banker or other person, other than
the Company Financial Advisor, the fees and expenses of which will be paid
by the Company, is entitled to any broker's, finder's or other similar fee
or commission in connection with the transactions contemplated by this
Agreement based on arrangements made by or on behalf of the Company. The
Company previously has delivered to Parent a true, correct and complete
copy of any engagement or fee agreement between the Company and the Company
Financial Advisor.
(y) Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has unanimously (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger
and the transactions contemplated thereby, are fair to and in the best
interests of the shareholders of the Company, and (ii) resolved to
recommend to the holders of Company Shares that they approve the Merger
Agreement and the transactions contemplated thereby.
(z) Required Vote of Company Shareholders; Vote of Directors and
Officers. The affirmative vote of the holders of not less than two-thirds
of the outstanding Company Shares is required for the Company Shareholder
Approval. No other vote of the shareholders of the Company is required by
law, the Company Charter Documents or otherwise in order for the Company to
consummate the Merger and the other transactions contemplated hereby. Each
director and officer of the Company who has a right to vote any Company
Shares has represented to the Company his or her present intention to vote
such Company Shares in favor of the Merger, this Agreement and the
transactions contemplated thereby and hereby.
3.2 Representations and Warranties of Parent and Sub. Parent and Sub
represent and warrant to the Company as follows:
(a) Organization; Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under laws of its
jurisdiction of incorporation. Sub is a limited liability company duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Parent and Sub have the requisite corporate
or other power and authority to carry on their business as now being
conducted. Parent and Sub are duly qualified to do business and in good
standing in each jurisdiction in which the nature of their business or the
ownership or leasing of their properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so
qualified to do business (individually or in the aggregate) would not have
or would not reasonably be likely to have a material adverse effect on
Parent.
(b) Capital Structure.
(i) As of the date hereof, the authorized capital stock of Parent
consists of 200,000,000 shares of Parent Common Stock and 1,000,000
shares of preferred stock, par value $0.01 per share (the "Parent
Preferred Stock"), 100,000 of which have been designated as Series A
Participating Preferred Stock. At the close of business on May 23, 2003,
(A) 80,471,594 shares of Parent Common Stock were issued and outstanding
and no shares of Parent Preferred Stock were issued or outstanding; (B)
6,652,659 shares of Parent Common Stock were reserved for issuance by
Parent pursuant to options or stock awards granted under Parent's stock
plans, (C) 2,258,936 shares of Parent Common Stock were reserved for
issuance pursuant to options or stock awards not yet granted under the
Parent's stock plans, (D) 325,000 shares of Parent Common Stock were
reserved for issuance pursuant to outstanding warrants, and (E)
1,506,548 shares of Parent Common Stock were held by Parent in its
treasury. Parent has no outstanding SARs. The Parent Common Stock is
listed on the Nasdaq National Market. Except as set forth above, no
shares of capital stock or other equity or voting securities
A-21
of Parent are reserved for issuance or are outstanding. All outstanding
shares of capital stock of Parent are, and all such shares of the Parent
Common Stock issuable upon the exercise of stock options, stock awards
or warrants will be when issued thereunder, validly issued, fully paid
and nonassessable and not subject to preemptive rights. No capital stock
has been issued by Parent since the Parent Balance Sheet Date (as
defined in Section 3.2(d)), other than Parent Common Stock issued
pursuant to options outstanding on or prior to such date in accordance
with their terms at such date. Except for options described above and
warrants described above, as of the date hereof there are no outstanding
or authorized securities, options, warrants, calls, rights, commitments,
preemptive rights, agreements, arrangements or undertakings of any kind
to which Parent or any of its subsidiaries is a party, or by which any
of them is bound, obligating Parent or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, any shares of
capital stock or other equity or voting securities of, or other
ownership interests in, Parent or of any of its subsidiaries or
obligating Parent or any of its subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. There are not as of the date of
this Agreement and there will not be at the Effective Time any
shareholder agreements, voting trusts or other agreements or
understandings to which Parent is a party or by which it is bound
relating to the voting of any shares of the capital stock of Parent.
(ii) The shares of Parent Common Stock issued as part of the Merger
Consideration will, when issued, be duly authorized, validly issued,
fully paid and nonassessable shares of Parent Common Stock, and not
subject to any preemptive rights created by statute, the Parent Charter
Documents, or any agreement to which Parent is a party or is bound, and
will, when issued, be registered under the Securities Act and the
Exchange Act and registered or qualified (or exempt from registration
and qualification requirements) under all applicable state "Blue Sky"
securities laws.
(iii) As of the date hereof, all of the issued and outstanding
membership interests of Sub are owned by Parent. Sub was formed solely
for the purpose of participating in the Merger, has no assets and has
conducted no activities to date, other than in connection with the
Merger.
(c) Authority; Non-contravention. Parent and Sub have the requisite
corporate and other power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Parent and Sub and the consummation by Parent and Sub
of the transactions contemplated hereby have been duly authorized by all
necessary corporate or other action on the part of Parent and Sub. This
Agreement has been duly executed and delivered by Parent and Sub and
constitutes a valid and binding obligation of Parent and Sub, enforceable
against Parent and Sub in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws or judicial decisions now or hereafter in
effect relating to creditors' rights generally and (ii) the remedy of
specific performance and injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought. The execution and delivery of this Agreement by
Parent and Sub do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with respect to
any obligation or to loss of a material benefit under, or result in the
creation of any Lien on any of the properties or assets of Parent or any of
its subsidiaries under, any provision of (i) the Restated Certificate of
Incorporation or bylaws of Parent, each as amended through the date hereof
(the "Parent Charter Documents") or any provision of the comparable
organizational documents of its subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Parent
or Sub or any of their subsidiaries or their respective properties or
assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation or arbitration award applicable
to
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Parent or any of its subsidiaries or their respective properties or assets,
other than, in the case of clause (ii), any such conflicts, violations or
defaults, rights or Liens that individually or in the aggregate would not
have, or would not be reasonably likely to have, a material adverse effect
on Parent or Sub and would not, or would not be reasonably likely to,
materially impair the ability of Parent and Sub to perform their respective
obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Parent or Sub or any
of their subsidiaries in connection with the execution and delivery of this
Agreement by Parent and Sub or the consummation by Parent and Sub of the
transactions contemplated hereby, except for (i) the filing by Parent of a
premerger notification and report form under the HSR Act, (ii) filings in
connection, or in compliance, with the provisions of the Securities Act,
(iii) the filing with the SEC of such reports under Sections 13 of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby and (iv) filings in Texas by Sub in
connection with the Merger.
(d) Parent SEC Documents. Parent has filed all required reports,
schedules, forms, statements and other documents with the SEC since January
1, 2000 (such documents, together with all exhibits and schedules thereto
and documents incorporated by reference therein, collectively referred to
herein as the "Parent SEC Documents"). As of their respective dates, the
SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to the Parent
SEC Documents, and none of the Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Parent's disclosure controls and procedures (as defined in Sections
13a-14(c) and 15d-14(c) of the Exchange Act) effectively enable Parent to
comply with, and the appropriate officers of Parent to make all
certifications required under, the Sarbanes-Oxley Act. The consolidated
financial statements of Parent included in the Parent SEC Documents comply
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the
consolidated financial position of Parent and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations
and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and other
adjustments described therein). There is no liability or obligation of any
kind, whether accrued, absolute, determined, determinable or otherwise, of
Parent or any subsidiary of Parent that is required by generally accepted
accounting principles to be reflected or reserved against or otherwise
disclosed in the most recent financial statements of Parent included in the
Parent SEC Documents which is not so reflected or reserved against that
individually or in the aggregate would have a material adverse effect on
Parent. For purposes of this Agreement, "Parent Balance Sheet" means the
balance sheet as of March 31, 2003 set forth in Parent's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2003 and "Parent Balance Sheet
Date" means March 31, 2003.
(e) Information Supplied. None of the information supplied or to be
supplied by Parent in writing for inclusion or incorporation by reference
in the S-4 will, at the time the S-4 is declared or ordered effective under
the Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The S-4 will comply as a form in all
material respects with the provisions of the Securities Act and the rules
and regulations promulgated by the SEC thereunder. Notwithstanding the
foregoing, Parent makes no representation or warranty with respect to any
information supplied by the Company which is contained in the S-4 or the
Proxy Statement/Prospectus.
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(f) Absence of Material Adverse Change. Since the Parent Balance
Sheet Date, there has been no material adverse change in the business,
assets, operations or condition, financial or otherwise, of Parent and its
subsidiaries, taken as a whole.
(g) No Undisclosed Material Liabilities. Since the Parent Balance
Sheet Date, there have been no liabilities or obligations, whether pursuant
to contracts or otherwise, of any kind whatsoever incurred by Parent or any
subsidiary of Parent whether accrued, contingent, absolute, determined,
determinable or otherwise, other than:
(i) liabilities or obligations (A) disclosed or provided for in the
Parent Balance Sheet or (B) disclosed in the Parent SEC Documents filed
with the SEC prior to the date of this Agreement;
(ii) liabilities or obligations which, individually and in the
aggregate, have not had and are not reasonably likely to have a material
adverse effect on Parent; or
(iii) liabilities or obligations under this Agreement or incurred
in connection with the transactions contemplated hereby.
(h) Compliance with Laws; Permits. Parent and its subsidiaries hold
all required, necessary or applicable federal, state, provincial, local or
foreign permits, licenses, variances, exemptions, orders, franchises and
approvals of all Governmental Entities, except where the failure to so hold
would not have a material adverse effect on Parent (the "Parent Permits").
Parent and its subsidiaries are in compliance with the terms of the Parent
Permits except where the failure to so comply would not have a material
adverse effect on Parent. Neither the Parent nor any of its subsidiaries
has received notice of any revocation or modification of any of the Parent
Permits, the revocation or modification of which would have a material
adverse effect on Parent. Neither Parent nor any of its subsidiaries has
violated or failed to comply with any statute, law, ordinance, regulation,
rule, permit or order of any Governmental Entity, or any arbitration award
or any judgment, decree or order of any Governmental Entity, applicable to
Parent or any of its subsidiaries or their respective business, assets or
operations, except for violations and failures to comply that could not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on Parent. To the knowledge of Parent, no investigation or
review by any Governmental Entity with respect to Parent or any of its
subsidiaries is pending or threatened, other than those the outcome of
which would not have a material adverse effect on Parent.
(i) Brokers. No broker, investment banker or other person, is
entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub, including any fee for
any opinion rendered by any investment banker.
(j) Litigation. There is no suit, action, proceeding or investigation
presently pending or, to the knowledge of Parent, threatened against or
affecting Parent or any of its subsidiaries that could reasonably be
expected to prevent, hinder or materially delay the ability of Parent to
consummate the transactions contemplated by this Agreement, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against Parent or any of its subsidiaries having,
or which, insofar as reasonably can be foreseen, in the future could have,
any such effect.
(k) Financing. Parent and Sub have sufficient funds available on hand
and under existing financing facilities to permit Sub to pay the Cash
Consideration to each holder of Company Shares at the Effective Time.
(l) Tax Matters. Parent and Sub each have timely filed all federal,
state, local and other tax returns and reports required to be filed under
applicable law, except as individually or in the aggregate would not have a
material adverse effect on Parent. All such tax returns were true and
correct in all material respects when filed. Parent and Sub each have paid
all required taxes (including any
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additions to taxes, penalties and interest related thereto) due and payable
on or before the date hereof, except as individually or in the aggregate
would not have a material adverse effect on Parent.
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Conduct of Business of the Company.
(a) Ordinary Course. During the period from the date of this Agreement to
the Effective Time (except as otherwise specifically contemplated by the terms
of this Agreement), the Company shall carry on its businesses in the usual,
regular and ordinary course in substantially the same manner as conducted at the
date hereof, which are being undertaken in the ordinary course of business, and,
to the extent consistent therewith, use all reasonable efforts to preserve
intact its current business organizations, keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers, licensors, licensees, distributors and others having business
dealings with the Company, in each case consistent with past practice, to the
end that their goodwill and ongoing businesses shall be unimpaired to the
fullest extent possible at the Effective Time. Without limiting the generality
of the foregoing, and except as otherwise expressly contemplated by this
Agreement, prior to the Effective Time the Company shall not, without the prior
written consent of Parent and Sub:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (B) split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock or (C) purchase, redeem or otherwise acquire
any shares of capital stock of the Company or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber
any of its capital stock or any securities convertible into, or any rights,
warrants or options to acquire, any such capital stock (other than the
issuance of Company Shares upon the exercise of options outstanding on the
date of this Agreement (as identified and described in Section 3.1(c)) in
accordance with their current terms);
(iii) amend the Company Charter Documents;
(iv) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial portion of the stock, or other ownership
interests in, or assets of, or by any other manner, any business or any
corporation, partnership, association, joint venture, limited liability
company or other entity or division thereof or (B) any assets that would be
material, individually or in the aggregate, to the Company, except
purchases of supplies and inventory in the ordinary course of business
consistent with past practice;
(v) sell, lease, mortgage, pledge, grant a Lien on or otherwise
encumber or dispose of any of its properties or assets, except (A) in the
ordinary course of business consistent with past practice and (B) other
transactions involving not in excess of $100,000 in the aggregate;
(vi) (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company,
guarantee any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of
the foregoing, except for (1) working capital borrowings under revolving
credit facilities incurred in the ordinary course of business, (2)
borrowings to fund the payments required by Section 5.9 and (3)
indebtedness incurred to refund, refinance or replace indebtedness for
borrowed money outstanding on the date hereof, or (B) make any loans,
advances or capital contributions to, or investments in, any other person,
other than employees of the Company in the ordinary course of business
consistent with past practice;
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(vii) make or incur any capital expenditure (including expenditures
for oil and gas exploration and development), except in the ordinary course
of business and, in the case of any single expenditure in excess of
$200,000 and any expenditures in the aggregate in excess of $500,000, as
previously disclosed in writing to Parent;
(viii) make any material election relating to Taxes or settle or
compromise any material Tax liability;
(ix) take any extraordinary action that causes the Company's net
operating loss carryforwards to be reduced;
(x) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms of
liabilities reflected or reserved against in, or contemplated by, the
Company Balance Sheet;
(xi) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company is a
party;
(xii) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(xiii) enter into any new collective bargaining agreement;
(xiv) change any accounting principle used by it, except as required
by regulations promulgated by the SEC or the Financial Accounting Standards
Board;
(xv) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or compromises:
(A) of litigation where the amount paid in settlement or compromise does
not exceed $100,000, or (B) in consultation and cooperation with Parent,
and, with respect to any such settlement, with the prior written consent of
Parent;
(xvi) (A) enter into any new, or amend any existing, severance
agreement or arrangement, deferred compensation arrangement or employment
agreement with any officer, director or employee, except that, the Company
may hire additional employees to the extent deemed by its management to be
in the best interests of the Company; provided, that the Company may not
enter into any employment or severance agreement or any deferred
compensation arrangement with any such additional employees, (B) adopt any
new incentive, retirement or welfare benefit arrangements, plans or
programs for the benefit of current, former or retired employees or amend
any existing Company Benefit Plan (other than amendments required by law or
to maintain the tax qualified status of such plans under the Code) or (C)
grant any increases in employee compensation, other than in the ordinary
course or pursuant to promotions, in each case consistent with past
practice (which shall include normal individual periodic performance
reviews and related compensation and benefit increases and bonus payments
consistent with past practices) or (D) grant any stock options or stock
awards; or
(xvii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Changes in Employment Arrangements. The Company shall not adopt or
amend (except as may be required by law) any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or other
arrangement (including any Company Benefit Plan) for the benefit of any person,
increase the compensation or fringe benefits of any person, or, except as
provided in an existing Company Benefit Plan or in the ordinary course of
business consistent with past practice, increase the compensation or fringe
benefits of any person or pay any benefit not required by any existing plan,
arrangement or agreement.
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(c) Other Actions. The Company shall not take any action that would, or
that could reasonably be expected to, result in any of the representations and
warranties of the Company set forth in this Agreement becoming untrue.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Shareholder Approval; Preparation and Filing of the S-4 and Proxy
Statement/Prospectus.
(a) The Company will, as soon as practicable following the execution of
this Agreement, duly call, give notice of, convene and hold the Shareholder
Meeting for the purpose of approving and adopting this Agreement and approving
related matters. The Company will, through its Board of Directors, recommend to
its shareholders approval of this Agreement, shall not change such
recommendation and shall use its best efforts to obtain approval of this
Agreement and related matters by its shareholders, except to the extent that the
Board of Directors of the Company shall have withdrawn its approval or
recommendation of this Agreement or the Merger as permitted by Section 8.2. The
Company shall use all reasonable efforts to hold the Shareholder Meeting as soon
as practicable after the date upon which the S-4 becomes effective.
(b) Promptly after the date hereof, Parent and the Company shall prepare
and the Company shall file with the SEC the Proxy Statement/Prospectus for use
in connection with the solicitation of proxies from the Company's shareholders
in favor of the adoption and approval of this Agreement and the approval of the
Merger at the Shareholder Meeting, and Parent and the Company shall prepare and
Parent shall file with the SEC the S-4 for the offer and sale of the Parent
Common Stock pursuant to the Merger and in which the Proxy Statement/Prospectus
will be included as a prospectus. Each of Parent and the Company shall provide
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or
its counsel, may be required or appropriate for inclusion in the Proxy
Statement/Prospectus and the S-4, or in any amendments or supplements thereto,
and to cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Proxy Statement/Prospectus and the S-4. Each
of Parent and the Company shall use all commercially reasonable efforts to have
the S-4 declared or ordered effective under the Securities Act as promptly as
practicable after such filing with the SEC. The Company shall use all
commercially reasonable efforts to cause the Proxy Statement/Prospectus to be
mailed to the Company's shareholders as promptly as practicable after the S-4 is
declared or ordered effective under the Securities Act. Parent shall also take
any action (other than qualifying to do business in any jurisdiction in which it
is not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the issuance of Parent Common Stock in the Merger and the Company shall
furnish all information concerning the Company and the holders of capital stock
of the Company as may be reasonably requested in connection with any such action
and the preparation, filing and distribution of the Proxy Statement/Prospectus.
No filing of, or amendment or supplement to, or correspondence to the SEC or its
staff with respect to, the S-4 will be made by Parent, or with respect to the
Proxy Statement/Prospectus will be made by the Company, without providing the
other party hereto a reasonable opportunity to review and comment thereon.
Parent will advise the Company, promptly after it receives notice thereof, of
the time when the S-4 has become effective or any supplement or amendment has
been filed, the issuance of any stop order, the suspension of the qualification
of the Parent Common Stock issuable in connection with the Merger for offering
or sale in any jurisdiction, or any request by the SEC for amendment of the S-4
or comments thereon and responses thereto or requests by the SEC for additional
information. The Company shall advise Parent, promptly after it receives notice
thereof, of any request by the SEC for the amendment of the Proxy
Statement/Prospectus or comments thereon and responses thereto or requests by
the SEC for additional information. If at any time prior to the Effective Time
any information relating to Parent or the Company, or any of their respective
affiliates, officers or directors, should be discovered by Parent or the Company
which should be set forth in an amendment or supplement to either of the S-4 or
the Proxy Statement/Prospectus, so that any of such documents would
A-27
not include any misstatement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, the party which discovers such
information shall promptly notify the other party or parties hereto, as
applicable, and an appropriate amendment or supplement to the S-4 and/or the
Proxy Statement/Prospectus describing such information shall be promptly filed
with the SEC and, to the extent required by applicable law, disseminated to the
shareholders of the Company. Each of the parties hereto shall cause the Proxy
Statement/Prospectus to comply as to form and substance to such party in all
material respects with the applicable requirements of the Exchange Act, the
Securities Act and the rules of the Nasdaq National Market.
5.2 Access to Information.
(a) During the period from the date hereof to the Effective Time, except to
the extent otherwise required by United States regulatory considerations:
(i) The Company shall, and shall cause each of its officers,
employees, counsel, financial advisors and other representatives to, afford
to Parent, and to Parent's accountants, counsel, financial advisors and
other representatives, reasonable access to the Company's properties,
books, contracts, commitments and records for the purpose of conducting
such inspections and evaluations, including environmental inspections and
assessments, as Parent deems appropriate, and, during such period, the
Company shall, and shall cause each of its officers, employees, counsel,
financial advisors and other representatives to, furnish promptly to
Parent,
(A) a copy of each report, schedule, registration statement and
other document filed by the Company during such period pursuant to the
requirements of federal or state securities laws; and
(B) all other information concerning its business, properties,
financial condition, operations and personnel as Parent may from time to
time reasonably request so as to afford Parent a reasonable opportunity
to make at its sole cost and expense such review, examination and
investigation of the Company as Parent may reasonably desire to make.
The Company agrees to advise Parent of all material developments with
respect to the Company and its assets and liabilities.
(ii) The Company agrees to request KPMG LLP to permit Parent's
accountants to review and examine the work papers of KPMG LLP with respect
to the Company, and the officers of the Company will furnish to Parent such
financial and operating data and other information with respect to the
business and properties of the Company as Parent shall from time to time
reasonably request.
(iii) The Company shall notify Parent promptly of any notices from or
investigations by Governmental Entities relating to the Company's business
or assets or the consummation of the Merger. Parent shall notify the
Company promptly of any notices from or investigations by Governmental
Entities that could materially affect Parent's consummation of the Merger.
(b) Except as required by law, each of the Company and Parent shall, and
shall cause its respective directors, officers, employees, accountants, counsel,
financial advisors and representatives and affiliates to, (i) hold in
confidence, unless compelled to disclose by judicial or administrative process,
or, in the opinion of its counsel, by other requirements of law, all nonpublic
information concerning the other party furnished in connection with the
transactions contemplated by this Agreement until such time as such information
becomes publicly available (otherwise than through the wrongful act of such
person), (ii) not release or disclose such information to any other person,
except in connection with this Agreement to its auditors, attorneys, financial
advisors, other consultants and advisors, and (iii) not use such information for
any competitive or other purpose other than with respect to its consideration
and evaluation of the transactions contemplated by this Agreement. Any
investigation by any party of the assets and business of the other party and its
subsidiaries shall not affect any representations and warranties hereunder, any
conditions to the obligations of either party or either party's right to
terminate this Agreement as provided in Article 7.
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(c) In the event of the termination of this Agreement, each party promptly
will deliver to the other party (and destroy all electronic data reflecting the
same) all documents, work papers and other material (and any reproductions or
extracts thereof and any notes or summaries thereto) obtained by such party or
on its behalf from such other party or its subsidiaries as a result of this
Agreement or in connection therewith so obtained before or after the execution
hereof.
5.3 Reasonable Efforts; Notification.
(a) Reasonable Efforts. Upon the terms and subject to the conditions set
forth in this Agreement, except to the extent otherwise required by United
States regulatory considerations and otherwise provided in this Section 5.3,
each of the parties agrees to use commercially reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger, and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (iv) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by this Agreement; provided, however, that neither of the parties shall be under
any obligation to take any action to the extent that the Board of Directors of
such party shall conclude in good faith, after consultation with and based upon
the written advice of their respective outside legal counsel (which advice in
each case need not constitute an opinion), that such action would cause a breach
of that Board of Directors' fiduciary obligations under applicable law. In
connection with and without limiting the foregoing, each of the Company and
Parent and its respective Board of Directors shall (i) take all action necessary
to ensure that no state takeover statute or similar statute or regulation is or
becomes applicable to the Merger, (ii) if any state takeover statute or similar
statute or regulation becomes applicable to the Merger, take all action
necessary to ensure that the Merger may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger and (iii)
cooperate with each other in the arrangements for refinancing any indebtedness
of, or obtaining any necessary new financing for, the Company and the Surviving
Company.
(b) Notification. The Company shall give prompt notice to Parent, and
Parent or Sub shall give prompt notice to the Company, of (i) any representation
or warranty made by it contained in this Agreement becoming untrue or inaccurate
in any respect or (ii) the failure by it to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement; provided, however, that no such
notification shall affect the representations or warranties or covenants or
agreements of the parties or the conditions to the obligations of the parties
hereunder.
(c) (i) Each of the parties hereto shall file a premerger notification and
report form under the HSR Act with respect to the Merger as promptly as
reasonably possible following execution and delivery of this Agreement. Each of
the parties agrees to use commercially reasonable efforts to promptly respond to
any request for additional information pursuant to Section (e)(1) of the HSR
Act.
(ii) The Company will furnish to Fulbright & Jaworski L.L.P., counsel
to Parent and Sub, copies of all correspondence, filings or communications
(or memoranda setting forth the substance thereof (collectively, "Company
Regulatory Documents")) between the Company, or any of its respective
representatives, on the one hand, and any Governmental Entity, or members
of the staff of such agency or authority, on the other hand, with respect
to this Agreement or the Merger; provided, however, that (A) with respect
to documents and other materials filed by or on behalf of the
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Company with the Antitrust Division of the United States Department of
Justice, the United States Federal Trade Commission, or any state attorneys
general that are available for review by Parent and Sub, copies will not be
required to be provided to Fulbright & Jaworski L.L.P. and (B) with respect
to any Company Regulatory Documents (1) that contain any information which,
in the reasonable judgment of Haynes and Boone, LLP, should not be
furnished to Parent or Sub because of antitrust considerations or (2)
relating to a request for additional information pursuant to Section (e)(1)
of the HSR Act, the obligation of the Company to furnish any such Company
Regulatory Documents to Fulbright & Jaworski L.L.P. shall be satisfied by
the delivery of such Company Regulatory Documents on a confidential basis
to Fulbright & Jaworski L.L.P. pursuant to a confidentiality agreement in
form and substance reasonably satisfactory to Parent. Except as otherwise
required by United States regulatory considerations, Parent and Sub will
furnish to Haynes and Boone, LLP, counsel to the Company, copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof (collectively, "Parent Regulatory Documents")) between
Parent, Sub or any of their respective representatives, on the one hand,
and any Governmental Entity, or member of the staff of such agency or
authority, on the other hand, with respect to this Agreement or the Merger;
provided, however, that (A) with respect to documents and other materials
filed by or on behalf of Parent or Sub with the Antitrust Division of the
United States Department of Justice, the United States Federal Trade
Commission, or any state attorneys general that are available for review by
the Company, copies will not be required to be provided to Haynes and
Boone, LLP, and (B) with respect to any Parent Regulatory Documents (1)
that contain information which, in the reasonable judgment of Fulbright &
Jaworski L.L.P., should not be furnished to the Company because of
antitrust considerations or (2) relating to a request for additional
information pursuant to Section (e)(1) of the HSR Act, the obligation of
Parent and Sub to furnish any such Parent Regulatory Documents to Haynes
and Boone, LLP shall be satisfied by the delivery of such Parent Regulatory
Documents on a confidential basis to Haynes and Boone, LLP pursuant to a
confidentiality agreement in form and substance reasonably satisfactory to
the Company.
(iii) At the election of Parent, the Company and Parent shall use
reasonable efforts to defend all litigation under the federal or state
antitrust laws of the United States which if adversely determined would, in
the reasonable opinion of Parent (based on the advice of outside counsel),
be likely to result in the failure of the condition set forth in Section
6.1(c) not being satisfied, and to appeal any order, judgment or decree,
which if not reversed, would result in the failure of such condition.
Notwithstanding the foregoing, nothing contained in this Agreement shall be
construed so as to require Parent, Sub or the Company, or any of their
respective subsidiaries or affiliates, to sell, license, dispose of, or
hold separate, or to operate in any specified manner, any assets or
businesses of Parent, Sub, the Company or the Surviving Company (or to
require Parent, Sub, the Company or any of their respective subsidiaries or
affiliates to agree to any of the foregoing). The obligations of each party
under Section 5.3(a) to use commercially reasonable efforts with respect to
antitrust matters shall be limited to compliance with the reporting
provisions of the HSR Act and with its obligations under this Section
5.3(c).
5.4 Indemnification.
(a) From and after the Effective Time, Parent and the Surviving Company
shall, indemnify, defend and hold harmless each person who is now, or has been
at any time prior to the date hereof or who becomes prior to the Effective Time,
an officer or director of the Company or an officer, director or employee of the
Company who acts as a fiduciary under any Company Benefit Plans (but, with
respect to such persons, only to the extent, if any, indemnified by the Company
as of the date hereof) (the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorneys' fees), liabilities or judgments
or amounts that are paid in settlement with the approval of the indemnifying
party (which approval shall not be unreasonably withheld) of or in connection
with any threatened or actual claim, action, suit, proceeding or investigation
based in whole or in part on or arising in whole or in part out of the fact that
such person is or was a director, officer or such employee of the Company
whether pertaining to any matter existing or occurring at or prior to the
Effective Time and whether asserted or
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claimed prior to, or at or after, the Effective Time (including arising out of
or relating to the Merger, the consummation of the transactions contemplated
herein, and any action taken in connection therewith). Parent and Surviving
Company shall advance promptly reasonable litigation expenses incurred by such
Indemnified Parties in connection with investigating, preparing and defending
any action arising out of such acts or omissions; provided the Indemnified
Parties provide the Surviving Company with the written affirmation and written
understanding provided in Section 2.02-1.K. of the TBCA. Any Indemnified Party
wishing to claim indemnification under this Section 5.4, upon learning of any
such claim, action, suit, proceeding or investigation, promptly shall notify the
Company (or after the Effective Time, Parent and the Surviving Company), but the
failure so to notify shall not relieve a party from any liability that it may
have under this Section 5.4, except to the extent such failure materially
prejudices such party. Parent or the Surviving Company shall have the right to
assume the defense thereof. If Parent or the Surviving Company does not assume
the defense, the Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict between the positions
of any two or more Indemnified Parties. The Indemnified Party shall cooperate in
the defense of any such matter. Parent shall not be liable for any settlement
effected without Parent's prior written consent.
(b) Parent shall use commercially reasonable efforts to purchase and
maintain in effect for the benefit of the Indemnified Parties for a period of
six years after the Effective Time, directors' and officers' liability insurance
of at least the same coverage and amounts containing terms and conditions that
are no less advantageous in any material respect to the Indemnified Parties than
that maintained by the Company as of the date of this Merger Agreement with
respect to matters arising before the Effective Time, provided that Parent shall
not be required to pay an annual premium for such insurance in excess of two
times the last annual premium paid by the Company prior to the date hereof
(which the Company represents and warrants to have been $137,500 in the
aggregate), but in such case shall purchase as much coverage as possible for
such amount.
(c) All rights to indemnification for acts or omissions occurring prior to
the Effective Time now existing in favor of the Indemnified Parties as provided
in the Company Charter Documents and in any indemnification agreements to which
they are parties shall survive the Merger, and the Surviving Company shall
continue such indemnification rights for acts or omissions prior to the
Effective Time in full force and effect in accordance with their terms and
Parent shall be financially responsible therefor.
(d) If the Surviving Company or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or Surviving Company or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in each such case, proper provisions shall be made, and Parent
shall cause them to be so made, so that the successors and assigns of the
Surviving Company, which, in the reasonable opinion of the Surviving Company,
shall be financially responsible persons or entities, assume the obligations set
forth in this Section 5.4.
(e) The provisions of this Section 5.4 are intended to be for the benefit
of, and shall be enforceable by, the parties hereto and each Indemnified Party,
his or her heirs and representatives.
5.5 Letter of the Company's Accountants. The Company shall use
commercially reasonable efforts to cause to be delivered to Parent and Sub a
letter of KPMG LLP, the Company's independent public accountants, dated a date
within two business days before the date on which the Registration Statement
shall become effective and addressed to Parent and Sub and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
5.6 Report of Independent Petroleum Engineers. The Company shall use
commercially reasonable efforts to (a) include in the S-4 a report of Joe C.
Neal & Associates, independent petroleum engineers, customary in scope and
substance for reports of independent petroleum engineers, regarding the
Company's oil and gas properties and (b) cause such independent engineers to be
named as experts in, and provide the necessary consent to be included as an
exhibit to, the S-4.
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5.7 Letter of Parent's Accountants. Parent shall use commercially
reasonable efforts to cause to be delivered to the Company a letter of
PricewaterhouseCoopers LLP, Parent's independent public accountants, dated a
date within two business days before the date on which the Registration
Statement shall become effective and addressed to the Company and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
5.8 Fees and Expenses. Except as provided in ARTICLE 8, all fees and
expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees
or expenses, whether or not the Merger is consummated; provided, however, that
all fees and expenses incurred in connection with the filings and related
matters under the HSR Act shall be borne equally by Parent and the Company.
5.9 Company Stock Options. After approval of the Merger Agreement by the
shareholders of the Company but before consummation of the Merger, the Company
shall have cancelled or otherwise terminated all outstanding options to purchase
Company Shares granted pursuant to the Company's Stock Plans, including such
options as have not yet vested, by paying to the holders of such options in
consideration of the cancellation or termination thereof an amount in cash for
each Company Share subject to the option equal to the difference between $20.20
and the exercise price per Company Share under the option. The Company shall
withhold from such payment and pay over to the appropriate taxing authorities
all amounts the Company is required to withhold under federal and, if
applicable, state tax laws. As soon as practicable after the date hereof, the
Board of Directors of the Company and the Committee of the Board of Directors of
the Company administering the Company's Stock Plans shall take all action
necessary to accomplish the foregoing.
5.10 Public Announcements. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except
that each party may respond to questions from shareholders, respond to inquiries
from financial analysts and media representatives in a manner consistent with
its past practice and make such disclosure as may be required by applicable law
or by obligations pursuant to any listing agreement with the Nasdaq National
Market without prior consultation to the extent such consultation is not
reasonably practicable. The parties agree that the initial press release or
releases to be issued in connection with the execution of this Agreement shall
be mutually agreed upon prior to the issuance thereof.
5.11 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal administrative proceeding is commenced that questions the validity
or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
reasonable efforts to defend against and respond thereto.
5.12 Nasdaq National Market. Parent shall use its reasonable best efforts
to list on the Nasdaq National Market, upon official notice of issuance, the
shares of Parent Common Stock to be issued in connection with the Merger.
5.13 Employee Benefit Plans. For purposes of eligibility to participate
in and vesting in benefits under each Parent employee benefit plan provided to
the officers and employees of the Company, individuals who are officers and
employees of the Company at the Effective Time who continue as employees of
Parent or Sub, will be immediately eligible to participate in any qualified plan
maintained and sponsored by Parent and will be credited with vesting service for
their years of service with the Company. Parent will take such actions as are
necessary so that each employee of the Company who continues as an employee of
Parent or Sub shall not be subject to preexisting condition exclusions or
waiting periods for welfare benefit plan coverages under any Parent employee
benefit plan. Subject to temporarily retaining one or more of the Company
Benefit Plans to more efficiently transition the Company's employees to Parent
benefit plans, Parent shall provide, or shall cause Sub to provide,
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compensation and employee benefits to each employee of the Company who continues
as an employee of Parent or Sub after the Effective Time which are comparable to
the compensation and employee benefits provided to all similarly-situated
employees of Parent or Sub.
5.14 Agreements of Others. The Company shall deliver to Parent, no later
than 20 days after the date of this Agreement, a letter identifying each person
whom the Company reasonably believes is an "affiliate" of the Company for
purposes of Rule 145 under the Securities Act. Thereafter and until the date of
the Shareholder Meeting, the Company shall identify to Parent each additional
person whom the Company reasonably believes to have thereafter become an
"affiliate." The Company shall use its best efforts to cause each person who is
identified as an "affiliate" pursuant to the two immediately preceding sentences
to deliver to Parent, not later that the date 30 days prior to the expected
Effective Time, a written agreement, substantially in the form of Exhibit C to
this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction prior to the Effective Time of the following conditions:
(a) Shareholder Approval. Company Shareholder Approval shall have
been obtained upon a vote at a duly held meeting of shareholders of the
Company or at any adjournment thereof.
(b) Other Approvals. All authorizations, consents, orders or
approvals of, or declarations or filings with, or terminations or
expirations of waiting periods imposed by, any Governmental Entity
necessary for the consummation of the transactions contemplated by this
Agreement (including those required under the HSR Act) shall have been
filed, shall have occurred or shall have been obtained.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
each of the parties shall have used reasonable efforts, subject to the
limitations set forth in Section 5.3, to prevent the entry of any such
injunction or other order and to appeal as promptly as possible any
injunction or other order that may be entered.
(d) Nasdaq National Market Listing. The Parent Common Stock issuable
in the Merger shall have been authorized for listing on the Nasdaq National
Market, upon official notice of issuance.
(e) S-4. The S-4 shall have become effective in accordance with the
provisions of the Securities Act. No stop order suspending the
effectiveness of the S-4 shall have been issued by the SEC and remain in
effect. All necessary state securities or "Blue Sky" authorizations shall
have been received.
6.2 Conditions to Obligations of Parent and Sub. The obligations of
Parent and Sub to effect the Merger are subject to the satisfaction of the
following conditions, any or all of which may be waived in whole or in part by
Parent and Sub:
(a) Obligations. Company shall have performed in all material
respects all obligations to be performed by it under this Agreement at or
prior to the Effective Time.
(b) Representations and Warranties. Each of the representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects (disregarding for these purposes any
materiality qualifications contained therein) when made and as of the
Effective Time as if made on and as of such date; provided, that such
representations and warranties that are by their express provisions made as
of a specific date need be true and correct only as of such specific date.
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(c) Third Party Consents. All required authorizations, consents or
approvals of any third party, the failure of which to obtain would have a
material adverse effect on the Surviving Company, assuming the Merger had
taken place, shall have been obtained.
(d) Material Adverse Change. There shall not have occurred a material
adverse change to the Company.
(e) Dissenters' Rights. Dissenting Shares shall not exceed more than
five percent (5%) of the outstanding Company Shares.
(f) Legal Opinion. Parent and Sub shall have received an opinion of
counsel to the Company substantially to the effect set forth in Exhibit A
hereto.
(g) Tax Opinion. Parent shall have received an opinion, satisfactory
to Parent, dated on or about the date that is two days prior to the date
the Proxy Statement/Prospectus is first mailed to shareholders of the
Company, a copy of which will be furnished to the Company, of Fulbright &
Jaworski L.L.P., to the effect that, if the Merger is consummated in
accordance with the terms of this Agreement, the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, which opinion will be reaffirmed by Fulbright &
Jaworski L.L.P. at the Closing.
(h) Certifications. The Company shall have furnished Parent with a
certified copy of a resolution or resolutions duly adopted by the Board of
Directors of the Company approving this Merger Agreement and consummation
of the Merger and the transactions contemplated hereby and directing the
submission of the Merger to a vote of the shareholders of the Company and a
certified copy of a resolution or resolutions duly adopted by the holders
of two-thirds of the outstanding Company Shares approving the Merger
Agreement and the transactions contemplated hereby.
(i) Comfort Letter. Parent and Sub shall have received from KPMG LLP
a letter dated such date, in form and substance satisfactory to Parent and
Sub, containing statements and information of the type ordinarily included
in accountants' "comfort letters" with respect to the financial statements
and certain financial information related to the Company contained in the
S-4 and the Proxy Statement/Prospectus.
(j) Additional Documents. Parent and Sub shall have been furnished
with such certificates, documents and opinions as they may reasonably
request.
6.3 Condition to Obligations of the Company. The obligation of the
Company to effect the Merger is subject to satisfaction of the following
conditions, any or all of which may be waived in whole or in part by the
Company:
(a) Obligations. Parent and Sub shall have performed in all material
respects all obligations to be performed by them under this Agreement at or
prior to the Effective Time.
(b) Representations and Warranties. Each of the representations and
warranties of Parent and Sub contained in this Agreement shall be true and
correct in all material respects (disregarding for these purposes any
materiality qualifications contained therein) when made and as of the
Effective Time as if made on and as of such date; provided, that such
representations and warranties that are by their express provisions made as
of a specific date need be true and correct only as of such specific date.
(c) Material Adverse Change. There shall not have occurred a material
adverse change to the Parent.
(d) Legal Opinion. The Company shall have received an opinion of
counsel to Parent and Sub substantially to the effect set forth in Exhibit
B hereto.
(e) Tax Opinion. The Company shall have received an opinion,
satisfactory to the Company, dated on or about the date that is two days
prior to the date the Proxy Statement/Prospectus is first
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mailed to shareholders of the Company, a copy of which will be furnished to
Parent, of Haynes and Boone, LLP, to the effect that, if the Merger is
consummated in accordance with the terms of this Merger Agreement, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, which opinion will be
reaffirmed by Haynes and Boone, LLP at the Closing.
(f) Comfort Letter. The Company shall have received from
PricewaterhouseCoopers LLP a letter dated such date, in form and substance
satisfactory to the Company, containing statements and information of the
type ordinarily included in accountants' "comfort letters" with respect to
the financial statements and certain financial information related to
Parent and Sub contained in the S-4 and Proxy Statement/Prospectus.
(g) Certifications. Parent and Sub shall have furnished the Company
with certified copies of resolutions duly adopted by the respective boards
of directors or duly authorized committees thereof of Parent and Sub
approving this Agreement and the consummation of the Merger and the
transactions contemplated hereby.
(h) Additional Documents. The Company shall have been furnished with
such certificates, documents and opinions as it may reasonably request.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of matters presented in connection with the Merger by the shareholders
of the Company:
(a) by mutual written consent of Parent and the Company, or by mutual
action of their respective Boards of Directors;
(b) by either Parent or the Company:
(i) if Company Shareholder Approval shall not have been obtained
upon a vote at a duly held at the Shareholder Meeting or at any
adjournment thereof;
(ii) if the Merger shall not have been consummated on or before
December 31, 2003, unless the failure to consummate the Merger is the
result of a material breach of this Agreement by the party seeking to
terminate this Agreement; provided, however, that the passage of such
period shall be tolled for any part thereof during which any party shall
be subject to a non-final order, decree or ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or the
calling or holding of a meeting of the shareholders of the Company
called to approve the Merger and the other matters contemplated hereby;
or
(iii) if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have issued
an order, decree or ruling or shall have taken any other action
permanently enjoining, restraining or otherwise prohibiting the purchase
of Company Shares pursuant to the Merger and such order, decree, ruling
or other action shall have become final and nonappealable;
(c) by the Company in accordance with the provisions of Section 8.2;
(d) by Parent, if (i) for any reason the Company fails to hold and
call the Shareholder meeting by December 31, 2003 or (ii) the Company
breaches any of its representations or warranties herein or fails to
perform in any material respect any of its covenants, agreements or
obligations under this Agreement, which breach or failure (A) would give
rise to the failure of a condition set forth in Section 6.1 or 6.2 and (B)
cannot be or has not been cured within 30 days following receipt of written
notice of such breach;
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(e) by the Company, if Parent or Sub breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this
Agreement, which breach or failure (i) would give rise to the failure of a
condition set forth in Section 6.1 or 6.3 and (ii) cannot be or has not
been cured within 30 days following receipt of written notice of such
breach; or
(f) by Parent if (i) the Board of Directors of the Company shall have
withdrawn or modified, in any manner which is adverse to Parent, its
recommendation or approval of the Merger or this Agreement and the
transactions contemplated hereby or shall have resolved to do so, or (ii)
the Board of Directors of the Company shall have recommended to the
shareholders of the Company any Acquisition Proposal or any transaction
described in the definition of Acquisition Proposal, or shall have resolved
to do so.
7.2 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.4 or an extension or waiver pursuant to Section
7.5 shall, in order to be effective, require in the case of Parent or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors, and in the case of Sub, action by its managing member.
7.3 Effect of Termination. In the event of termination of this Agreement
by either the Company or Parent as provided in Section 7.1, this Agreement shall
forthwith become void and have no effect, without any further liability or
obligation on the part of Parent, Sub or the Company, or any director, officer,
employee or shareholder thereof, other than the confidentiality provisions of
Sections 5.2(b) and 5.2(c) and the provisions of Sections 3.1(x), 3.2(i), 5.8,
7.3, 8.2, 8.3 and Article 9; provided, however, that any such termination shall
not limit or relieve a party's liability or obligation for damages suffered by
the other party hereto as a result of such party's breach of any representation,
warranty or covenant in this Agreement. Notwithstanding the foregoing, the
parties agree that in the event the Company pays to Parent the fee as provided
in Section 8.3, the Company shall have no further liability or obligation to
Parent or Sub for a termination of this Agreement under Section 7.1(b)(i) or
8.2(b) other than the confidentiality provisions of Sections 5.2(b) and 5.2(c)
and the provisions of Sections 3.1(x), 5.8, 7.3 and Article 9.
7.4 Amendment. This Agreement may be amended by the parties at any time
before or after Company Shareholder Approval is obtained; provided, however,
that after such Company Shareholder Approval, there shall be made no amendment
that by law requires further approval by such shareholders without the further
approval of such shareholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
7.5 Extension; Waiver. At any time prior to the Effective Time, the
parties may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or the other acts of the other parties,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto or (c) waive compliance with
any of the agreements or conditions contained herein. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
ARTICLE 8
SPECIAL PROVISIONS AS TO CERTAIN MATTERS
8.1 Takeover Defenses of the Company. The Company shall take such action
with respect to any anti-takeover provisions in the Company Charter Documents or
afforded it by statute to the extent necessary to consummate the Merger on the
terms set forth in this Agreement.
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8.2 No Solicitation.
(a) The Company shall not, and shall not authorize or permit any officer,
director or employee of, or any investment banker, attorney or other advisor,
agent or representative of, the Company ("Company Representatives") to, and on
becoming aware of will take all reasonable actions to stop such person from
continuing to, directly or indirectly, (i) solicit, initiate or encourage or
otherwise intentionally facilitate (including by way of furnishing information)
the making of any Acquisition Proposal (as defined below), (ii) enter into any
agreement (other than confidentiality and standstill agreements in accordance
with the immediately following proviso) with respect to any Acquisition
Proposal, or (iii) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal; provided,
however, that in the case of this clause (iii), to the extent required by the
fiduciary obligations of the Board of Directors of the Company, determined in
good faith by the members thereof, after consultation with outside legal
counsel, the Company may at any time prior to Company Shareholder Approval (the
"Applicable Period"), but not thereafter if the Merger is approved thereby, and
subject to the Company providing written notice to Parent of its decision to
take such action in response and only in response to an unsolicited written
request therefor received without any initiation, encouragement, discussion or
negotiation by the Company or any Company Representative and other than in
contravention of this Section 8.2(a)), (A) furnish information to any person or
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) pursuant to
a confidentiality agreement on substantially the same terms as provided in
Section 5.2(b) hereof and otherwise enter into discussions and negotiations with
such person or group as to any superior proposal (as defined in Section 8.2(c))
such person or group has made and (B) in the event that the Board of Directors
is unable to determine whether such unsolicited written request is a superior
proposal, make inquiry of such person or group of such information as would
enable the Board of Directors to determine whether or not such request
constitutes a superior proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by the Company or any Company Representative, whether or not such
person is purporting to act on behalf of the Company or otherwise, shall be
deemed to be a material breach of this Agreement by the Company. The Company
immediately shall cease and shall cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted prior to the date hereof by the Company or any
Company Representatives with respect to any Acquisition Proposal existing on the
date hereof. The Company promptly will notify Parent of the pendency of any
negotiations respecting, or the receipt of, any Acquisition Proposal. For
purposes of this Agreement, "Acquisition Proposal" means (i) any proposal, other
than a proposal by Parent or any of its affiliates, for a merger or other
business combination involving the Company, (ii) any proposal or offer, other
than a proposal or offer by Parent or any of its affiliates, to acquire from the
Company or any of its affiliates in any manner, directly or indirectly, an
equity interest in the Company, any voting securities of the Company or a
material amount of the assets of the Company, or (iii) any proposal or offer,
other than a proposal or offer by Parent or any of its affiliates, to acquire
from the shareholders of the Company by tender offer, exchange offer or
otherwise more than 20% of the outstanding Company Shares.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall, except in connection with the termination of this Agreement pursuant to
Sections 7.1(a), 7.1(b), 7.1(c) or 7.1(e), (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or Sub, the approval or
recommendation by the Board of Directors of the Company or any such committee of
this Agreement or the Merger or take any action having such effect or (ii)
approve or recommend, or propose to approve or recommend, any Acquisition
Proposal. Notwithstanding the foregoing, in the event the Board of Directors of
the Company receives an Acquisition Proposal that, in the exercise of its
fiduciary obligations (as determined in good faith by a majority of the
disinterested members thereof after consultation with outside legal counsel), it
determines to be a superior proposal, the Board of Directors may withdraw or
modify its approval or recommendation of this Agreement or the Merger and may
(subject to the following sentence) terminate this Agreement, in each case at
any time after midnight on the third business day following Parent's receipt of
written notice (a "Notice of Superior Proposal")
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advising Parent that the Board of Directors has received an Acquisition Proposal
which it has determined to be a superior proposal, specifying the material terms
and conditions of such superior proposal (including the proposed financing for
such proposal and a copy of any documents conveying such proposal) and
identifying the party making such superior proposal. Parent shall have the
right, prior to the expiration of the third business day following its receipt
of a Notice of Superior Proposal to agree to amend the terms of this Agreement
such that they are no less favorable than the terms of such superior proposal.
The Company may terminate this Agreement pursuant to the second sentence of this
Section 8.2(b) only if the shareholders of the Company shall not yet have voted
on the Merger, and the Company shall have paid to Parent the fees set forth in
Section 8.3. Nothing contained in this Agreement shall prohibit the Company from
taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) under the Exchange Act following Parent's receipt of an Acquisition
Proposal.
(c) For purposes of this Agreement, a "superior proposal" means any bona
fide Acquisition Proposal to acquire, directly or indirectly, for consideration
consisting of cash, securities or a combination thereof, all of the Company
Shares then outstanding or all or substantially all the assets of the Company,
and otherwise on terms which a majority of the members of the Board of Directors
of the Company determines in its good faith reasonable judgment (after
consultation with its financial advisor) to be more favorable to the Company's
shareholders than the Merger and which it intends to recommend that the
shareholders of the Company approve. In reaching such good faith determination,
the Board of Directors of the Company will give significant consideration to
whether an Acquisition Proposal includes definite financing.
8.3 Fee and Expense Reimbursements. The Company agrees to pay Parent a
fee in immediately available funds (in recognition of the fees and expenses
incurred to date by Parent in connection with the matters contemplated hereby)
of $3,500,000 promptly upon:
(a) the termination of the Agreement:
(i) by Parent or the Company as permitted by Section 7.1(b)(i),
and, prior to the meeting of the shareholders of the Company convened
for the purpose of voting on the Merger, a third party has made a bona
fide written Acquisition Proposal that has not been withdrawn; or
(ii) by the Company as permitted by Section 8.2(b); or
(b) the Board of Directors of the Company taking any of the actions
set forth in clause (i) or (ii) of Section 8.2(b) and the Board of
Directors of the Company has not reinstated its recommendation of this
Agreement or withdrawn its approval or recommendation or both of any such
Acquisition Proposal within two business days of taking such actions.
ARTICLE 9
GENERAL PROVISIONS
9.1 Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants or agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 9.1 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
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9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by facsimile or
sent by overnight courier to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Patterson-UTI Energy, Inc.
4510 Lamesa Highway
Snyder, Texas 79549
Telephone: (325) 574-6300
Facsimile: (325) 574-6390
Confirm: (325) 574-6300
Attention: Chief Executive Officer
with a copy to
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Telephone: (713) 651-5151
Facsimile: (713) 651-5246
Confirm: (713) 651-5496
Attention: Michael W. Conlon, Esq.
(b) if to the Company, to
TMBR/Sharp Drilling, Inc.
4607 W. Industrial Blvd.
Midland, Texas 79703
Telephone: (915) 699-5050
Facsimile: (915) 699-5085
Confirm: (915) 699-5050
Attention: Jeff Phillips, President
with copies to:
Lynch, Chappell & Alsup, P.C.
The Summit
300 Marienfeld, Suite 700
Midland, Texas 79701
Telephone: (915) 683-3351
Facsimile: (915) 683-8346
Confirm: (915) 683-3351
Attention: Thomas W. Ortloff
and
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Telephone: (214) 651-5000
Facsimile: (214) 200-0674
Confirm: (214) 651-5587
Attention: W. Scott Wallace
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9.3 Definitions. For Purposes of This Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "knowledge" with respect to (i) the Company means the knowledge of
its officers listed in Schedule II hereto, after due inquiry and (ii)
Parent and Sub means the knowledge of the officers listed in Schedule III
hereto, after due inquiry;
(c) "material adverse effect" or "material adverse change" means, when
used in connection with any person, any change or effect (or any
development that, insofar as can reasonably be foreseen, is likely to
result in any change or effect) that is materially adverse to the business,
properties, assets, condition (financial or otherwise) or results of
operations of that person and its subsidiaries, taken as a whole except for
such changes or effects in general economic, capital market, regulatory or
political conditions or changes that affect generally the oil and gas
industry and do not disproportionately affect such person;
(d) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
entity; and
(e) a "subsidiary" of any person means any corporation, partnership,
association, joint venture, limited liability company or other entity in
which such person owns over 50% of the stock or other equity interests, the
holders of which are generally entitled to vote for the election of
directors or other governing body of such other legal entity.
9.4 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The words
"hereof", "herein" and "hereunder" and similar terms refer to this Agreement as
a whole and not to any particular provision of this Agreement, unless the
context otherwise requires. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation".
9.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.6 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the Exhibits and Schedules hereto and the documents and instruments
referred to herein) (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof and (b) except for the provisions of
Section 5.4, are not intended to confer upon any person other than the parties
any rights or remedies hereunder.
9.7 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.8 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties without the
prior written consent of the other parties, except that Parent or Sub may assign
its rights and obligations under this Agreement to one of its affiliates.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
9.9 Enforcement of the Agreement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and
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provisions hereof in any district court of the United States located in the
States of Texas (Southern District only), this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself to the personal jurisdiction of any
federal district court sitting in the Southern District of Texas in the event
any dispute between the parties hereto arises out of this Agreement solely in
connection with such a suit between the parties, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement in any court other than such a federal or state
court.
9.10 Performance by Sub. Parent hereby agrees to cause Sub to comply with
its obligations under this Agreement.
9.11 Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
PATTERSON-UTI ENERGY, INC.
By /s/ JOHN E. VOLLMER III
------------------------------------
John E. Vollmer III
Senior Vice President -- Corporate
Development
PATTERSON-UTI ACQUISITION, LLC
By /s/ JOHN E. VOLLMER III
------------------------------------
John E. Vollmer III
Vice President
TMBR/SHARP DRILLING, INC.
By /s/ JEFFREY D. PHILLIPS
------------------------------------
Name: Jeffrey D. Phillips
Title: President
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EXHIBIT A
(i) The incorporation, existence, and good standing of the Company are
as stated in this Agreement; the authorized Company Shares are as stated in
this Agreement; all outstanding Company Shares are duly and validly
authorized and issued, fully paid and non-assessable and have not been
issued in violation of any preemptive right of shareholders.
(ii) The Company has the requisite corporate power and authority to
execute, deliver and perform this Agreement, and this Agreement has been
duly authorized, executed and delivered by the Company, and (assuming the
due and valid authorization, execution and delivery by Parent and Sub)
constitutes the legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except to the
extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws of
general applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(iii) The execution and performance by the Company of this Agreement
will not violate the Company Charter Documents and will not violate, result
in a breach of, or constitute a default under, any material lease,
mortgage, contract, agreement, instrument, law, rule, regulation, judgment,
order or decree known to such counsel to which the Company is a party or to
which they or any of its properties or assets may be bound.
(iv) The Board of Directors of the Company has taken all action
required by the TBCA and the Company Charter Documents to approve the
Merger and to authorize the execution and delivery of this Agreement and
the transactions contemplated hereby; the Board of Directors and the
shareholders of the Company have taken all action required by the TBCA and
the Company Charter Documents to authorize the Merger in accordance with
the terms of this Agreement.
(v) To the knowledge of such counsel, there are no actions, suits or
proceedings, pending or threatened against or affecting the Company, by any
Governmental Entity which seek to restrain, prohibit or invalidate the
transactions contemplated by this Agreement.
(vi) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental agency or body which
has not been obtained is required on behalf of the Company for consummation
of the transactions contemplated by this Agreement.
(vii) (A) At the time the Proxy Statement (other than the financial
statements and related notes, financial data, statistical data and
supporting schedules included therein, and information relating to or
supplied by Parent or Sub as to which such counsel expresses no opinion)
was first mailed to the shareholders of the Company and at the time of the
Shareholder Meeting complied as to form in all material respects with the
requirements of the Exchange Act.
(B) In the course of the preparation of the Proxy Statement such
counsel has considered the information set forth therein in light of the
matters required to be set forth therein, and has participated in
conferences with officers and representatives of the Company and Parent,
including their respective counsel and independent public accountants,
during the course of which the contents of the Proxy Statement and related
matters were discussed. Such counsel has not independently verified the
accuracy or completeness of, accordingly is not passing upon, and does not
assume responsibility for, the accuracy, completeness or fairness of the
statements contained in the Proxy Statement; and such counsel has relied as
to materiality, to a large extent, upon the judgment of officers and
representatives of the Company and Parent. However, as a result of such
consideration and participation, nothing has come to such counsel's
attention which causes such counsel to believe that the Proxy
Statement(other than the financial statements and related notes, financial
data, statistical and reserve data and supporting schedules included
therein, and information relating to or supplied by Parent or Sub, as to
which such counsel expresses no belief, at the time it became effective,
contained any untrue statement of a material fact or omitted to state a
material fact
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required to be stated therein or necessary to make the statements therein
not misleading or that the Proxy Statement (other than the financial
statements and related notes, financial data, statistical data and
supporting schedules included therein, and information relating to or
supplied by Parent or Sub, as to which such counsel expresses no belief),
at the time of mailing or at the time of the Shareholder Meeting, included
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, counsel for the Company may rely as to matters
of fact upon the representations of officers of the Company contained in any
certificate delivered to such counsel and certificates of public officials.
A-43
EXHIBIT B
(i) The incorporation, existence, and good standing of Parent are as
stated in this Agreement; the authorized shares of Parent Common Stock are
as stated in this Agreement.
(ii) Sub is a limited liability company duly organized, validly
existing and in good standing as stated in this Agreement; all of the
outstanding membership interests of Sub have been duly authorized and
validly issued; and all of the outstanding membership interests of Sub are
owned of record by Parent.
(iii) The managing member of Sub has taken all action required by
Texas law and the organizational documents of Sub to approve the Merger
Agreement and to authorize the execution and delivery of this Agreement and
the transactions contemplated hereby; the managing member of Sub has taken
all action required by Texas law and Sub's organizational documents to
authorize the Merger in accordance with the terms of this Agreement.
(iv) Parent and Sub have the requisite corporate or other power and
authority to execute, deliver and perform this Agreement, and this
Agreement has been duly authorized, executed and delivered by Parent and
Sub, and (assuming the due and valid authorization, execution and delivery
by the Company) constitutes the legal, valid and binding agreement of
Parent and Sub enforceable against Parent and Sub in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws of general applicability relating to or affecting the
enforcement of creditors' rights and by the effect of general principles of
equity (regardless of whether enforceability is considered in a proceeding
in equity or at law).
(v) The execution and performance by Parent and Sub of this Agreement
will not violate the Parent Charter Documents or Sub's organizational
documents and will not violate, result in a breach of, or constitute a
default under, any material lease, mortgage, contract, agreement,
instrument, law, rule, regulation, judgment, order or decree known to such
counsel to which Parent or any of its subsidiaries is a party or to which
they or any of their properties or assets may be bound.
(vi) To the knowledge of such counsel, there are no actions, suits or
proceedings, pending or threatened against or affecting Parent or any of
its subsidiaries, by any Governmental Entity which seek to restrain,
prohibit or invalidate the transactions contemplated by this Agreement.
(vii) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental agency or body which
has not been obtained is required on behalf of Parent or Sub for
consummation of the transactions contemplated by this Agreement.
(ix) (A) At the time the S-4 became effective, the S-4 and the Proxy
Statement/Prospectus (other than the financial statements and related
notes, financial data, statistical data, reserve data and supporting
schedules included therein, and information relating to or supplied by the
Company as to which such counsel expresses no opinion) complied as to form
in all material respects with the requirements of the Securities Act or the
Exchange Act.
(B) In the course of the preparation of the S-4 and the Proxy
Statement/Prospectus such counsel has considered the information set forth
therein in light of the matters required to be set forth therein, and has
participated in conferences with officers and representatives of the
Company and Parent, including their respective counsel and independent
public accountants, during the course of which the contents of the S-4 and
the Proxy Statement/Prospectus and related matters were discussed. Such
counsel has not independently verified the accuracy or completeness of,
accordingly is not passing upon, and does not assume responsibility for,
the accuracy, completeness or fairness of the statements contained in the
S-4 and the Proxy Statement/Prospectus; and such counsel has relied as to
materiality, to a large extent, upon the judgment of officers and
representatives of the Company and Parent. However, as a result of such
consideration and participation, nothing has come to such counsel's
attention which causes such counsel to believe that the S-4 and the Proxy
Statement/
A-44
Prospectus (other than the financial statements and related notes,
financial data, statistical data, reserve data and supporting schedules
included therein, and information relating to or supplied by the Company,
as to which such counsel expresses no belief, at the time it became
effective, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that the S-4 and the Proxy
Statement/ Prospectus (other than the financial statements and related
notes, financial data, statistical data, reserve data and supporting
schedules included therein, and information relating to or supplied by the
Company, as to which such counsel expresses no belief), at the time the S-4
became effective, at the time of mailing or at the time of the Shareholder
Meeting, included any untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(viii) The shares of Parent Common Stock that will be issued pursuant
to the Agreement have been duly authorized and, when issued and delivered
in accordance with the terms and conditions of the Agreement will be
validly issued, fully paid and non-assessable.
In rendering such opinion, counsel for Parent and Sub may rely as to
matters of fact upon the representations of officers of Parent and Sub contained
in any certificate delivered to such counsel and certificates of public
officials.
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EXHIBIT C
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of TMBR/Sharp Drilling, Inc., a Texas corporation (the "Company"),
as the term "affiliate" is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (together with the rules and regulations promulgated
thereunder, the "Securities Act"). Pursuant to the terms of the Agreement and
Plan of Merger, dated as of May 26, 2003 (the "Merger Agreement"), by and among
the Company, Patterson-UTI Energy, Inc., a Delaware corporation ("Parent"), and
Patterson-UTI Acquisition, LLC, a Texas limited liability company and a wholly
owned subsidiary of Jones ("Sub"), the Company will be merged with and into Sub,
in consideration of cash and shares of common stock, par value $.01 per share,
of Parent ("Parent Common Stock"), with Sub as the surviving company (the
"Merger").
I represent, warrant, and covenant to Parent and Sub that in the event I
receive any Parent Common Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of any
Parent Common Stock acquired by me in the Merger in violation of the
Securities Act.
B. I have carefully read this letter and the Merger Agreement and
discussed their requirements and other applicable limitations upon my
ability to sell, transfer, or otherwise dispose of Parent Common Stock, to
the extent I felt necessary, with my counsel or counsel for Parent and Sub.
C. I have been advised that the issuance of Parent Common Stock to me
pursuant to the Merger has been or will be registered with the Commission
under the Securities Act on a Registration Statement on Form S-4. I have
also been advised, however, that, because at the time the Merger will be
submitted for a vote of the shareholders of the Company, I may be deemed to
be an affiliate of the Company, the distribution by me of any Parent Common
Stock acquired by me in the Merger will not be registered under the
Securities Act and that I may not sell, transfer, or otherwise dispose of
any Parent Common Stock acquired by me in the Merger unless (i) such sale,
transfer, or other disposition has been registered under the Securities
Act, (ii) such sale, transfer, or other disposition is made in conformity
with the volume and other limitations of Rule 145 promulgated by the
Commission under the Securities Act, or (iii) in the opinion of counsel
reasonably acceptable to Parent such sale, transfer, or other disposition
is otherwise exempt from registration under the Securities Act.
D. I understand that Parent is under no obligation to register under
the Securities Act the sale, transfer, or other disposition by me or on my
behalf of any Parent Common Stock acquired by me in the Merger or to take
any other action necessary in order to make an exemption from such
registration available.
E. I also understand that stop transfer instructions will be given to
Parent's transfer agent with respect to Parent Common Stock and that there
will be placed on the certificates for any Parent Common Stock acquired by
me in the Merger, or any substitutions therefore, a legend stating in
substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933 applies. The shares represented by this certificate may only be
transferred in accordance with the terms of an agreement dated as of
, 2003, between the registered holder hereof and the issuer of
this certificate, a copy of which agreement will be mailed to the holder
hereof without charge within five days after receipt of written request
therefore."
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F. I also understand that unless the transfer by me of my Parent
Common Stock has been registered under the Securities Act or is a sale made
in conformity with the provisions of Rule 145, Parent reserves the right to
put the following legend on the certificates issued to my transferee:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired from a
person who received such shares in a transaction to which Rule 145
promulgated under the Securities Act of 1933 applies. The shares may not
be sold, pledged, or otherwise transferred except in accordance with an
exemption from the registration requirements of the Securities Act of
1933."
It is understood and agreed that the legends set forth in paragraph E and F
above shall be removed by the delivery of substitute certificates without such
legend if the undersigned shall have delivered to Parent a copy of a letter from
the staff of the Commission, or an opinion of counsel in form and substance
reasonably satisfactory to Parent, to the effect that such legend is not
required for purposes of the Securities Act.
I understand that (a) Parent will supply me with any information necessary
to enable me to make routine sales of any Parent Common Stock acquired by me in
the Merger as may be permitted, by and in accordance with, the provisions of
Rule 144 under the Securities Act or any similar rule of the Commission
hereafter applicable, and (b) Parent will comply with all requirements of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder, (the "Exchange Act") with respect to the filing by Parent of annual,
periodic and other reports on a timely basis in a manner sufficient to allow
sales of any such Parent Common Stock by me during the three year period
following the Effective Time (as defined in the Merger Agreement) if such sales
are otherwise permitted by law or regulation. Upon my written request, Parent
shall furnish me with a written statement representing that it has complied with
the reporting requirements enumerated in Rule 144(c)(1), or if Parent is not
then subject to Section 13 or 15(d) of the Exchange Act, that it has made
publicly available the information concerning Parent required by Rule 144(c)(2).
Very truly yours,
By
--------------------------------------
Name:
----------------------------------
Accepted this day of
, 2003
PATTERSON-UTI ENERGY, INC.
By
--------------------------------------
Name:
--------------------------------
Title:
---------------------------------
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PATTERSON-UTI ACQUISITION, LLC
By
--------------------------------------
Name:
--------------------------------
Title:
---------------------------------
TMBR/SHARP DRILLING, INC.
By
--------------------------------------
Name:
--------------------------------
Title:
---------------------------------
A-48
ANNEX B -- ENERGY CAPITAL SOLUTIONS, LLC FAIRNESS OPINION
[ENERGY CAPITAL SOLUTIONS, LLC LETTERHEAD]
May 26, 2003
Board of Directors
TMBR/Sharp Drilling, Inc.
4607 West Industrial Blvd.
Midland, Texas 79703
Members of the Board:
PATTERSON-UTI Energy, Inc., a Delaware corporation ("Parent"),
Patterson-UTI Acquisition, L.L.C., a Texas limited liability company and a
wholly owned subsidiary of Parent ("Sub"), and TMBR/Sharp Drilling, Inc., a
Texas corporation (the "Company"), propose to enter into an agreement and plan
of merger (the "Agreement") whereby the Company shall merge with and into Sub
(the "Merger") and pursuant to which each issued and outstanding share of common
stock, $0.10 par value per share of the Company (the "Company Shares"), not
owned directly or indirectly by Parent or the Company, will be converted into
the right to receive (a) $9.09/share in cash and (b) 0.312166 of a share of
common stock, $0.01 par vale per share, of Parent (the "Parent Common Stock"),
together the ("Merger Consideration").
You have requested our opinion as to whether the Merger Consideration to be
received by the holders of Company Shares (other than Parent and the Company) in
the Merger, is fair from a financial point of view to such holders.
In arriving at our opinion, we have, among other things:
1. reviewed certain publicly available business and financial
information relating to the Company, including (i) its Annual Reports on
Form 10-K and related audited financial statements for the fiscal years
ended March 31, 2000, March 31, 2001 and March 31, 2002;
2. reviewed a draft dated May 2, 2003 of the Company's unaudited
financial statements for the twelve-month period ended March 31, 2003;
3. reviewed certain publicly available business and financial
information relating to Parent, including its Annual Reports on Form 10-K
and related audited financial statements for the fiscal years ended
December 31, 2000, December 31, 2001 and December 31, 2002 and its
unaudited financial statements on Form 10-Q for the fiscal quarters ended
March 31, 2002 and March 31, 2003;
4. reviewed certain estimates of the Company's oil and gas reserves,
including estimates of proved, probable and possible reserves prepared by
Joe C. Neal & Associates as of April 1, 2003;
5. analyzed certain historical and projected financial and operating
data of the Company;
6. reviewed certain estimates of the Company's yard inventory and
other equipment related to the drilling business as prepared by the
management of the Company;
7. reviewed certain research reports relating to the historical and
projected financial and operating data of Parent prepared by third-parties;
8. discussed the current operations and prospects of the Company and
Parent with the management and staff of the Company and Parent,
respectively;
9. reviewed the historical market prices and trading history of the
Company Shares and the Parent Common Stock;
10. compared recent stock market capitalization indicators for the
Company with recent stock market capitalization indicators for certain
other publicly-traded independent energy and land drilling companies;
B-1
11. compared the financial terms of the Merger with the financial
terms of other transactions that we deemed to be relevant;
12. participated in certain discussions among representatives of the
Company and Parent and their respective legal and other financial advisors;
13. reviewed a draft dated May 25, 2003 of the Agreement; and
14. reviewed such other financial studies and analyses and performed
such other investigations and considered such other matters as we have
deemed necessary or appropriate.
In connection with our opinion, we have assumed and relied upon, without
assuming any responsibility for, or independently verifying, the accuracy and
completeness of any information supplied or otherwise made available to us by
the Company and Parent. We have further relied upon the assurances of
representatives of the management of the Company and Parent that they are
unaware of any facts that would make the information provided to us incomplete
or misleading in any material respect. With respect to projected financial and
operating data, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of the Company relating to the future financial and operational
performance of the Company. With respect to the estimates of oil and gas
reserves, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management and staff of the Company (and its engineering consultants) relating
to the oil and gas properties of the Company. We have not made an independent
evaluation or appraisal of the assets or liabilities of either the Company or
Parent, nor, except for the estimates of oil and gas reserves and estimates of
drilling equipment and yard inventory referred to above, have we been furnished
with any such evaluations or appraisals. In addition, we have not assumed any
obligation to conduct, nor have we conducted, any physical inspection of the
properties or facilities of either the Company or Parent.
In developing our opinion, we have relied upon the Company as to certain
legal, tax, and accounting aspects of the transaction contemplated by the
Agreement. Consistent with the Agreement, we have assumed that the Merger will
be treated as tax-free for federal income tax purposes. We have assumed that the
Agreement executed and delivered by the parties will contain identical financial
and economic terms and otherwise be substantially similar to the draft Agreement
reviewed by us. We have further assumed that the Merger will be consummated on
the terms and conditions contemplated in the Agreement.
We have not been asked to consider, and this opinion does not address, the
prices at which the Parent Common Stock or the Company Shares will actually
trade following the announcement or consummation of the Merger.
Our opinion is rendered on the basis of conditions in the securities
markets and drilling and oil and gas markets as they exist and can be evaluated
on the date hereof and the conditions and prospects, financial and otherwise, of
the Company as they have been represented to us as of the date hereof or as they
were reflected in the materials and discussions described above.
Our opinion relates solely to the fairness from a financial point of view
of the Merger Consideration to be received by the holders of the Company Shares
in the Merger. This opinion is for the use and benefit of the Board of Directors
of the Company. This opinion does not address the merits of the underlying
decision by the Company to engage in the Merger and does not constitute a
recommendation to any holder of Company Shares as to how such holder should vote
on the Merger. As you are aware, we are acting as financial advisor to the
Company and will receive a fee from the Company for our services, a substantial
portion of which is contingent upon the consummation of the Merger. In addition,
the Company has agreed to indemnify us for certain liabilities arising out of
our engagement.
B-2
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration to be received by the holders of the
Company Shares (other than Parent and the Company) in the Merger, is fair from a
financial point of view to such holders.
Very truly yours,
/s/ ENERGY CAPITAL SOLUTIONS, LLC
--------------------------------------
Energy Capital Solutions, LLC
B-3
ANNEX C -- PROVISIONS OF TEXAS BUSINESS CORPORATION ACT
REGARDING DISSENTERS' RIGHTS
ART. 5.11. RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS
A. Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if shareholder
approval is required by Article 5.03 or 5.16 of this Act and the shareholder
holds shares of a class or series that was entitled to vote thereon as a class
or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise provided in
the articles of incorporation) of all, or substantially all, the property and
assets, with or without good will, of a corporation if special authorization of
the shareholders is required by this Act and the shareholders hold shares of a
class or series that was entitled to vote thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which the
shares of the corporation of the class or series held by the shareholder are to
be acquired.
B. Notwithstanding the provisions of Section A of this Article, a shareholder
shall not have the right to dissent from any plan of merger in which there is a
single surviving or new domestic or foreign corporation, or from any plan of
exchange, if:
(1) the shares held by the shareholder are part of a class or series,
shares of which are on the record date fixed to determine the shareholders
entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation system)
or designated as a national market security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or
successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger or
plan of exchange to accept for the shareholder's shares any consideration that
is different than the consideration (other than cash in lieu of fractional
shares that the shareholder would otherwise be entitled to receive) to be
provided to any other holder of shares of the same class or series of shares
held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger or
the plan of exchange to accept for the shareholder's shares any consideration
other than:
(a) shares of a domestic or foreign corporation that, immediately
after the effective time of the merger or exchange, will be part of a class
or series, shares of which are:
(i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange;
(ii) approved for quotation as a national market security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be
received; or
(c) any combination of the securities and cash described in
Subdivisions (a) and (b) of this subsection.
C-1
ART. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1)(a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action, setting
out that the shareholder's right to dissent will be exercised if the action is
effective and giving the shareholder's address, to which notice thereof shall be
delivered or mailed in that event. If the action is effected and the shareholder
shall not have voted in favor of the action, the corporation, in the case of
action other than a merger, or the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right of
dissent, in the case of a merger, shall, within ten (10) days after the action
is effected, deliver or mail to the shareholder written notice that the action
has been effected, and the shareholder may, within ten (10) days from the
delivery or mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the case
may be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and class
of the shares owned by the shareholder and the fair value of the shares as
estimated by the shareholder. Any shareholder failing to make demand within the
ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant to
Section A of Article 9.10 of this Act, the corporation, in the case of action
other than a merger, and the surviving or new corporation (foreign or domestic)
or other entity that is liable to discharge the shareholder's right of dissent,
in the case of a merger, shall, within ten (10) days after the date the action
is effected, mail to each shareholder of record as of the effective date of the
action notice of the fact and date of the action and that the shareholder may
exercise the shareholder's right to dissent from the action. The notice shall be
accompanied by a copy of this Article and any articles or documents filed by the
corporation with the Secretary of State to effect the action. If the shareholder
shall not have consented to the taking of the action, the shareholder may,
within twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the shareholder's
shares. The fair value of the shares shall be the value thereof as of the date
the written consent authorizing the action was delivered to the corporation
pursuant to Section A of Article 9.10 of this Act, excluding any appreciation or
depreciation in anticipation of the action. The demand shall state the number
and class of shares owned by the dissenting shareholder and the fair value of
the shares as estimated by the shareholder. Any shareholder failing to make
demand within the twenty (20) day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate action
was effected, the value of the shares is agreed upon between the shareholder and
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, payment for the shares shall be made within ninety
C-2
(90) days after the date on which the action was effected and, in the case of
shares represented by certificates, upon surrender of the certificates duly
endorsed. Upon payment of the agreed value, the shareholder shall cease to have
any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
C-3
F. The provisions of this Article shall not apply to a merger if, on the date
of the filing of the articles of merger, the surviving corporation is the owner
of all the outstanding shares of the other corporations, domestic or foreign,
that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to vote
or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act may withdraw such demand at any time
before payment for his shares or before any petition has been filed pursuant to
Article 5.12 or 5.16 of this Act asking for a finding and determination of the
fair value of such shares, but no such demand may be withdrawn after such
payment has been made or, unless the corporation shall consent thereto, after
any such petition has been filed. If, however, such demand shall be withdrawn as
hereinbefore provided, or if pursuant to Section B of this Article the
corporation shall terminate the shareholder's rights under Article 5.12 or 5.16
of this Act, as the case may be, or if no petition asking for a finding and
determination of fair value of such shares by a court shall have been filed
within the time provided in Article 5.12 or 5.16 of this Act, as the case may
be, or if after the hearing of a petition filed pursuant to Article 5.12 or
5.16, the court shall determine that such shareholder is not entitled to the
relief provided by those articles, then, in any such case, such shareholder and
all persons claiming under him shall be conclusively presumed to have approved
and ratified the corporate action from which he dissented and shall be bound
thereby, the right of such shareholder to be paid the fair value of his shares
shall cease, and his status as a shareholder shall be restored without prejudice
to any corporate proceedings which may have been taken during the interim, and
such shareholder shall be entitled to receive any dividends or other
distributions made to shareholders in the interim.
C-4
ANNEX D-1 -- FORM OF CLOSING TAX OPINION OF FULBRIGHT & JAWORSKI L.L.P.
[Fulbright & Jaworski L.L.P. letterhead]
, 2003
Patterson-UTI Energy, Inc.
4510 Lamesa Highway
Snyder, Texas 79549
Ladies and Gentlemen:
You have requested our opinion concerning certain United States federal
income tax consequences of the merger (the "MERGER") of TMBR/Sharp Drilling,
Inc., a Texas corporation (the "COMPANY"), with and into Patterson-UTI
Acquisition, LLC, a Texas limited liability company ("SUB"), pursuant to the
Agreement and Plan of Merger, dated as of May 26, 2003 (the "MERGER AGREEMENT"),
by and among Patterson-UTI Energy, Inc., a Delaware corporation ("PARENT"), Sub
(Sub being wholly owned by Parent), and the Company. Unless otherwise indicated,
each capitalized term used herein has the meaning ascribed to such term in the
Merger Agreement.
In connection with this opinion, we have examined and relied upon (i) the
Merger Agreement, (ii) the Proxy Statement/Prospectus of Parent and the Company
(the "PROXY STATEMENT/PROSPECTUS") included as part of the Registration
Statement on Form S-4 filed with the Securities and Exchange Commission (the
"COMMISSION") under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "REGISTRATION STATEMENT"), (iii) the
representation letters dated as of the date hereof and delivered by Parent and
the Company to us, and (iv) such other documents as we have deemed necessary or
appropriate in order to enable us to render the opinion below (all documents
described in this sentence are collectively referred to as the "DOCUMENTS").
For purposes of this opinion, we have assumed (i) that the Merger will be
consummated in the manner described in the Merger Agreement and the Proxy
Statement/Prospectus, (ii) that the Documents are complete and authentic and
have been duly authorized, executed and delivered, (iii) that all of the
information, facts, statements, representations and covenants contained in the
Documents (without regard to any qualification stated therein and without
undertaking to verify such information, facts, statements, representations and
covenants by independent investigation) are true and accurate at all relevant
times (including as of the Effective Time of the Merger), (iv) that the
respective parties to the Documents and all parties referred to therein will act
in all respects and at all relevant times in conformity with the requirements
and provisions of the Documents, and (v) that none of the terms and conditions
contained in the Documents has been or will be waived or modified in any
respect. Any change in the accuracy or completeness of any of the information,
facts, statements, representations, covenants, Documents or assumptions on which
our opinion is based could affect our conclusions.
The opinion expressed herein is based on the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "CODE"), Treasury Department
regulations promulgated thereunder, pertinent judicial authorities, interpretive
rulings of the Internal Revenue Service and such other authorities as we have
considered relevant, any of which may be changed at any time (possibly with
retroactive effect). Any change in the authorities on which our opinion is based
could affect our conclusions. We express no opinion other than as to the United
States federal income tax matters set forth below. Our opinion does not address
any non-income tax or any foreign, state or local tax consequences of the
Merger.
Based upon and subject to the foregoing, it is our opinion that the Merger
will be treated for United States federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
Our opinion is expressed as of the date hereof, and we are under no
obligation to supplement or revise our opinion to reflect any change (including
any change that has retroactive effect) (i) in applicable law,
D1-1
or (ii) that causes any information, fact, statement, representation, covenant,
Document or assumption on which our opinion is based to become untrue or
incorrect.
This letter is furnished to you solely for use in connection with the
Merger, as described in the Merger Agreement and the Proxy Statement/Prospectus
included as part of the Registration Statement, and is not to be used,
circulated, quoted, or otherwise referred to for any other purpose without our
express written consent.
Very truly yours,
[Form of Opinion]
FULBRIGHT & JAWORSKI L.L.P.
D1-2
ANNEX D-2 -- FORM OF CLOSING TAX OPINION OF HAYNES AND BOONE, LLP
, 2003
TMBR/Sharp Drilling, Inc.
4607 W. Industrial Blvd.
Midland, Texas 79703
Ladies and Gentlemen:
We have acted as counsel to TMBR/Sharp Drilling, Inc., a Texas corporation
(the"COMPANY"), in connection with the proposed merger (the "MERGER") of the
Company with and into Patterson-UTI Acquisition, LLC, a Texas limited liability
company ("ACQUISITION SUB") which is a wholly-owned subsidiary of Patterson-UTI
Energy, Inc., a Delaware corporation ("PATTERSON"). Company has requested that
we deliver an opinion to the holders of Company Shares to the effect that the
Merger will constitute a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended. All capitalized terms used but not defined
herein have the meanings ascribed to them in the Agreement and Plan of Merger,
dated as of May 26, 2003, among Patterson, Acquisition Sub and the Company
(the"MERGER AGREEMENT").
In connection with this opinion, we have examined and relied upon (i) the
Merger Agreement, (ii) the Proxy Statement/Prospectus of Patterson and the
Company (the "PROXY STATEMENT/PROSPECTUS") included as part of the Registration
Statement on Form S-4 filed with the Securities and Exchange Commission
(the"COMMISSION") under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (the "REGISTRATION STATEMENT"),
(iii) the representation letters delivered by Patterson and the Company to us,
and (iv) such other documents as we have deemed necessary or appropriate in
order to enable us to render the opinion below (all documents described in this
sentence are collectively referred to as the "DOCUMENTS").
For purposes of this opinion, we have assumed that:
1. The Merger will be consummated in the manner described in the
Merger Agreement and the Proxy Statement/Prospectus;
2. The Documents are complete and authentic and have been duly
authorized, executed and delivered and all of the information, facts,
statements, representations and covenants contained in the Documents
(without regard to any qualification stated therein and without undertaking
to verify such information, facts, statements, representations and
covenants by independent investigation) are true and accurate at all
relevant times (including as of the Effective Time of the Merger);
3. The respective parties to the Documents and all parties referred to
therein will act in all respects and at all relevant times in conformity
with the requirements and provisions of the Documents;
4. None of the terms and conditions contained in the Documents have
been or will be waived or modified in any respect.
This opinion is being delivered with the express understanding that any
change in the accuracy or completeness of any of the information, facts,
statements, representations, covenants, Documents or assumptions on which our
opinion is based could affect our conclusions and could result in the
transaction being treated in a different manner than that contemplated in this
opinion.
If any of the above-described assumptions is untrue for any reason or if
the Merger is consummated in a manner that is inconsistent with the manner in
which it is described in the Merger Agreement, our opinion as expressed below
may be adversely affected and may not be relied upon.
Based upon the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that for U.S. Federal income tax purposes
the Merger will be treated as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"), to the
holders of Company Shares.
D2-1
In addition to the matters set forth above, this opinion is subject to the
exceptions, limitations and qualifications set forth below:
1. This opinion represents and is based upon our best judgment
regarding the application of U.S. Federal income tax laws arising under the
Code, judicial decisions, administrative regulations and published rulings
and procedures. Our opinion is not binding upon the Internal Revenue
Service or the courts, and there is no assurance that the Internal Revenue
Service will not assert a contrary position or that a court will not take a
different position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of
the United States Federal income tax laws.
2. This opinion addresses only the matters set forth above and does
not address any other U.S. Federal, state, local or foreign tax
consequences that may result from the Merger or any other transaction. In
addition, we express no opinion as (a) to any transaction other than the
Merger as described in the Merger Agreement or (b) to any transaction
whatsoever, including the Merger, if, to the extent relevant to our
opinion, either (i) any of the transactions described in the Merger
Agreement is not consummated in accordance with the terms of the Merger
Agreement and there has not been any waiver or breach of any provisions
thereof or (ii) any of the representations, warranties, statements and
assumptions upon which we have relied in issuing this opinion is not true
and accurate at all relevant times. In the event that any one of the
representations, warranties, statements or assumptions upon which we have
relied in issuing this opinion is incorrect, our opinion may be adversely
affected and may not be relied upon at any time or under any circumstances.
This opinion is expressed as of the date hereof, and we are under no
obligation to supplement or revise this opinion to reflect any change (including
any change that has retroactive effect) (i) in applicable law or (ii) that
causes any information, fact, statement, representation, covenant, Document or
assumption on which this opinion is based to become untrue or incorrect.
This opinion is furnished to you solely for use in connection with the
Merger, as described in the Merger Agreement and the Proxy Statement/Prospectus,
and is not to be used, circulated, quoted, or otherwise referred to for any
other purpose without our express written consent.
Very truly yours,
HAYNES AND BOONE, LLP
D2-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings
ascribed to them in the proxy statement/prospectus contained in this
Registration Statement.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL allows a corporation to indemnify directors,
officers, employees and agents for costs and expenses incurred by or in
connection with an action, suit or proceeding brought by reason of their
position as a director, officer, employee or agent. The person indemnified must
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation. The DGCL provides that a
corporation may advance payment of expenses under certain circumstances. The
DGCL further provides that the indemnification and advancement of expenses
provisions of the DGCL will not be deemed exclusive of any other rights of
indemnification or advancement of expenses to which directors, officers,
employees and agents may be entitled under bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
In addition to the general indemnification section, Delaware law provides
further protection for directors under Section 102(b)(7) of the DGCL. This
section allows a Delaware corporation to include in its certificate of
incorporation a provision that eliminates or limits the personal liability of a
director to the corporation or its stockholders for monetary damages for
breaches of the director's fiduciary duty of care, provided that any such
provision does not (in the words of the statute) do any of the following:
[E]liminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under sec.174 of this Title [dealing
with willful or negligent violation of the statutory provision concerning
dividends and stock purchases and redemptions], or (iv) for any transaction
from which the director derived an improper personal benefit. No such
provision shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when such provision becomes
effective. . .
The DGCL further empowers the board of directors to make other
indemnification as authorized under the certificate of incorporation, bylaws or
any corporate resolution or agreement so long as the indemnification is
consistent with the DGCL.
Patterson-UTI's Restated Certificate of Incorporation provides that, to the
fullest extent permitted by the DGCL, a director of Patterson-UTI will not be
liable to Patterson-UTI or its stockholders for monetary damages for breach of
fiduciary duty as a director. Patterson-UTI's Amended and Restated Bylaws
provide that, to the maximum extent and in the manner permitted by the DGCL,
Patterson-UTI shall indemnify its directors, officers, employees and agents
against expenses (including attorneys' fees), judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact that such person is or was an agent of
Patterson-UTI, provided, however, that Patterson-UTI may modify the extent of
such indemnification by individual contracts with its directors and officers
and, provided, further, that Patterson-UTI shall not be required to indemnify
any director or officer in connection with any proceeding (or part thereof)
initiated by such person unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized in advance by the board of
directors of Patterson-UTI, (iii) such indemnification is provided by Patterson-
UTI, in its sole discretion, pursuant to the powers vested in Patterson-UTI
under the DGCL or (iv) such indemnification is required to be made pursuant to
an individual contract. Patterson-UTI's Amended and Restated Bylaws also provide
that Patterson-UTI may advance the payment of expenses, upon receipt of an
undertaking by or on behalf of such person to repay such amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
the bylaws or otherwise, and that the
II-1
indemnification and advancement of expense provisions of the bylaws are
nonexclusive. Patterson-UTI maintains director and officer liability insurance
covering director and officer indemnification.
Patterson-UTI has an Indemnity Agreement with each of its directors and
executive officers. The standard for indemnification under the Indemnity
Agreement is substantially the same as under Patterson-UTI's Amended and
Restated Bylaws. The Indemnity Agreement, however, provides for the creation of
a trust account in the event of a "change in control" (as defined in the
Indemnity Agreement), funded in an amount sufficient to reasonably satisfy any
and all expenses incurred by a director or executive officer in connection with
investigating, preparing for, participating in, and/or defending any proceeding
relating to any Indemnifiable Event (as defined in the Indemnity Agreement). The
trustee of such trust account is to be selected by the director or executive
officer receiving the indemnity under the Indemnity Agreement.
In the Agreement and Plan of Merger between Patterson Energy, Inc. and UTI
Energy Corp. dated as of February 4, 2001, pursuant to which UTI Energy Corp.
("UTI") merged with and into Patterson Energy, Inc. ("Patterson"), with
Patterson-UTI as the surviving corporation (the "UTI Merger"), Patterson-UTI
agreed to indemnify the former officers and directors of UTI from liabilities
arising out of actions or omissions in their capacity as such prior to the
effective time of the UTI Merger, and advance reasonable litigation expenses
incurred in connection with such actions or omissions, to the full extent
permitted under UTI's certificate of incorporation and bylaws. Further, for a
period of six years after the effective time of the UTI Merger, Patterson-UTI
will provide UTI's officers and directors with an insurance and indemnification
policy that provides coverage for acts or omissions through the effective time
of the UTI Merger; provided that the maximum aggregate amount of premiums that
Patterson-UTI will be required to pay to provide and maintain this coverage does
not exceed $300,000 per year.
The merger agreement provides that, from and after the effective time of
the merger, Patterson-UTI will indemnify the present and former officers,
directors and employees of TMBR/Sharp who act as a fiduciary under any of
TMBR/Sharp's employee benefit plans from liabilities arising out of in whole or
in part such person's acts or omissions as a director, officer or employee of
TMBR/Sharp. Patterson-UTI will advance such persons the reasonable litigation
expenses in connection with investigating, preparing and defending any action
arising out of such acts or omissions. In addition, for a period of six years
after the effective time of the merger, Patterson-UTI will provide TMBR/Sharp's
officers and directors with an insurance and indemnification policy that
provides coverage for acts or omissions through the effective time of the
merger; provided that the maximum aggregate amount of premiums that
Patterson-UTI will be required to pay to provide and maintain this coverage does
not exceed $275,000 per year.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 -- 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. (incorporated
by reference to Annex A to the proxy statement/prospectus).
4.1 -- Rights Agreement, dated January 2, 1997, between Patterson
Energy, Inc. and Continental Stock Transfer & Trust Company
(incorporated by reference to Item 2, "Exhibits" to
Registration Statement on Form 8-A filed on January 14,
1997).
4.2 -- Amendment to Rights Agreement dated as of October 23, 2001
(incorporated 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).
4.3 -- Restated Certificate of Incorporation of Patterson-UTI
Energy, Inc., as amended (incorporated by reference to Item
6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the
quarterly period ended June 30, 2003, filed on July 28,
2003).
5.1+ -- Opinion of Fulbright & Jaworski L.L.P. regarding the
legality of the securities to be offered hereby.
8.1* -- Opinion of Fulbright & Jaworski L.L.P. regarding tax
matters.
8.2* -- Opinion of Haynes and Boone, LLP regarding tax matters.
II-2
EXHIBIT
NUMBER DESCRIPTION
------- -----------
23.1+ -- Consent of PricewaterhouseCoopers LLP, independent auditors
for Patterson-UTI Energy, Inc.
23.2+ -- Consent of Ernst & Young LLP, independent auditors for UTI
Energy Corp. (predecessor-in-interest to Patterson-UTI
Energy, Inc.).
23.3+ -- Notice regarding consent of Arthur Andersen LLP, former
accountants of TMBR/Sharp Drilling, Inc.
23.4* -- Consent of KPMG LLP, independent auditors for TMBR/Sharp
Drilling, Inc.
23.5 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit
5.1 and Exhibit 8.1).
23.6 -- Consent of Haynes and Boone, LLP (included in Exhibit 8.2).
23.7* -- Consent of Energy Capital Solutions, LLC.
23.8* -- Consent of M. Brian Wallace, P.E., independent petroleum
engineer for Patterson-UTI Energy, Inc.
23.9* -- Consent of Joe C. Neal & Associates, independent petroleum
engineer for TMBR/Sharp Drilling, Inc.
24.1+ -- Powers of Attorney.
99.1+ -- Form of Proxy of TMBR/Sharp Drilling, Inc.
99.2 -- Opinion of Energy Capital Solutions, LLC (incorporated by
reference to Annex B to the proxy statement/prospectus).
---------------
* Filed herewith.
+ Previously filed.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(c) The undersigned registrant undertakes that every prospectus (i) that is
filed pursuant to the paragraph immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
II-3
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Snyder, State of Texas,
on the 24th day of November, 2003.
PATTERSON-UTI ENERGY, INC.
By: /s/ CLOYCE A. TALBOTT
------------------------------------
Cloyce A. Talbott
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 24th day of November, 2003.
SIGNATURE TITLE
--------- -----
/s/ CLOYCE A. TALBOTT Chief Executive Officer, Director (principal
-------------------------------------------- executive officer)
Cloyce A. Talbott
* Vice President -- Finance, Chief Financial
-------------------------------------------- Officer, Secretary, Treasurer (principal
Jonathan D. Nelson financial officer and principal accounting
officer)
* Chairman of the Board, Director
--------------------------------------------
Mark S. Siegel
* President, Chief Operating Officer, Director
--------------------------------------------
A. Glenn Patterson
* Senior Vice President, Director
--------------------------------------------
Kenneth N. Berns
* Director
--------------------------------------------
Robert C. Gist
* Director
--------------------------------------------
Curtis W. Huff
* Director
--------------------------------------------
Terry H. Hunt
II-5
SIGNATURE TITLE
--------- -----
* Director
--------------------------------------------
Kenneth R. Peak
* Director
--------------------------------------------
Nadine C. Smith
*By:/s/ CLOYCE A. TALBOTT
--------------------------------------------
Cloyce A. Talbott
as Attorney-in-Fact
II-6
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 -- 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. (incorporated
by reference to Annex A to the proxy statement/prospectus).
4.1 -- Rights Agreement, dated January 2, 1997, between Patterson
Energy, Inc. and Continental Stock Transfer & Trust Company
(incorporated by reference to Item 2, "Exhibits" to
Registration Statement on Form 8-A filed on January 14,
1997).
4.2 -- Amendment to Rights Agreement dated as of October 23, 2001
(incorporated 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).
4.3 -- Restated Certificate of Incorporation of Patterson-UTI
Energy, Inc., as amended (incorporated by reference to Item
6, "Exhibits and Reports on Form 8-K" to Form 10-Q for the
quarterly period ended June 30, 2003, filed on July 28,
2003).
5.1+ -- Opinion of Fulbright & Jaworski L.L.P. regarding the
legality of the securities to be offered hereby.
8.1* -- Opinion of Fulbright & Jaworski L.L.P. regarding tax
matters.
8.2* -- Opinion of Haynes and Boone, LLP regarding tax matters.
23.1+ -- Consent of PricewaterhouseCoopers LLP, independent auditors
for Patterson-UTI Energy, Inc.
23.2+ -- Consent of Ernst & Young LLP, independent auditors for UTI
Energy Corp. (predecessor-in-interest to Patterson-UTI
Energy, Inc.).
23.3+ -- Notice regarding consent of Arthur Andersen LLP, former
accountants of TMBR/Sharp Drilling, Inc.
23.4* -- Consent of KPMG LLP, independent auditors for TMBR/Sharp
Drilling, Inc.
23.5 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit
5.1 and Exhibit 8.1).
23.6 -- Consent of Haynes and Boone, LLP (included in Exhibit 8.2).
23.7* -- Consent of Energy Capital Solutions, LLC.
23.8* -- Consent of M. Brian Wallace, P.E., independent petroleum
engineer for Patterson-UTI Energy, Inc.
23.9* -- Consent of Joe C. Neal & Associates, independent petroleum
engineer for TMBR/Sharp Drilling, Inc.
24.1+ -- Powers of Attorney.
99.1+ -- Form of Proxy of TMBR/Sharp Drilling, Inc.
99.2 -- Opinion of Energy Capital Solutions, LLC (incorporated by
reference to Annex B to the proxy statement/prospectus).
---------------
* Filed herewith.
+ Previously filed.