exv10w3



 



Exhibit 10.3


PATTERSON-UTI ENERGY, INC.

CHANGE IN CONTROL AGREEMENT



          This Agreement between Patterson-UTI Energy, Inc., a Delaware corporation
(the “Company”), and A. Glenn Patterson (the “Employee”) is effective as of
January 29, 2004 (the “Effective Date”). Certain capitalized terms used herein
are defined in Section 21.



W I T N E S S E T H:



          Whereas, the Company considers it to be in the best interests of its
stockholders to encourage the continued employment of certain key employees of
the Company and its Wholly Owned Entities notwithstanding the possibility,
threat or occurrence of a Change in Control of the Company (as that phrase is
defined in Section 2);



          Whereas, the Employee is a key employee of the Company and/or one or more
of its Wholly Owned Entities;



          Whereas, the Company believes that the possibility of the occurrence of a
Change in Control of the Company may result in the termination of the
Employee’s employment by the Company or in the distraction of the Employee from
the performance of his duties to the Company, in either case to the detriment
of the Company and its stockholders;



          Whereas, the Company recognizes that the Employee could suffer adverse
financial and professional consequences if a Change in Control of the Company
were to occur; and



          Whereas, the Company wishes to enter into this Agreement to protect the
Employee if a Change in Control of the Company occurs, thereby encouraging the
Employee to remain in the employ of the Company and not to be distracted from
the performance of his duties to the Company by the possibility of a Change in
Control of the Company;



          Now, Therefore, the parties agree as follows:



Section 1. Other Employment Arrangements.


     (a)  This Agreement does not affect the Employee’s existing or future
employment arrangements with the Company unless a Change in Control of the
Company shall have occurred before the expiration of the term of this
Agreement. The Employee’s employment with the Company shall continue to be
governed by the Employee’s existing or future employment agreements with the
Company, if any, or, in the absence of any employment agreement, shall continue
to be at the will of the Board of Directors or, if the Employee is not an
officer of the Company at the time of the termination of the Employee’s
employment with the Company, the will of the Chief Executive Officer of the
Company, except that if (i) a Change in Control of the Company shall have
occurred before the expiration of the term of this Agreement, and (ii) the
Employee’s employment with the Company is terminated (whether by the Employee
or the Company or automatically as provided in Section 3) after the occurrence
of that Change in Control of the Company, then the Employee shall be entitled to receive
certain benefits as provided in this Agreement.


-1-






 


     (b)  Notwithstanding anything contained in this Agreement to the contrary,
if following the commencement of any discussion with a third person that
ultimately results in a written agreement or agreements to which the Company is
a party and which, if the transactions contemplated by such agreement or
agreements were consummated, would result in a Change in Control of the
Company, the Employee’s employment with the Company is terminated by the
Company for any reason other than as a result of the occurrence of an event
described in any of clauses (i) through (v) of Section 4, then for all purposes
of this Agreement, a Change in Control of the Company shall be deemed to have
occurred on the date immediately prior to the date of such termination,
removal, or reduction regardless of whether any Change in Control of the
Company actually occurs.


     (c)  Nothing in this Agreement shall prevent or limit the Employee’s
continuing or future participation in any plan, program, policy or practice of
or provided by the Company or any of its Affiliates and for which the Employee
may qualify, nor shall anything herein limit or otherwise affect such rights as
the Employee may have under any contract or agreement with the Company or any
of its Affiliates. Amounts which are vested benefits or which the Employee is
otherwise entitled to receive under any plan, program, policy or practice of or
provided by, or any contract or agreement with, the Company or any of its
Affiliates at or subsequent to the date of termination of the Employee’s
employment with the Company shall be payable or otherwise provided in
accordance with such plan, program, policy or practice or contract or agreement
except as explicitly modified by this Agreement.


Section 2. Change in Control of the Company. For purposes of this Agreement, a
“Change in Control of the Company” shall mean the occurrence of any of the
following after the Effective Date:


     (a)  The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “ Covered Person”) of
beneficial ownership (within the meaning of rule 13d-3 promulgated under the
Exchange Act) of 35% or more of either (i) the then outstanding shares of the
common stock of the Company (the “Outstanding Company Common Stock”), or (ii)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
“Outstanding Company Voting Securities”); provided, however, that for purposes
of this subsection (a) of this Section 2, the following acquisitions shall not
constitute a Change in Control of the Company: (i) any acquisition directly
from the Company, (ii) any acquisition by the Company, (iii) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any entity controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 2; or


     (b)  Individuals who, as of the Effective Date, constitute the Board of
Directors (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual
becoming a director subsequent to the Effective Date whose election, or
nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a


-2-






 


result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Covered Person other than the Board; or


     (c)  Consummation of (xx) a reorganization, merger or consolidation or sale
of the Company or any subsidiary of the Company, or (yy) a disposition of all
or substantially all of the assets of the Company (a “Business Combination”),
in each case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, direct or indirectly, more than 65% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election
of directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all of the
Company’s assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership immediately prior to such
Business Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Covered Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 35% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation, except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of Directors,
providing for such Business Combination.


Section 3. Term of this Agreement. The term of this Agreement shall begin on
the Effective Date and, unless automatically extended pursuant to the second
sentence of this Section 3, shall expire on the first to occur of:


          (i) the Employee’s death, the Employee’s Disability or the Employee’s
Retirement, which events shall also be deemed automatically to terminate the
Employee’s employment by the Company;



          (ii) the termination by the Employee or the Company of the Employee’s
employment by the Company; or



          (iii) the end of the last day (the “Expiration Date”) of:




		
	 	     (x) the three-year period beginning on the Effective
Date (or any period for which the term of this Agreement
shall have been automatically extended pursuant to the
second sentence of this Section 3)
if no Change in Control of the Company shall have
occurred during that three-year period (or any period for
which the term of this Agreement



-3-






 







		
	 	shall have been
automatically extended pursuant to the second sentence of
this Section 3); or




		
	 	     (y) if one or more Changes in Control of the Company
shall have occurred during the three-year period beginning
on the Effective Date (or any period for which the term of
this Agreement shall have been automatically extended
pursuant to the second sentence of this Section 3), the
two-year period beginning on the date on which the last
Change in Control of the Company occurred.



If (i) the term of this Agreement shall not have expired as a result of the
occurrence of one of the events described in clause (i) or (ii) of the
immediately preceding sentence, and (ii) the Company shall not have given
notice to the Employee at least ninety (90) days before the Expiration Date
that the term of this Agreement will expire on the Expiration Date, then the
term of this Agreement shall be automatically extended for successive one-year
periods (the first such period to begin on the day immediately following the
Expiration Date) unless the Company shall have given notice to the Employee at
least ninety (90) days before the end of any one-year period for which the term
of this Agreement shall have been automatically extended that such term will
expire at the end of that one-year period. The expiration of the term of this
Agreement shall not terminate this Agreement itself or affect the right of the
Employee or the Employee’s legal representatives to enforce the payment of any
amount or other benefit to which the Employee was entitled before the
expiration of the term of this Agreement or to which the Employee became
entitled as a result of the event (including the termination, whether by the
Employee or the Company or automatically as provided in this Section 3, of the
Employee’s employment by the Company) that caused the term of this Agreement to
expire.


Section 4. Event of Termination for Cause. An “Event of Termination for Cause”
shall have occurred if, after a Change in Control of the Company, the Employee
shall have committed:


          (i) gross negligence or willful misconduct in connection with his duties
or in the course of his employment with the Company;



          (ii) an act of fraud, embezzlement or theft in connection with his duties
or in the course of his employment with the Company;



          (iii) intentional wrongful damage to property of the Company;



          (iv) intentional wrongful disclosure of secret processes or confidential
information of the Company; or



          (v) an act leading to a conviction of a felony or a misdemeanor involving
moral turpitude.



For purposes of this Agreement, no act, or failure to act, on the part of the
Employee shall be deemed “intentional” if it was due primarily to an error in
judgment or negligence, but shall be deemed “intentional” only if done, or
omitted to be done, by the Employee not in good faith and
without reasonable belief that his action or omission was in the best interest
of the Company. Notwithstanding the foregoing, the Employee shall not be
deemed to have been terminated as a


-4-






 


result of an “Event of Termination for
Cause” hereunder unless and until there shall have been delivered to the
Employee a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the Board of Directors then in office at a meeting
of the Board of Directors called and held for such purpose (after reasonable
notice to the Employee and an opportunity for the Employee, together with his
counsel, to be heard before the Board of Directors), finding that, in the good
faith opinion of the Board of Directors, the Employee had committed an act set
forth above in this Section 4 and specifying the particulars thereof in detail.
Nothing herein shall limit the right of the Employee or his legal
representatives to contest the validity or propriety of any such determination.


Section 5. An Event of Termination for Good Reason. An “Event of Termination
for Good Reason” shall have occurred if, after a Change in Control of the
Company, the Company shall:


          (i) assign to the Employee any duties inconsistent with the Employee’s
position (including offices, titles and reporting requirements), authority,
duties, status or responsibilities with the Company in effect immediately
before the occurrence of the first Change in Control of the Company or
otherwise make any change in any such position, authority, duties or
responsibilities;



          (ii) remove the Employee from, or fail to re-elect or appoint the Employee
to, any duties or position with the Company or any of its Affiliates that were
assigned or held by the Employee immediately before the occurrence of the first
Change in Control of the Company, except that a nominal change in the
Employee’s title that is merely descriptive and does not affect rank or status
shall not constitute such an event;



          (iii) take any other action that results in a material diminution in such
position, authority, duties or responsibilities or otherwise take any action
that materially interferes therewith;



          (iv) reduce the Employee’s annual base salary as in effect immediately
before the occurrence of the first Change in Control of the Company or as the
Employee’s annual base salary may be increased from time to time after that
occurrence (the “Base Salary”);



          (v) reduce the Employee’s annual bonus to an amount less than the average
of the two annual bonuses earned by the Employee with respect to the two fiscal
years of the Company immediately preceding the fiscal year of the Company in
which the first Change in Control of the Company occurred (the amount of such
average is referred to herein as the “Benchmark Bonus”);



          (vi) relocate the Employee’s principal place of employment to a location
outside of a 50-mile radius from the Employee’s principal place of employment
immediately prior to the first Change in Control of the Company;



          (vii) fail to (x) continue in effect any bonus, incentive, profit sharing,
performance, savings, retirement or pension policy, plan, program or
arrangement (such policies, plans, programs and arrangements collectively being
referred to herein as “Basic Benefit Plans”),





-5-






 





including, but not limited to,
any deferred compensation, supplemental executive retirement or other
retirement income, stock option, stock purchase, stock appreciation, or similar
policy, plan, program or arrangement of the Company, in which the Employee was
a participant immediately before the occurrence of the first Change in Control
of the Company, or any substitute plan adopted by the Board of Directors and in
which the Employee was a participant immediately before the occurrence of the
last Change in Control of the Company, unless an equitable and reasonably
comparable arrangement (embodied in a substitute or alternative benefit or
plan) shall have been made with respect to such Basic Benefit Plan promptly
following the occurrence of the last Change in Control of the Company, or (y)
continue the Employee’s participation in any Basic Benefit Plan (or any
substitute or alternative plan) on substantially the same basis, both in terms
of the amount of benefits provided to the Employee (which are in any event
always subject to the terms of any applicable Basic Benefit Plan) and the level
of the Employee’s participation relative to other participants, as existed
immediately before the occurrence of the first Change in Control of the
Company;


          (viii) fail to continue to provide the Employee with benefits
substantially similar to those enjoyed by the Employee under any of the
Company’s other employee benefit plans, policies, programs and arrangements
(the “Other Benefit Plans”), including, but not limited to, life insurance,
medical, dental, health, hospital, accident or disability plans, in which the
Employee was a participant immediately before the occurrence of the first
Change in Control of the Company;



          (ix) fail to provide the Employee with the number of paid vacation days to
which the Employee was entitled in accordance with the Company’s vacation
policy in effect immediately before the occurrence of the first Change in
Control of the Company;



          (x) fail to continue to provide the Employee with office space, related
facilities and support personnel (including, but not limited to, administrative
and secretarial assistance) (y) that are both commensurate with the Employee’s
responsibilities to and position with the Company immediately before the
occurrence of the first Change in Control of the Company and not materially
dissimilar to the office space, related facilities and support personnel
provided to other employees of the Company having comparable responsibility to
the Employee, or (z) that are physically located at the Company’s principal
executive offices; or



          (xi) purport to terminate the Employee’s employment by the Company unless
notice of that termination shall have been given to the Employee pursuant to,
and that notice shall meet the requirements of, Section 6.



Section 6. Notice of Termination. If a Change in Control of the Company shall
have occurred before the expiration of the term of this Agreement, any
subsequent termination by the Employee or the Company of the Employee’s
employment by the Company, or any determination of the Employee’s Disability,
shall be communicated by notice to the other party that shall indicate the
specific paragraph of Section 7 pursuant to which the Employee is to receive
benefits as a result of the termination. If the notice states that the
Employee’s employment by the Company has been automatically terminated as a result of the
Employee’s Disability, the notice shall (i) specifically describe the basis for
the determination of the Employee’s Disability, and (ii) state the date of the
determination of the Employee’s Disability,


-6-






 


which date shall be not more than
ten (10) days before the date such notice is given. If the notice is from the
Company and states that the Employee’s employment by the Company is terminated
by the Company as a result of the occurrence of an Event of Termination for
Cause, the notice shall specifically describe the action or inaction of the
Employee that the Company believes constitutes an Event of Termination for
Cause and shall be accompanied by a copy of the resolution satisfying Section
4. If the notice is from the Employee and states that the Employee’s
employment by the Company is terminated by the Employee as a result of the
occurrence of an Event of Termination for Good Reason, the notice shall
specifically describe the action or inaction of the Company that the Employee
believes constitutes an Event of Termination for Good Reason. Each notice
given pursuant to this Section 6 (other than a notice stating that the
Employee’s employment by the Company has been automatically terminated as a
result of the Employee’s Disability) shall state a date, which shall be not
fewer than thirty (30) days nor more than sixty (60) days after the date such
notice is given, on which the termination of the Employee’s employment by the
Company is effective. The date so stated in accordance with this Section 6
shall be the “Termination Date”. If a Change in Control of the Company shall
have occurred before the expiration of the term of this Agreement, any
subsequent purported termination by the Company of the Employee’s employment by
the Company, or any subsequent purported determination by the Company of the
Employee’s Disability, shall be ineffective unless that termination or
determination shall have been communicated by the Company to the Employee by
notice that meets the requirements of the foregoing provisions of this Section
6 and the provisions of Section 9.


Section 7. Benefits Payable on Change in Control of the Company and
Termination.


     (a)  If (x) a Change in Control of the Company shall have occurred before
the expiration of the term of this Agreement, and (y) the Employee’s employment
by the Company is terminated (whether by the Employee or the Company or
automatically as provided in Section 3) after the occurrence of that Change in
Control of the Company, the Employee shall be entitled to the following
benefits:


          (i) If the Employee’s employment by the Company is terminated (x) by the
Company as a result of the occurrence of an Event of Termination for Cause, or
(y) by the Employee before the occurrence of an Event of Termination for Good
Reason, then the Company shall pay to the Employee the Base Salary accrued
through the Termination Date but not previously paid to the Employee, and the
Employee shall be entitled to any other amounts or benefits provided under any
plan, policy, practice, program, contract or arrangement of or with the
Company, including, but not limited to, the Basic Benefit Plans and the Other
Benefit Plans, which shall be governed by the terms thereof (except as
explicitly modified by this Agreement).



          (ii) If the Employee’s employment by the Company is automatically
terminated as a result of the Employee’s death, the Employee’s Disability or
the Employee’s Retirement, then (x) the Company shall pay to the Employee the
Base Salary accrued through the date of the occurrence of that event but not
previously paid to the Employee, and (y) the Employee shall be entitled to any
other amounts or benefits provided under any plan, policy,
practice, program, contract or arrangement of or with the Company,
including, but not limited to, the Basic Benefit Plans and the Other Benefit
Plans, which shall be governed by the terms thereof (except as explicitly
modified by this Agreement).




-7-






 





          (iii) If the Employee’s employment by the Company is terminated (x) by the
Company otherwise than as a result of the occurrence of an Event of Termination
for Cause, or (y) by the Employee after the occurrence of an Event of
Termination for Good Reason, then the Employee shall be entitled to the
following:



               (1) the Company shall pay to the Employee the Base Salary and compensation
for earned but unused vacation time accrued through the Termination Date but
not previously paid to the Employee;



               (2) the Company shall pay to the Employee an amount equal to the product
of (A) the greater of (I) the highest aggregate annual bonus, incentive or
other payment of cash compensation in addition to annual base salary pursuant
to any bonus, incentive, profit-sharing, performance, discretionary pay or
similar policy, plan, program or arrangement of the Company paid or payable to
the Employee (including any deferred portion thereof) for any fiscal year (or
portion thereof) of the Company paid after the Effective Date, and (II) the
Benchmark Bonus, multiplied by (B) a fraction, the numerator of which is the
number of days in the current fiscal year of the Company through the
Termination Date and the denominator of which is 365;



               (3) the Company shall pay to the Employee, as a lump sum, an amount (the
“Severance Payment”) equal to two and one-half (2.5) times the sum of:



                    A. the amount (including any deferred portion thereof) of the Base Salary
that would have been paid to the Employee during the fiscal year of the Company
in which the Termination Date occurs based on the assumption that the
Employee’s employment by the Company had continued throughout that fiscal year
at the Base Salary at the highest rate in effect at any time during the term of
this Agreement; plus



                    B. the amount equal to the average of the three annual bonuses earned by
the Employee with respect to the three fiscal years preceding the year in which
the Termination Date occurs;



               (4) the Company (at its sole expense) shall take the following actions:



                    A. throughout the Relevant Period, the Company shall maintain in effect,
and not materially reduce the benefits provided by, each of the Other Benefit
Plans in which the Employee was a participant immediately before the
Termination Date; and



                    B. the Company shall arrange for the Employee’s uninterrupted
participation throughout the Relevant Period in each of such Other Benefit
Plans,




	 	 	 	provided that if the Employee’s participation after the
Termination Date in any such Other Benefit Plan is not
permitted by the terms of that Other
Benefit Plan, then throughout the Relevant Period, the
Company (at its sole expense) shall provide the Employee with
substantially the same benefits that were provided to the
Employee by that Other Benefit Plan immediately before the
Termination Date; and



-8-






 






               (5) the Employee shall be entitled to any other amounts or benefits
provided under any plan, policy, practice, program, contract or arrangement of
or with the Company, including, but not limited to, the Basic Benefit Plans and
the Other Benefit Plans, which shall be governed by the terms thereof (except
as explicitly modified by this Agreement).



     (b)  Each payment required to be made to the Employee pursuant to the
foregoing provisions of Section 7(a) above (i) shall be made by check drawn on
an account of the Company at a bank located in the United States of America,
and (ii) shall be paid (x) if the Employee’s employment by the Company was
terminated as a result of the Employee’s death, the Employee’s Disability or
the Employee’s Retirement, not more than thirty (30) days immediately following
the date of the occurrence of that event, and (y) if the Employee’s employment
by the Company was terminated for any other reason, not more than ten (10) days
immediately following the Termination Date.


Section 8. Successors. If a Change in Control of the Company shall have
occurred before the expiration of the term of this Agreement,


          (i) the Company shall not, directly or indirectly, consolidate with, merge
into or sell or otherwise transfer its assets as an entirety or substantially
as an entirety to, any person, or permit any person to consolidate with or
merge into the Company, unless immediately after such consolidation, merger,
sale or transfer, the Successor shall have assumed in writing the Company’s
obligations under this Agreement; and



          (ii) not fewer than ten (10) days before the consummation of any
consolidation of the Company with, merger by the Company into, or sale or other
transfer by the Company of its assets as an entirety or substantially as an
entirety to, any person, the Company shall give the Employee notice of that
proposed transaction.



Section 9. Notice. Notices required or permitted to be given by either party
pursuant to this Agreement shall be in writing and shall be deemed to have been
given when delivered personally to the other party or when deposited with the
United States Postal Service as certified or registered mail with postage
prepaid and addressed:


     (a)  if to the Employee, at the Employee’s address last shown on the
Company’s records, and


     (b)  if to the Company, at 4510 Lamesa Highway, Snyder, Texas 79549,
directed to the attention of the Chief Executive Officer.


or, in either case, to such other address as the party to whom or which such
notice is to be given shall have specified by notice given to the other party.


Section 10. Withholding Taxes. The Company may withhold from all payments to
be paid to the Employee pursuant to this Agreement all taxes that, by
applicable federal or state law, the Company is required to so withhold.


Section 11. Certain Additional Payments by the Company.


-9-






 


     (a)  Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by, or benefit
from, the Company or any of its Affiliates to or for the benefit of the
Employee, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (any such payments, distributions or
benefits being individually referred to herein as a “Payment,” and any two or
more of such payments, distributions or benefits being referred to herein as
“Payments”), would be subject to the excise tax imposed by Section 4999 of the
Code (such excise tax, together with any interest thereon, any penalties,
additions to tax, or additional amounts with respect to such excise tax, and
any interest in respect of such penalties, additions to tax or additional
amounts, being collectively referred herein to as the “Excise Tax”), then the
Employee shall be entitled to receive an additional payment or payments
(individually referred to herein as a “Gross-Up Payment” and any two or more of
such additional payments being referred to herein as “Gross-Up Payments”) in an
amount such that after payment by the Employee of all taxes (as defined in
Section 11(k)) imposed upon the Gross-Up Payment, the Employee retains an
amount of such Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.


     (b)  Subject to the provisions of Section 11(c) through (i), any
determination (individually, a “Determination”) required to be made under this
Section 11(b), including whether a Gross-Up Payment is required and the amount
of such Gross-Up Payment, shall initially be made, at the Company’s expense, by
nationally recognized tax counsel mutually acceptable to the Company and the
Employee (“Tax Counsel”). Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to the Company and the
Employee within 15 business days of the termination of the Employee’s
employment, if applicable, or such other time or times as is reasonably
requested by the Company or the Employee. If Tax Counsel makes the initial
Determination that no Excise Tax is payable by the Employee with respect to a
Payment or Payments, it shall furnish the Employee with an opinion reasonably
acceptable to the Employee that no Excise Tax will be imposed with respect to
any such Payment or Payments. The Employee shall have the right to dispute any
Determination (a “Dispute”) within 15 business days after delivery of Tax
Counsel’s opinion with respect to such Determination. The Gross-Up Payment, if
any, as determined pursuant to such Determination shall, at the Company’s
expense, be paid by the Company to the Employee within five business days of
the Employee’s receipt of such Determination. The existence of a Dispute shall
not in any way affect the Employee’s right to receive the Gross-Up Payment in
accordance with such Determination. If there is no Dispute, such Determination
shall be binding, final and conclusive upon the Company and the Employee,
subject in all respects, however, to the provisions of Section 11(c) through
(i) below. As a result of the uncertainty in the application of Sections 4999
and 280G of the Code, it is possible that Gross-Up Payments (or portions
thereof) which will not have been made by the Company should have been made
(“Underpayment”), and if upon any reasonable written request from the Employee
or the Company to Tax Counsel, or upon Tax Counsel’s own initiative, Tax
Counsel, at the Company’s expense, thereafter determines that the Employee is
required to make a payment of any Excise Tax or any additional
Excise Tax, as the case may be, Tax Counsel shall, at the Company’s
expense, determine the amount of the Underpayment that has occurred and any
such Underpayment shall be promptly paid by the Company to the Employee.


     (c)  The Company shall defend, hold harmless, and indemnify the Employee on
a fully grossed-up after tax basis from and against any and all claims, losses,
liabilities,


-10-






 


obligations, damages, impositions, assessments, demands,
judgements, settlements, costs and expenses (including reasonable attorneys’,
accountants’, and experts’ fees and expenses) with respect to any tax liability
of the Employee resulting from any Final Determination (as defined in Section
11(j)) that any Payment is subject to the Excise Tax.


     (d)  If a party hereto receives any written or oral communication with
respect to any question, adjustment, assessment or pending or threatened audit,
examination, investigation or administrative, court or other proceeding which,
if pursued successfully, could result in or give rise to a claim by the
Employee against the Company under this Section 11 (“Claim”), including, but
not limited to, a claim for indemnification of the Employee by the Company
under Section 11(c), then such party shall promptly notify the other party
hereto in writing of such Claim (“Tax Claim Notice”).


     (e)  If a Claim is asserted against the Employee (“Employee Claim”), the
Employee shall take or cause to be taken such action in connection with
contesting such Employee Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as
are reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide
that the Company shall be solely responsible for the payment of any and all
fees and disbursements of such counsel and any experts) and the execution of
powers of attorney provided that:


          (i) within 30 calendar days after the Company receives or delivers, as the
case may be, the Tax Claim Notice relating to such Employee Claim (or such
earlier date that any payment of the taxes claimed is due from the Employee,
but in no event sooner than five calendar days after the Company receives or
delivers such Tax Claim Notice), the Company shall have notified the Employee
in writing (“Election Notice”) that the Company does not dispute its
obligations (including, but not limited to, its indemnity obligations) under
this Agreement and that the Company elects to contest, and to control the
defense or prosecution of, such Employee Claim at the Company’s sole risk and
sole cost and expense; and



          (ii) the Company shall have advanced to the Employee on an interest-free
basis, the total amount of the tax claimed in order for the Employee, at the
Company’s request, to pay or cause to be paid the tax claimed, file a claim for
refund of such tax and, subject to the provisions of the last sentence of
Section 11(g), sue for a refund of such tax if such claim for refund is
disallowed by the appropriate taxing authority (it being understood and agreed
by the parties hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any proceeding in, for
example, United States Tax Court) and shall indemnify and hold the Employee
harmless, on a fully grossed-up after tax basis, from any tax imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and



          (iii) the Company shall reimburse the Employee for any and all costs and
expenses resulting from any such request by the Company and shall indemnify and
hold the Employee harmless, on fully grossed-up after-tax basis, from any tax
imposed as a result of such reimbursement.




-11-






 





     (f)  Subject to the provisions of Section 11(e) hereof, the Company shall
have the right to defend or prosecute, at the sole cost, expense and risk of
the Company, such Employee Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted diligently by the Company to a
Final Determination; provided, however, that (i) the Company shall not, without
the Employee’s prior written consent, enter into any compromise or settlement
of such Employee Claim that would adversely affect the Employee, (ii) any
request from the Company to the Employee regarding any extension of the statute
of limitations relating to assessment, payment, or collection of taxes for the
taxable year of the Employee with respect to which the contested issues
involved in, and amount of, the Employee Claim relate is limited solely to such
contested issues and amount, and (iii) the Company’s control of any contest or
proceeding shall be limited to issues with respect to the Employee Claim and
the Employee shall be entitled to settle or contest, in his sole and absolute
discretion, any other issue raised by the Internal Revenue Service or any other
taxing authority. So long as the Company is diligently defending or
prosecuting such Employee Claim, the Employee shall provide or cause to be
provided to the Company any information reasonably requested by the Company
that relates to such Employee Claim, and shall otherwise cooperate with the
Company and its representatives in good faith in order to contest effectively
such Employee Claim. The Company shall keep the Employee informed of all
developments and events relating to any such Employee Claim (including, without
limitation, providing to the Employee copies of all written materials
pertaining to any such Employee Claim), and the Employee or his authorized
representatives shall be entitled, at the Employee’s expense, to participate in
all conferences, meetings and proceedings relating to any such Employee Claim.


     (g)  If, after actual receipt by the Employee of an amount of a tax claimed
(pursuant to an Employee Claim) that has been advanced by the Company pursuant
to Section 11(e)(ii) hereof, the extent of the liability of the Company
hereunder with respect to such tax claimed has been established by a Final
Determination, the Employee shall promptly pay or cause to be paid to the
Company any refund actually received by, or actually credited to, the Employee
with respect to such tax (together with any interest paid or credited thereon
by the taxing authority and any recovery of legal fees from such taxing
authority related thereto), except to the extent that any amounts are then due
and payable by the Company to the Employee, whether under the provisions of
this Agreement or otherwise. If, after the receipt by the Employee of an
amount advanced by the Company pursuant to Section 11(e)(ii), a determination
is made by the Internal Revenue Service or other appropriate taxing authority
that the Employee shall not be entitled to any refund with respect to such tax
claimed and the Company does not notify the Employee in writing of its intent
to contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of any Gross-Up Payments and other payments required to be paid
hereunder.


     (h)  With respect to any Employee Claim, if the Company fails to deliver an
Election Notice to the Employee within the period provided in Section 11(e)(i)
hereof or, after delivery of such Election Notice, the Company fails to comply with the
provisions of Section 11(e)(ii) and (iii) and (f) hereof, then the Employee
shall at any time thereafter have the right (but not the obligation), at his
election and in his sole and absolute discretion, to defend or prosecute, at
the sole cost, expense and risk of the Company, such Employee Claim. The
Employee shall have full control of such defense or prosecution and such
proceedings, including


-12-






 


any settlement or compromise thereof. If requested by
the Employee, the Company shall cooperate, and shall cause its Affiliates to
cooperate, in good faith with the Employee and his authorized representatives
in order to contest effectively such Employee Claim. The Company may attend,
but not participate in or control, any defense, prosecution, settlement or
compromise of any Employee Claim controlled by the Employee pursuant to this
Section 11(h) and shall bear its own costs and expenses with respect thereto.
In the case of any Employee Claim that is defended or prosecuted by the
Employee, the Employee shall, from time to time, be entitled to current
payment, on a fully grossed-up after tax basis, from the Company with respect
to costs and expenses incurred by the Employee in connection with such defense
or prosecution.


     (i)  In the case of any Employee Claim that is defended or prosecuted to a
Final Determination pursuant to the terms of this Section 11(i), the Company
shall pay, on a fully grossed-up after tax basis, to the Employee in
immediately available funds the full amount of any taxes arising or resulting
from or incurred in connection with such Employee Claim that have not
theretofore been paid by the Company to the Employee, together with the costs
and expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company to the Employee,
within ten calendar days after such Final Determination. In the case of any
Employee Claim not covered by the preceding sentence, the Company shall pay, on
a fully grossed-up after tax basis, to the Employee in immediately available
funds the full amount of any taxes arising or resulting from or incurred in
connection with such Employee Claim at least ten calendar days before the date
payment of such taxes is due from the Employee, except where payment of such
taxes is sooner required under the provisions of this Section 11(i), in which
case payment of such taxes (and payment, on a fully grossed-up after tax basis,
of any costs and expenses required to be paid under this Section 11(i) shall be
made within the time and in the manner otherwise provided in this Section
11(i).


     (j)  For purposes of this Agreement, the term “Final Determination” shall
mean (A) a decision, judgment, decree or other order by a court or other
tribunal with appropriate jurisdiction, which has become final and
non-appealable; (B) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (C) any disallowance of
a claim for refund or credit in respect to an overpayment of tax unless a suit
is filed on a timely basis; or (D) any final disposition by reason of the
expiration of all applicable statutes of limitations.


     (k)  For purposes of this Agreement, the terms “tax” and “taxes” mean any
and all taxes of any kind whatsoever (including, but not limited to, any and
all Excise Taxes, income taxes, and employment taxes), together with any
interest thereon, any penalties, additions to tax, or additional amounts with
respect to such taxes and any interest in respect of such penalties, additions
to tax, or additional amounts.


Section 12. Expenses of Enforcement. If a Change in Control of the Company
shall have occurred before the expiration of the term of this Agreement, then,
upon demand by the Employee made to the Company, the Company shall reimburse
the Employee for the reasonable expenses (including attorneys’ fees and
expenses) incurred by the Employee in enforcing or seeking to enforce the
payment of any amount or other benefit to which the Employee shall have become
entitled pursuant to this Agreement, including those incurred in connection
with any


-13-






 


arbitration initiated pursuant to Section 20. To the extent that any
such reimbursement would be subject to the Excise Tax, then the Employee shall
be entitled to receive Gross-Up Payments in an amount such that after payment
by the Employee of all taxes imposed on such Gross-Up Payments, the Employee
retains an amount equal to the Excise Tax imposed upon the reimbursement, and
the other provisions of Section 11 hereof shall also apply to such circumstance
unless the context thereof otherwise indicates.


Section 13. Employment by Wholly Owned Entities. If, at or after the Effective
Date, the Employee is or becomes an employee of one or more corporations,
partnerships, limited liability companies or other entities that are, directly
or indirectly, wholly owned by the Company (“Wholly Owned Entities”),
references in this Agreement to the Employee’s employment by the Company shall
include the Employee’s employment by any such Wholly Owned Entity.


Section 14. No Obligation to Mitigate; No Rights of Offset.


     (a)  The Employee shall not be required to mitigate the amount of any
payment or other benefit required to be paid or provided to the Employee
pursuant to this Agreement, whether by seeking other employment or otherwise,
nor shall the amount of any such payment or other benefit be reduced on account
of any compensation earned by the Employee as a result of employment by another
person.


     (b)  The Company’s obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Employee or others.


Section 15. Amendment and Waiver. No provision of this Agreement may be
amended or waived (whether by act or course of conduct or omission or
otherwise) unless that amendment or waiver is by written instrument signed by
the parties hereto. No waiver by either party of any breach of this Agreement
shall be deemed a waiver of any other or subsequent breach.


Section 16. Governing Law. The validity, interpretation, construction and
enforceability of this Agreement shall be governed by the laws of the State of
Texas.


Section 17. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.


Section 18. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which together will constitute
the same instrument.


Section 19. Assignment. This Agreement shall inure to the benefit of and be
enforceable by the Employee’s legal representative. The Company may not assign
any of its obligations under this Agreement unless (i) such assignment is to a
Successor and (ii) the requirements of Section 8 are fulfilled.


Section 20. Arbitration. Except as otherwise explicitly provided in Section
11, any dispute between the parties arising out of this Agreement, whether as
to this Agreement’s construction,


-14-






 


interpretation or enforceability or as to any
party’s breach or alleged breach of any provision of this Agreement, shall be
submitted to arbitration in accordance with the following procedures:


          (i) Either party may demand such arbitration by giving notice of that
demand to the other party. The notice shall state (x) the matter in
controversy, and (y) the name of the arbitrator selected by the party giving
the notice.



          (ii) Not more than 15 days after such notice is given, the other party
shall give notice to the party who demanded arbitration of the name of the
arbitrator selected by the other party. If the other party shall fail to
timely give such notice, the arbitrator that the other party was entitled to
select shall be named by the Arbitration Committee of the American Arbitration
Association. Not more than 15 days after the second arbitrator is so named,
the two arbitrators shall select a third arbitrator. If the two arbitrators
shall fail to timely select a third arbitrator, the third arbitrator shall be
named by the Arbitration Committee of the American Arbitration Association.



          (iii) The dispute shall be arbitrated at a hearing that shall be concluded
within ten days immediately following the date the dispute is submitted to
arbitration unless a majority of the arbitrators shall elect to extend the
period of arbitration. Any award made by a majority of the arbitrators (x)
shall be made within ten days following the conclusion of the arbitration
hearing, (y) shall be conclusive and binding on the parties, and (z) may be
made the subject of a judgment of any court having jurisdiction.



          (iv) All expenses of the arbitration shall be borne by the Company.



The agreement of the parties contained in the foregoing provisions of this
Section 20 shall be a complete defense to any action, suit or other proceeding
instituted in any court or before any administrative tribunal with respect to
any dispute between the parties arising out of this Agreement.


Section 21. Interpretation.


     (a)  As used in this Agreement, the following terms and phrases have the
indicated meanings:


          (i) “Affiliate” and “Affiliates” mean, when used with respect to any
entity, individual, or other person, any other entity, individual, or other
person which, directly or indirectly, through one or more intermediaries
controls, or is controlled by, or is under common control with such entity,
individual or person.



          (ii) “Base Salary” has the meaning assigned to that term in Section 5.



          (iii) “Basic Benefit Plans” has the meaning assigned to that term in
Section 5.



          (iv) “Benchmark Bonus” has the meaning assigned to that term in Section 5.





-15-






 





          (v) Board of Directors” means the Board of Directors of the Company.



          (vi) “Business Combination” has the meaning assigned to that term in
Section 2.



          (vii) “Change in Control of the Company” has the meaning assigned to that
phrase in Section 2.



          (viii) “Claim” has the meaning assigned to such term in Section 11.



          (ix) “Code” means the Internal Revenue Code of 1986, as amended from time
to time.



          (x) “Commission” means the United States Securities and Exchange
Commission or any successor agency.



          (xi) “Company” has the meaning assigned to that term in the preamble to
this Agreement. The term “Company” shall also include any Successor, whether
the liability of such Successor under this Agreement is established by contract
or occurs by operation of law.



          (xii) “Covered Person” has the meaning assigned to that term in Section 2.



          (xiii) “Determination” has the meaning assigned to that term in Section
11.



          (xiv) “Dispute” has the meaning assigned to that term in Section 11.



          (xv) “Effective Date” has the meaning assigned to that term in the
preamble to this Agreement.



          (xvi) “Election Notice” has the meaning assigned to such term in Section
11.



          (xvii) “Employee” has the meaning assigned to such term in the preamble to
this Agreement.



          (xviii) “Employee Claim” has the meaning assigned to such term in Section
11.



          (xix) “Employee’s Disability” means:




		
	 	     (1) if no Change in Control of the Company shall have
occurred before the date of determination, the physical or
mental disability of the Employee determined in accordance
with the




-16-






 




		
	 	disability policy of the Company at the time in
effect and generally applicable to its salaried employees;
and
	 
	 	     (2) if a Change in Control of the Company shall have
occurred at that date, the physical or mental disability of
the Employee determined in accordance with the disability
policy of the Company in effect immediately before the
occurrence of the first Change in Control of the Company and
generally applicable to its salaried employees.


The Employee’s Disability, and the automatic termination of
the Employee’s employment by the Company by reason of the
Employee’s Disability, shall be deemed to have occurred on
the date of determination, provided that if (1) a Change in
Control of the Company shall have occurred before the
expiration of the term of this Agreement, (2) the Company
shall have subsequently given notice pursuant to Section 6 of
the Company’s determination of the Employee’s Disability, and
(3) the Employee shall have given notice to the Company that
the Employee disagrees with that determination, then (A)
whether the Employee’s Disability shall have occurred shall
be submitted to arbitration pursuant to Section 20, and (B)
if a majority of the arbitrators decide that the Employee’s
Disability had not occurred, at the date of determination by
the Company, then (I) the Employee’s Disability, and the
automatic termination of the Employee’s employment by the
Company by reason of the Employee’s Disability, shall be
deemed not to have occurred, and (II) on demand by the
Employee made to the Company, the Company shall reimburse the
Employee for the reasonable expenses (including attorneys’
fees and expenses) incurred by the Employee in obtaining that
decision.



          (xx) “Employee’s Retirement” means (x) if no Change in Control of the
Company shall have occurred before the date of the Employee’s proposed
retirement, the retirement of the Employee in accordance with the retirement
policy of the Company at the time in effect and generally applicable to its
salaried employees, and (y) if a Change in Control of the Company shall have
occurred at that date, the retirement of the Employee from the employ of the
Company in accordance with the retirement policy of the Company in effect
immediately before the occurrence of the first Change in Control of the Company
and generally applicable to its salaried employees.



          (xxi) “Event of Termination for Good Reason” has the meaning assigned to
that phrase in Section 5.



          (xxii) “Event of Termination for Cause” has the meaning assigned to that
phrase in Section 4.



          (xxiii) “Exchange Act” means the Securities Exchange Act of 1934, as
amended from time to time.




-17-






 





          (xxiv) “Excise Tax” has the meaning assigned to that term in Section 11.



          (xxv) “Expiration Date” has the meaning assigned to that term in Section
3.



          (xxvi) “Final Determination” has the meaning assigned to such term in
Section 11.



          (xxvii) “Gross-Up Payment” has the meaning assigned to that term in
Section 11.



          (xxviii) “Other Benefit Plans” has the meaning assigned to that term in
Section 5.



          (xxix) “Outstanding Company Common Stock” has the meaning assigned to that
term in Section 2.



          (xxx) “Outstanding Company Voting Securities” has the meaning assigned to
that term in Section 2.



          (xxxi) “Payment” has the meaning assigned to that term in Section 11.



          (xxxii) “person” means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited partnership, limited
liability company, trust, unincorporated organization, government, or agency or
political subdivision of any government.



          (xxxiii) “Relevant Period” means a period beginning on the Termination
Date and ending on the first to occur of (x) the third anniversary of the
Termination Date, (y) the date on which the Employee becomes a full time
employee of another person, and (z) the Employee’s normal retirement date,
determined in accordance with the retirement policy of the Company in effect on
the Termination Date.



          (xxxiv) “Severance Payment” has the meaning assigned to that term in
Section 7.



          (xxxv) “Successor” means a person with or into which the Company shall
have been merged or consolidated or to which the Company shall have transferred
its assets as an entirety or substantially as an entirety.



          (xxxvi) “Tax” has the meaning assigned to that term in Section 11.



          (xxxvii) “Tax Claim Notice” has the meaning assigned to that term in
Section 11.



          (xxxviii) “Tax Counsel” has the meaning assigned to that term in Section
11.




-18-






 






          (xxxix) “Termination Date” has the meaning assigned to that term in
Section 6.



          (xl) “this Agreement” means this Change in Control Agreement as it may be
amended from time to time in accordance with Section 15.



          (xli) “Underpayment” has the meaning assigned to that term in Section 11.



          (xlii) “Wholly Owned Entities” has the meaning assigned to that term in
Section 13.



     (b)  In the event of the enactment of any successor provision to any
statute or rule cited in this Agreement, references in this Agreement to such
statute or rule shall be to such successor provision.


     (c)  The headings of Sections of this Agreement shall not control the
meaning or interpretation of this Agreement.


     (d)  References in this Agreement to any Section are to the corresponding
Section of this Agreement unless the context otherwise indicates.


          In Witness Whereof, the Company and the Employee have executed this
Agreement as of the Effective Date.




	 	 	 	 	 
	 	 	PATTERSON-UTI ENERGY, INC.
	 	 	 	 	 
	 	 	
By:
	 	/s/ Cloyce A. Talbott
	 	 	 	 	

	 	 	
Name:
	 	Cloyce A. Talbott
	 	 	
Title:
	 	Chief Executive Officer
	 	 	 	 	 
	 	 	/s/ A. Glenn Patterson
	 	 	

	 	 	A. Glenn Patterson




-19-