sv4
As filed with the Securities and
Exchange Commission on September 2, 2009
Registration
No. 333-
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Basic Energy Services,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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1389
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54-2091194
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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Co-Registrants
(see next page)
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500 W. Illinois, Suite 100
Midland, Texas 79701
(432) 620-5500
(Address, including zip
code, and telephone number,
including area code, of registrants principal executive
offices)
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Kenneth V. Huseman
President
500 W. Illinois, Suite 100
Midland, Texas 79701
(432) 620-5500
(Name, address, including
zip code, and
telephone number, including area code of agent for
service)
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Copy to:
David C. Buck
Andrews Kurth LLP
600 Travis,
Suite 4200
Houston, Texas 77002
(713) 220-4200
Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable
following the effectiveness of this registration statement.
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. o
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. o
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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
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Exchange Act
Rule 13e-4(i)
(Cross-Border Issuer Tender Offer)
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Exchange Act
Rule 14d-1(d)
(Cross-Border Third-Party Tender Offer)
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CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount
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Offering
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Aggregate
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Registration
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Securities to be Registered
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to be Registered
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Price per Unit
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Offering Price
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Fee
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11.625% Senior Secured Notes due 2014
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$
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225,000,000
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100
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%
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$
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225,000,000
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$
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12,555
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(1)
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Guarantees by certain subsidiaries of Basic Energy Services,
Inc.*
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(2)
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(1)
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The registration fee was calculated
pursuant to Rule 457(f) under the Securities Act of 1933.
For purposes of this calculation, the offering price per note
was assumed to be the stated principal amount of each original
note that may be received by the registrant in the exchange
transaction in which the notes will be offered.
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(2)
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Pursuant to Rule 457(n) under
the Securities Act of 1933, no separate fee for the guarantees
is payable because the guarantees relate to other securities
that are being registered concurrently.
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*
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The guarantor subsidiaries of Basic
Energy Services, Inc. are identified on the following page.
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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 the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
SUBSIDIARY
GUARANTOR CO-REGISTRANTS
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State or Other
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Primary Standard
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Jurisdiction of
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Industrial
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Exact Name of Additional
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Incorporation or
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Classification
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I.R.S. Employer
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Registrant as Specified in its Charter
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Organization
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Code Number
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Identification No.
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Basic Energy Services GP, LLC(1)
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Delaware
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1389
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54-2091197
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Basic Energy Services LP, LLC(1)
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Delaware
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1389
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54-2091195
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Basic Energy Services, L.P.(1)
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Delaware
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1389
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75-2441819
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Basic ESA, Inc.(1)
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Texas
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1389
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75-1772279
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Chaparral Service, Inc.(1)
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New Mexico
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1389
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85-0206424
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Basic Marine Services, Inc.(1)
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Delaware
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1389
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20-2274888
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First Energy Services Company(1)
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Delaware
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1389
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84-1544437
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Hennessey Rental Tools, Inc.(1)
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Oklahoma
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1389
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73-1435063
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Oilwell Fracturing Services, Inc.(1)
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Oklahoma
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1311
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73-1142826
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Wildhorse Services, Inc.(1)
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Oklahoma
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1389
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06-1641442
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LeBus Oil Field Service Co.(1)
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Texas
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4214
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75-2073125
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Globe Well Service, Inc.(1)
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Texas
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1389
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75-1634275
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SCH Disposal, L.L.C.(1)
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Texas
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1389
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75-2788335
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JS Acquisition LLC(1)
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Delaware
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1389
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26-2529500
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JetStar Holdings, Inc.(1)
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Delaware
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1389
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74-3144248
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Acid Services, LLC(1)
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Kansas
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1389
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48-1180455
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JetStar Energy Services, Inc.(1)
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Texas
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1389
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68-0605237
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Sledge Drilling Corp.(1)
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Texas
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1381
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20-4223140
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Permian Plaza, LLC(1)
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Texas
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6512
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26-0753425
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Xterra Fishing & Rental Tools Co.(1)
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Texas
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1389
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76-0647818
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(1) |
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The address for such Subsidiary Guarantor is
500 W. Illinois, Suite 100, Midland, Texas 79701. |
The
information in this 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 prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION DATED
SEPTEMBER 2, 2009
Basic Energy Services,
Inc.
Offer to exchange up
to
$225,000,000 of
11.625% Senior Secured Notes Due 2014
that have been registered under
the Securities Act of 1933
for
$225,000,000 of
11.625% Senior Secured Notes Due 2014
that have not been registered
under the Securities Act of 1933
THE EXCHANGE OFFER WILL EXPIRE
AT 5:00 PM, NEW YORK
CITY TIME,
ON ,
2009, UNLESS WE EXTEND THE DATE
Terms of the Exchange Offer:
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We are offering to exchange up to $225.0 million aggregate
principal amount of registered 11.625% Senior Secured Notes
due 2014, which we refer to as the new notes, for any and all of
our $225.0 million aggregate principal amount of
unregistered 11.625% Senior Secured Notes due 2014, which
we refer to as the old notes, that were issued on July 31,
2009.
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We will exchange all outstanding old notes that are validly
tendered and not validly withdrawn prior to the expiration of
the exchange offer for an equal principal amount of new notes.
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The terms of the new notes will be substantially identical to
those of the outstanding old notes, except that the transfer
restrictions, registration rights and liquidated damages
provisions relating to the old notes will not apply to the new
notes.
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You may withdraw tenders of old notes at any time prior to the
expiration of the exchange offer.
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The exchange of new notes for old notes will not be a taxable
transaction for U.S. federal income tax purposes.
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We will not receive any cash proceeds from the exchange offer.
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The old notes are, and the new notes will be, guaranteed on a
senior secured basis by all of our current subsidiaries, other
than two immaterial subsidiaries, and by all of our current and
certain future material restricted subsidiaries that guarantee
any of our other indebtedness.
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There is no established trading market for the new notes or the
old notes.
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We do not intend to apply for listing of the new notes on any
national securities exchange or for quotation through any
quotation system.
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See Risk Factors beginning on page 15 for a
discussion of certain risks that you should consider prior to
tendering your outstanding old notes in the exchange offer.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such new
notes. The letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an underwriter within the
meaning of the Securities Act. This prospectus, as it may be
amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of new notes received
in exchange for old notes where such old notes were acquired by
such broker-dealer as a result of market-making activities or
other trading activities. We have agreed that, for a period of
180 days after the consummation of the exchange offer, we
will make this prospectus available to any broker-dealer for use
in connection with any such resale. Please read Plan of
Distribution.
Prospectus
dated ,
2009
TABLE OF
CONTENTS
This prospectus is part of a registration statement we filed
with the Securities and Exchange Commission, referred to in this
prospectus as the SEC. In making your decision to participate in
the exchange offer, you should rely only on the information
contained in this prospectus and in the accompanying letter of
transmittal. We have not authorized anyone to provide you with
any other information. If you received any unauthorized
information, you must not rely on it. We are not making an offer
to sell these securities in any state or jurisdiction where the
offer is not permitted. You should not assume that the
information contained in this prospectus is accurate as of any
date other than the date on the front cover of this prospectus.
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT OUR COMPANY THAT HAS NOT BEEN INCLUDED IN OR
DELIVERED WITH THIS PROSPECTUS. WE WILL PROVIDE WITHOUT CHARGE
TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, UPON
WRITTEN OR ORAL REQUEST, A COPY OF ANY SUCH INFORMATION.
REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO: CHIEF FINANCIAL
OFFICER, BASIC ENERGY SERVICES, INC., 500 W. ILLINOIS,
SUITE 100, MIDLAND, TEXAS 79701; TELEPHONE NUMBER:
(432) 620-5500.
TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THIS INFORMATION NO
LATER THAN FIVE BUSINESS DAYS BEFORE YOU MUST MAKE YOUR
INVESTMENT DECISION. ACCORDINGLY, YOU SHOULD REQUEST THE
INFORMATION NO LATER
THAN ,
2009.
In this prospectus, we use the terms Basic Energy
Services, we, us and
our to refer to Basic Energy Services, Inc. together
with its subsidiaries, unless the context otherwise requires.
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. You should read the entire prospectus
carefully, including the risks discussed in the Risk
Factors section, the historical consolidated financial
statements and notes to those financial statements. This summary
may not contain all of the information that investors should
consider before making a decision to participate in the exchange
offer. If you are not familiar with some of the oil and gas
industry terms used in this prospectus, please read our Glossary
of Terms included as Appendix A to this prospectus.
Basic
Energy Services, Inc.
We provide a wide range of well site services to oil and gas
drilling and producing companies, including well servicing,
fluid services and well site construction services, completion
and remedial services and contract drilling. These services are
fundamental to establishing and maintaining the flow of oil and
gas throughout the productive life of a well. Our broad range of
services enables us to meet multiple needs of our customers at
the well site. Our operations are managed regionally and are
concentrated in the major United States onshore oil and gas
producing regions in Texas, New Mexico, Oklahoma, Arkansas,
Kansas and Louisiana and the Rocky Mountain states. We provide
our services to a diverse group of over 2,000 oil and gas
companies. We operate the third-largest fleet of well servicing
rigs (also commonly referred to as workover rigs) in the
United States. As of December 31, 2008, our fleet
represented 12% of the overall available U.S. fleet, with
our two larger competitors controlling approximately 27% and
17%, respectively, according to the AESC and other publicly
available data.
Basics four operating segments are Well Servicing, Fluid
Services, Completion and Remedial Services, and Contract
Drilling. The following is a description of these segments:
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Well Servicing. Our well servicing segment
(34% of our revenues in 2008 and 31% of our revenues in the
first six months of 2009) currently operates our fleet of
414 well servicing rigs and related equipment. This
business segment encompasses a full range of services performed
with a mobile well servicing rig, including the installation and
removal of downhole equipment and elimination of obstructions in
the well bore to facilitate the flow of oil and gas. These
services are performed to establish, maintain and improve
production throughout the productive life of an oil and gas well
and to plug and abandon a well at the end of its productive
life. Our well servicing equipment and capabilities are
essential to facilitate most other services performed on a well.
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Fluid Services. Our fluid services segment
(32% of our revenues in 2008 and 42% of our revenues in the
first six months of 2009) currently utilizes our fleet of
805 fluid service trucks and related assets, including
specialized tank trucks, storage tanks, water wells, disposal
facilities, construction and other related equipment. These
assets provide, transport, store and dispose of a variety of
fluids, as well as provide well site construction and
maintenance services. These services are required in most
workover, completion and remedial projects and are routinely
used in daily producing well operations.
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Completion and Remedial Services. Our
completion and remedial services segment (30% of our revenues in
2008 and 24% of our revenues in the first six months of
2009) currently operates our fleet of pressure pumping
units, an array of specialized rental equipment and fishing
tools, air compressor packages specially configured for
underbalanced drilling operations, and cased-hole wireline
units. The largest portion of this business segment consists of
pressure pumping services focused on cementing, acidizing and
fracturing services in niche markets. We entered the rental and
fishing tool business through an acquisition in the first
quarter of 2006.
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Contract Drilling. Our contract drilling
segment (4% of our revenues in 2008 and 3% of our revenues in
the first six months of 2009) currently operates nine
drilling rigs and related equipment. We use these assets to
penetrate the earth to a desired depth and initiate production
from a well. We greatly increased our presence in this line of
business through the Sledge Drilling acquisition in the second
quarter of 2007.
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General
Industry Overview
Demand for services offered by our industry is a function of our
customers willingness to make operating and capital
expenditures to explore for, develop and produce hydrocarbons in
the U.S., which in turn is affected by current and expected
levels of oil and gas prices. As oil and gas prices increased in
recent years, oil and gas companies increased their drilling and
workover activities. The increased activity resulted in
increased domestic exploration and production spending year over
year for the past four years. In the last part of 2008 there was
a rapid decline in oil and gas prices which has resulted in
significant decreases in domestic spending during the first half
of 2009 compared to 2008 domestic spending.
Increased expenditures for exploration and production activities
generally drives the increased demand for our services. Rising
oil and gas prices in recent years and the corresponding
increase in onshore oil exploration and production spending have
led to expanded drilling and well service activity, as the
U.S. land-based drilling rig count increased approximately
22% during 2005, 17% during 2006, and 4% during 2007. With the
rapid decline in oil and gas prices in the second half of 2008
there was a decrease in the land-based drilling rig count of
approximately 15% from the peak of 2008 to the end of the year
and 43% during the first half of 2009, according to Baker
Hughes. The decrease in oil and gas prices coupled with the
buildup of drilling and workover rig counts in recent years is
resulting in both lower utilization of those rigs and decreases
in the rates being charged.
Our business is influenced substantially by both operating and
capital expenditures by oil and gas companies. Because existing
oil and gas wells require ongoing spending to maintain
production, expenditures by oil and gas companies for the
maintenance of existing wells are relatively stable and
predictable. In contrast, capital expenditures by oil and gas
companies for exploration and drilling are more directly
influenced by current and expected oil and gas prices and
generally reflect the volatility of commodity prices.
Competitive
Strengths
We believe that the following competitive strengths currently
position us well within our industry:
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Significant Market Position. We maintain a
significant market share for our well servicing operations in
our core operating areas throughout Texas and a growing market
share in the other markets that we serve. Our fleet of
414 well servicing rigs as of June 30, 2009 represents
the third-largest fleet in the United States, and our goal is to
be one of the top two providers of well site services in each of
our core operating areas. Our market position allows us to
expand the range of services performed on a well throughout its
life, such as drilling, maintenance, workover, completion and
plugging and abandonment services.
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Modern and Active Well Servicing Fleet. We
operate a modern and active fleet of well servicing rigs. We
believe over 75% of the active U.S. well servicing rig
fleet was built prior to 1985. Greater than 50% of our rigs at
December 31, 2008 were either 2000 model year or newer, or
have undergone major refurbishments during the last five years.
As of March 31, 2009, we had taken delivery of all
134 newbuild well servicing rigs since October 2004 as part
of a newbuild commitment, driven by our desire to maintain one
of the most efficient, reliable and safest fleets in the
industry. In addition to our regular maintenance program, we
have an established program to routinely monitor and evaluate
the condition of our fleet. We selectively refurbish rigs and
other assets to maintain the quality of our service and to
provide a safe work environment for our personnel and have made
major refurbishments on 70 of our rigs since the beginning of
2004. Since 2003, we have obtained annual independent reviews
and evaluations of substantially all of our assets, which
confirmed the location and condition of these assets.
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Extensive Domestic Footprint in the Most Prolific
Basins. Our operations are concentrated in the
major United States onshore oil and gas producing regions in
Texas, New Mexico, Oklahoma, Arkansas, Kansas and Louisiana and
the Rocky Mountain states. We operate in states that accounted
for approximately 58% of the approximately 900,000 existing
onshore oil and gas wells in the 48 contiguous states and
approximately 73% of onshore oil production and 90% of onshore
gas production in 2008. We believe that our operations are
located in the most active U.S. well services markets, as
we currently focus our
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operations on onshore domestic oil and gas production areas that
include both the highest concentration of existing oil and gas
production activities and the largest prospective acreage for
new drilling activity. This extensive footprint allows us to
offer our suite of services to more than 2,000 customers who are
active in those areas and allows us to redeploy equipment
between markets as activity shifts.
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Diversified Service Offering for Further Revenue
Growth. We believe our range of well site
services provides us a competitive advantage over smaller
companies that typically offer fewer services. Our experience,
equipment and network of 115 area offices position us to market
our full range of well site services to our existing customers.
By utilizing a wider range of our services, our customers can
use fewer service providers, which enables them to reduce their
administrative costs and simplify their logistics. Furthermore,
offering a broader range of services allows us to capitalize on
our existing customer base and management structure to grow
within existing markets, generate more business from existing
customers, and increase our operating profits as we spread our
overhead costs over a larger revenue base.
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Decentralized Management with Strong Corporate
Infrastructure. Our corporate group is
responsible for maintaining a unified infrastructure to support
our diversified operations through standardized financial and
accounting, safety, environmental and maintenance processes and
controls. Below our corporate level, we operate a decentralized
operational organization in which our nine regional or division
managers are responsible for their operations, including asset
management, cost control, policy compliance and training and
other aspects of quality control. With an average of over
25 years of industry experience, each regional manager has
extensive knowledge of the customer base, job requirements and
working conditions in each local market. Below our nine regional
or division managers, our area managers are directly responsible
for customer relationships, personnel management, accident
prevention and equipment maintenance, the key drivers of our
operating profitability. This management structure allows us to
monitor operating performance on a daily basis, maintain
financial, accounting and asset management controls, integrate
acquisitions, prepare timely financial reports and manage
contractual risk.
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Our
Business Strategy
We intend to increase our shareholder value by pursuing the
following strategies:
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Establish and Maintain Leadership Position in Core Operating
Areas. We strive to establish and maintain market
leadership positions within our core operating areas. To achieve
this goal, we maintain close customer relationships, seek to
expand the breadth of our services and offer high quality
services and equipment that meet the scope of customer
specifications and requirements. In addition, our significant
presence in our core operating areas facilitates employee
retention and attraction, a key factor for success in our
business. Our significant presence in our core operating areas
also provides us with brand recognition that we intend to
utilize in creating leading positions in new operating areas.
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Expand Within Our Regional Markets. We intend
to continue strengthening our presence within our existing
geographic footprint through internal growth and acquisitions of
businesses with strong customer relationships, well-maintained
equipment and experienced and skilled personnel. We typically
enter into new markets through the acquisition of businesses
with strong management teams that will allow us to expand within
these markets. Management of acquired companies often remain
with us and retain key positions within our organization, which
enhances our attractiveness as an acquisition partner. We have a
record of successfully implementing this strategy. During the
past three fiscal years, we have made 23 acquisitions including:
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2006
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LeBus Oil Field Service Co., a fluid service company operating
in our Ark-La-Tex region, and
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G&L Tool, Ltd., a rental and fishing tool company included
in our completion and remedial line of business;
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2007
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JetStar Consolidated Holdings, Inc., a pressure pumping company
operating in our completion and remedial line of
business, and
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Sledge Drilling Holding Corp., a contract drilling company
operating in our contract drilling line of business;
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2008
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Azurite Services Company, Inc., Azurite Leasing Company, LLC and
Freestone Disposal, L.P. (collectively Azurite), a
fluid service business operating in our Ark-La-Tex and
Mid-Continent regions.
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Develop Additional Service Offerings Within the Well
Servicing Market. We intend to continue
broadening the portfolio of services we provide to our clients
by leveraging our well servicing infrastructure. A customer
typically begins a new maintenance or workover project by
securing access to a well servicing rig, which generally stays
on site for the duration of the project. As a result, our rigs
are often the first equipment to arrive at the well site and
typically the last to leave, providing us the opportunity to
offer our customers other complementary services. We believe the
fragmented nature of the well servicing market creates an
opportunity to sell more services to our core customers and to
expand our total service offering within each of our markets. We
have expanded our suite of services available to our customers
and increased our opportunities to cross-sell new services to
our core well servicing customers through recent acquisitions
and internal growth. We expect to continue to develop or
selectively acquire capabilities to provide additional services
to expand and further strengthen our customer relationships.
|
|
|
|
Pursue Growth Through Selective Capital
Deployment. We intend to continue growing our
business through selective acquisitions, continuing a newbuild
program
and/or
upgrading our existing assets. Our capital investment decisions
are determined by an analysis of the projected return on capital
employed of each of those alternatives. Acquisitions are
evaluated for fit with our area and regional
operations management and are thoroughly reviewed by corporate
level financial, equipment, safety and environmental specialists
to ensure consideration is given to identified risks. We also
evaluate the cost to acquire existing assets from a third party,
the capital required to build new equipment and the point in the
oil and gas commodity price cycle. Based on these factors, we
make capital investment decisions that we believe will support
our long-term growth strategy, and these decisions may involve a
combination of asset acquisitions and the purchase of new
equipment. As the oil and gas commodity cycle has declined in
recent quarters, we have taken a disciplined approach to
acquisitions, with our last acquisition completed in September
2008. We expect to continue this strategy in order to maintain
existing operating assets while this cycle continues.
|
Our strategies could be affected by any of the risk factors
described in Risk Factors beginning on page 15.
How You
Can Contact Us
Our principle executive offices are located at 500 W.
Illinois, Suite 100, Midland, Texas 79701, and our
telephone number is (432) 620-5500.
Recent
Developments
On July 31, 2009, we completed the sale of
$225 million principal amount of the old notes. The net
proceeds of $208.4 million were used to repay the
$180.0 million of borrowings outstanding under our
revolving credit facility as of July 31, 2009. The old
notes are jointly and severally, and unconditionally, guaranteed
on a senior secured basis initially by all of our current
subsidiaries other than two immaterial subsidiaries. The old
notes and the related guarantees were offered and sold in
private transactions in accordance with Rule 144A and
Regulation S under the Securities Act of 1933, as amended.
In connection with the closing of the offering of the old notes,
we terminated our revolving credit facility, and we are unable
to borrow any amounts under it. We expect to rely on cash on
hand, which amounted to $134.3 million as of June 30,
2009, in the near term and to evaluate alternatives with respect
to a new revolving credit facility or letter of credit facility
in the future to address our long term liquidity requirements.
4
Corporate
Structure
Below is a chart that illustrates our corporate structure.
5
The
Exchange Offer
On July 31, 2009, we completed a private offering of the
old notes. As part of the private offering, we entered into a
registration rights agreement with the initial purchasers of the
old notes in which we agreed, among other things, to deliver
this prospectus to you and to use our reasonable best efforts to
consummate the exchange offer within 270 days of the issue
date of the old notes. The following is a summary of the
exchange offer.
|
|
|
Old Notes
|
|
11.625% Senior Secured Notes due August 1, 2014, which
were issued on July 31, 2009. |
|
New Notes
|
|
11.625% Senior Secured Notes due August 1, 2014. The
terms of the new notes are substantially identical to the terms
of the outstanding old notes, except that the transfer
restrictions, registration rights and liquidated damages
provisions relating to the old notes will not apply to the new
notes. |
|
Exchange Offer
|
|
We are offering to exchange up to $225.0 million aggregate
principal amount of our new notes that have been registered
under the Securities Act for an equal amount of our outstanding
old notes that have not been registered under the Securities Act
to satisfy our obligations under the registration rights
agreement. |
|
|
|
The new notes will evidence the same debt as the old notes and
will be issued under, and be entitled to the benefits of, the
same indenture that governs the old notes. Holders of the old
notes do not have any appraisal or dissenters rights in
connection with the exchange offer. Because the new notes will
be registered, the new notes will not be subject to transfer
restrictions, and holders of old notes that have tendered and
had their old notes accepted in the exchange offer will have no
registration rights. |
|
Expiration Date
|
|
The exchange offer will expire at 5:00 p.m., New York City
time,
on ,
2009, unless we decide to extend it. |
|
Conditions to the Exchange Offer
|
|
The exchange offer is subject to customary conditions, which we
may waive. Please read The Exchange Offer
Conditions to the Exchange Offer for more information
regarding the conditions to the exchange offer. |
|
Procedures for Tendering Old Notes
|
|
Unless you comply with the procedures described under the
caption The Exchange Offer Procedures for
Tendering Guaranteed Delivery, you must do one
of the following on or prior to the expiration of the exchange
offer to participate in the exchange offer: |
|
|
|
tender your old notes by sending the certificates
for your old notes, in proper form for transfer, a properly
completed and duly executed letter of transmittal, with any
required signature guarantees, and all other documents required
by the letter of transmittal, to The Bank of New York Mellon
Trust Company, N.A., as registrar and exchange agent, at
the address listed under the caption The Exchange
Offer Exchange Agent; or
|
|
|
|
tender your old notes by using the book-entry
transfer procedures described below and transmitting a properly
completed and duly executed letter of transmittal, with any
required signature guarantees, or an agents message
instead of the letter of transmittal, to the exchange agent. In
order for a book-entry transfer to constitute a valid tender of
your old notes in the exchange offer, The Bank of New York
Mellon Trust Company, N.A., as registrar and
|
6
|
|
|
|
|
exchange agent, must receive a confirmation of book-entry
transfer of your old notes into the exchange agents
account at The Depository Trust Company prior to the
expiration of the exchange offer. For more information regarding
the use of book-entry transfer procedures, including a
description of the required agents message, please read
the discussion under the caption The Exchange
Offer Procedures for Tendering
Book-entry Transfer. |
|
Guaranteed Delivery Procedures
|
|
If you are a registered holder of the old notes and wish to
tender your old notes in the exchange offer, but |
|
|
|
the old notes are not immediately available,
|
|
|
|
time will not permit your old notes or other
required documents to reach the exchange agent before the
expiration of the exchange offer, or
|
|
|
|
the procedure for book-entry transfer cannot be
completed prior to the expiration of the exchange offer,
|
|
|
|
then you may tender old notes by following the procedures
described under the caption The Exchange Offer
Procedures for Tendering Guaranteed Delivery. |
|
Special Procedures for Beneficial Owners
|
|
If you are a beneficial owner whose old notes are registered in
the name of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your old notes in the
exchange offer, you should promptly contact the person in whose
name the old notes are registered and instruct that person to
tender on your behalf. |
|
|
|
If you wish to tender in the exchange offer on your own behalf,
prior to completing and executing the letter of transmittal and
delivering the certificates for your old notes, you must either
make appropriate arrangements to register ownership of the old
notes in your name or obtain a properly completed bond power
from the person in whose name the old notes are registered. |
|
Withdrawal; Non-Acceptance
|
|
You may withdraw any old notes tendered in the exchange offer at
any time prior to 5:00 p.m., New York City time,
on ,
2009. If we decide for any reason not to accept any old notes
tendered for exchange, the old notes will be returned to the
registered holder at our expense promptly after the expiration
or termination of the exchange offer. In the case of old notes
tendered by book-entry transfer into the exchange agents
account at The Depository Trust Company, any withdrawn or
unaccepted old notes will be credited to the tendering
holders account at The Depository Trust Company. For
further information regarding the withdrawal of tendered old
notes, please read The Exchange Offer
Withdrawal Rights. |
|
U.S. Federal Income Tax Consequences
|
|
The exchange of new notes for old notes in the exchange offer
will not be a taxable event for U.S. federal income tax
purposes. Please read the discussion under the caption
Material United States Federal Income Tax
Consequences for more information regarding the tax
consequences to you of the exchange offer. |
|
Use of Proceeds
|
|
The issuance of the new notes will not provide us with any new
proceeds. We are making this exchange offer solely to satisfy
our obligations under the registration rights agreement. |
7
|
|
|
Fees and Expenses
|
|
We will pay all of our expenses incident to the exchange offer. |
|
Exchange Agent
|
|
We have appointed The Bank of New York Mellon
Trust Company, N.A. as exchange agent for the exchange
offer. For the address, telephone number and fax number of the
exchange agent, please read The Exchange Offer
Exchange Agent. |
|
Resales of New Notes
|
|
Based on interpretations by the staff of the SEC, as set forth
in no-action
letters issued to third parties that are not related to us, we
believe that the new notes you receive in the exchange offer may
be offered for resale, resold or otherwise transferred by you
without compliance with the registration and prospectus delivery
provisions of the Securities Act so long as: |
|
|
|
the new notes are being acquired in the ordinary
course of business;
|
|
|
|
you are not participating, do not intend to
participate, and have no arrangement or understanding with any
person to participate in the distribution of the new notes
issued to you in the exchange offer;
|
|
|
|
you are not our affiliate or an affiliate of any of
our subsidiary guarantors; and
|
|
|
|
you are not a broker-dealer tendering old notes
acquired directly from us for your account.
|
|
|
|
The SEC has not considered this exchange offer in the context of
a no-action letter, and we cannot assure you that the SEC would
make similar determinations with respect to this exchange offer.
If any of these conditions are not satisfied, or if our belief
is not accurate, and you transfer any new notes issued to you in
the exchange offer without delivering a resale prospectus
meeting the requirements of the Securities Act or without an
exemption from registration of your new notes from those
requirements, you may incur liability under the Securities Act.
We will not assume, nor will we indemnify you against, any such
liability. Each broker-dealer that receives new notes for its
own account in exchange for old notes, where the old notes were
acquired by such broker-dealer as a result of market-making or
other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such new notes.
Please read Plan of Distribution. |
|
|
|
Please read The Exchange Offer Resales of New
Notes for more information regarding resales of the new
notes. |
|
Consequences of Not Exchanging Your Old Notes
|
|
If you do not exchange your old notes in this exchange offer,
you will no longer be able to require us to register your old
notes under the Securities Act, except in the limited
circumstances provided under the registration rights agreement.
In addition, you will not be able to resell, offer to resell or
otherwise transfer your old notes unless we have registered the
old notes under the Securities Act, or unless you resell, offer
to resell or otherwise transfer them under an exemption from the
registration requirements of, or in a transaction not subject
to, the Securities Act. |
|
|
|
For information regarding the consequences of not tendering your
old notes and our obligation to file a registration statement,
please read The Exchange Offer Consequences of
Failure to Exchange Outstanding Securities and
Description of the New Notes. |
8
Description
of the New Notes
The terms of the new notes and those of the outstanding old
notes will be substantially identical, except that the transfer
restrictions, registration rights and liquidated damages
provisions relating to the old notes will not apply to the new
notes. As a result, the new notes will not bear legends
restricting their transfer and will not have the benefit of the
registration rights and special interest provisions contained in
the old notes. The new notes represent the same debt as the old
notes for which they are being exchanged. The new notes are
governed by the same indenture as the old notes are.
The following summary contains basic information about the
new notes and is not intended to be complete. For a more
complete understanding of the new notes, please refer to the
section in this prospectus entitled Description of the New
Notes. When we use the term notes in this
prospectus, unless the context requires otherwise, the term
includes the old notes and the new notes.
|
|
|
Issuer
|
|
Basic Energy Services, Inc. |
|
Securities Offered
|
|
$225,000,000 aggregate principal amount of our
11.625% Senior Secured Notes due 2014. |
|
Interest
|
|
The new notes will accrue interest from the date of their
issuance at the rate of 11.625% per year. Interest on the new
notes will be payable semi-annually in arrears on each February
1 and August 1, commencing on February 1, 2010. |
|
|
|
We have agreed to make additional interest payments to holders
of the new notes under certain circumstances if we do not comply
with our obligations under the registration rights agreement. |
|
Maturity Date
|
|
August 1, 2014. |
|
Guarantees
|
|
The new notes will be guaranteed by all of our current
subsidiaries, other than two immaterial subsidiaries. The new
notes will be guaranteed by all of our current and certain
material future restricted subsidiaries that guarantee any of
our other indebtedness. |
|
Collateral
|
|
The new notes and the guarantees will be secured by a
first-priority lien, subject to limited exceptions, on all of
the current and future personal property of our company and our
guarantor subsidiaries, except for cash and cash equivalents,
accounts receivable, inventory, maritime assets (including our
existing inland barge rigs), titled vehicles and the stock or
other equity interests of our subsidiaries. As of June 30,
2009, the net book value of the collateral included
approximately $509 million of property and equipment, which
represents 71% of our total property and equipment. |
|
Ranking
|
|
The new notes will be our senior secured indebtedness. Both the
new notes and the subsidiary guarantees will rank: |
|
|
|
equally in right of payment with any of our and the
subsidiary guarantors existing and future senior
indebtedness, including our existing senior notes and the
related guarantees; and
|
|
|
|
effectively junior to all existing or future
liabilities of our subsidiaries that do not guarantee the notes
and to our existing or future indebtedness that is secured by
assets other than the collateral securing the new notes to the
extent of the value of the collateral therefor.
|
9
|
|
|
|
|
As of June 30, 2009 as adjusted to give effect to the
offering of the old notes and the use of the net proceeds from
the offering, (i) we and our subsidiaries would have had no
secured indebtedness outstanding other than the old notes and
related guarantees, $75.3 million of capital lease
obligations and letters of credit collateralized by
$16.2 million of cash and (ii) we and our subsidiary
guarantors would have had $225.0 million of unsecured
senior indebtedness outstanding. |
|
Optional Redemption
|
|
We may redeem the notes, in whole or in part, at any time on or
after February 1, 2012 at a redemption price equal to 100%
of the principal amount thereof, plus a premium declining
ratably to par and accrued and unpaid interest to the date of
redemption. |
|
|
|
At any time before February 1, 2012, we may redeem up to
35% of the aggregate principal amount of the notes issued under
the indenture with the net cash proceeds of one or more
qualified equity offerings at a redemption price equal to
111.625% of the principal amount of the notes to be redeemed,
plus accrued and unpaid interest to the date of redemption;
provided that: |
|
|
|
at least 65% of the aggregate principal amount of
the notes issued under the indenture remains outstanding
immediately after the occurrence of such redemption; and
|
|
|
|
such redemption occurs within 90 days of the
date of the closing of any such qualified equity offering.
|
|
|
|
In addition, at any time before February 1, 2012, we may
redeem some or all of the notes at a redemption price equal to
100% of the principal amount of the notes, plus an applicable
premium and accrued and unpaid interest to the date of
redemption. |
|
Change of Control
|
|
Upon a change of control, if we do not redeem the notes, each
holder of notes will be entitled to require us to purchase all
or a portion of its notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest
to the date of repurchase. Our ability to purchase the notes
upon a change of control will be limited by the terms of our
then outstanding debt agreements. We cannot assure you that we
will have the financial resources to purchase the notes in such
circumstances. |
|
Certain Covenants
|
|
The indenture contains covenants that, among other things, limit
our ability and the ability of certain of our subsidiaries to: |
|
|
|
incur additional indebtedness;
|
|
|
|
pay dividends or repurchase or redeem capital stock;
|
|
|
|
make certain investments;
|
|
|
|
incur liens;
|
|
|
|
enter into certain types of transactions with our
affiliates;
|
|
|
|
limit dividends or other payments by our restricted
subsidiaries to us; and
|
|
|
|
sell assets or consolidate or merge with or into
other companies.
|
10
|
|
|
|
|
These and other covenants that are contained in the indenture
are subject to important exceptions and qualifications, which
are described under Description of the New Notes. |
|
Absence of a Public Market for the New Notes
|
|
There is no public trading market for the new notes, and we do
not intend to apply for listing of the new notes on any national
securities exchange or for quotation of the new notes on any
automated dealer quotation system. See Risk
Factors Risks Relating to the Exchange Offer and the
New Notes An active trading market may not develop
for the new notes. |
|
Risk Factors
|
|
See Risk Factors beginning on page 15 for
discussion of factors you should carefully consider before
deciding to participate in the exchange offer. |
11
Summary
Historical Financial Information
The following summary of historical financial data is derived
from our audited consolidated financial statements as of and for
the years ended December 31, 2008, 2007 and 2006 and our
unaudited interim financial statements as of and for the six
months ended June 30, 2009 and 2008. The data set forth
below should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations, our consolidated financial statements and the
notes thereto and the other financial information included in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
(Unaudited)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well servicing
|
|
$
|
343,113
|
|
|
$
|
342,697
|
|
|
$
|
323,755
|
|
|
$
|
85,213
|
|
|
$
|
169,537
|
|
Fluid services
|
|
|
315,768
|
|
|
|
259,324
|
|
|
|
245,011
|
|
|
|
114,065
|
|
|
|
143,980
|
|
Completion and remedial services
|
|
|
304,326
|
|
|
|
240,692
|
|
|
|
154,412
|
|
|
|
66,632
|
|
|
|
148,037
|
|
Contract drilling
|
|
|
41,735
|
|
|
|
34,460
|
|
|
|
6,970
|
|
|
|
7,626
|
|
|
|
19,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,004,942
|
|
|
|
877,173
|
|
|
|
730,148
|
|
|
|
273,536
|
|
|
|
481,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well servicing
|
|
|
215,243
|
|
|
|
205,132
|
|
|
|
178,028
|
|
|
|
64,742
|
|
|
|
103,759
|
|
Fluid services
|
|
|
203,205
|
|
|
|
165,327
|
|
|
|
153,445
|
|
|
|
79,968
|
|
|
|
94,987
|
|
Completion and remedial services
|
|
|
165,574
|
|
|
|
125,948
|
|
|
|
74,981
|
|
|
|
47,378
|
|
|
|
78,439
|
|
Contract drilling
|
|
|
28,629
|
|
|
|
22,510
|
|
|
|
8,400
|
|
|
|
6,607
|
|
|
|
14,589
|
|
General and administrative(1)
|
|
|
115,319
|
|
|
|
99,042
|
|
|
|
81,318
|
|
|
|
56,503
|
|
|
|
52,663
|
|
Depreciation and amortization
|
|
|
118,607
|
|
|
|
93,048
|
|
|
|
62,087
|
|
|
|
65,150
|
|
|
|
56,764
|
|
Loss (gain) on disposal of assets
|
|
|
76
|
|
|
|
477
|
|
|
|
277
|
|
|
|
1,339
|
|
|
|
(584
|
)
|
Goodwill impairment
|
|
|
22,522
|
|
|
|
|
|
|
|
|
|
|
|
204,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
869,175
|
|
|
|
711,484
|
|
|
|
558,536
|
|
|
|
525,701
|
|
|
|
400,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
135,767
|
|
|
|
165,689
|
|
|
|
171,612
|
|
|
|
(252,165
|
)
|
|
|
80,778
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(24,630
|
)
|
|
|
(25,136
|
)
|
|
|
(15,504
|
)
|
|
|
(11,317
|
)
|
|
|
(12,630
|
)
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
(230
|
)
|
|
|
(2,705
|
)
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
12,235
|
|
|
|
176
|
|
|
|
169
|
|
|
|
252
|
|
|
|
(6,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
123,372
|
|
|
|
140,499
|
|
|
|
153,572
|
|
|
|
(263,230
|
)
|
|
|
61,717
|
|
Income tax benefit (expense)
|
|
|
(55,134
|
)
|
|
|
(52,766
|
)
|
|
|
(54,742
|
)
|
|
|
59,169
|
|
|
|
(23,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
68,238
|
|
|
$
|
87,733
|
|
|
$
|
98,830
|
|
|
$
|
(204,061
|
)
|
|
$
|
38,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
$
|
212,827
|
|
|
$
|
198,591
|
|
|
$
|
145,678
|
|
|
$
|
73,049
|
|
|
$
|
87,328
|
|
Cash flows from investing activities
|
|
|
(197,302
|
)
|
|
|
(294,103
|
)
|
|
|
(241,351
|
)
|
|
|
(25,460
|
)
|
|
|
(91,840
|
)
|
Cash flows from financing activities
|
|
|
3,669
|
|
|
|
136,088
|
|
|
|
114,193
|
|
|
|
(24,420
|
)
|
|
|
(9,645
|
)
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
110,913
|
|
|
|
199,673
|
|
|
|
135,568
|
|
|
|
1,190
|
|
|
|
51,239
|
|
Property and equipment
|
|
|
91,890
|
|
|
|
98,536
|
|
|
|
104,574
|
|
|
|
25,187
|
|
|
|
45,023
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges
|
|
|
4.7x
|
|
|
|
5.2x
|
|
|
|
7.9x
|
|
|
|
(2
|
)
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
(As Adjusted)(3)
|
|
|
|
(Dollars in thousands)
|
|
|
(Unaudited)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
111,135
|
|
|
$
|
91,941
|
|
|
$
|
51,365
|
|
|
$
|
134,304
|
|
|
$
|
162,719
|
|
Property and equipment, net
|
|
|
740,879
|
|
|
|
636,924
|
|
|
|
475,431
|
|
|
|
714,560
|
|
|
|
714,560
|
|
Total assets
|
|
|
1,310,711
|
|
|
|
1,143,609
|
|
|
|
796,260
|
|
|
|
1,068,393
|
|
|
|
1,101,290
|
|
Long-term debt, including current portion
|
|
|
480,323
|
|
|
|
423,719
|
|
|
|
262,743
|
|
|
|
480,274
|
|
|
|
513,171
|
|
Stockholders equity
|
|
|
595,004
|
|
|
|
524,821
|
|
|
|
379,250
|
|
|
|
387,219
|
|
|
|
387,219
|
|
|
|
|
(1) |
|
Includes approximately $4,149,000, $3,964,000, $3,429,000,
$2,665,000 and $2,264,000 of non-cash stock compensation expense
for the years ended December 31, 2008, 2007 and 2006 and
the six months ended June 30, 2009 and 2008, respectively. |
|
(2) |
|
Earnings were inadequate to cover fixed charges for the six
months ended June 30, 2009 by $249.3 million. |
|
(3) |
|
Gives effect to the offering of the old notes and the
application of the net proceeds therefrom as if each had
occurred on June 30, 2009. |
13
Operating
Data
The following table sets forth operating data for our well
servicing, fluid services, completion and remedial services and
contract drilling segments for the periods shown. The data
presented below reflects the following:
|
|
|
|
|
we charge our well servicing customers on an hourly basis, and
rig hours reflect actual billed hours;
|
|
|
|
our rig utilization rate is calculated using a
55-hour work
week per rig;
|
|
|
|
our fluid services segment includes an array of services billed
on an hourly, daily and per barrel basis; accordingly, we
believe that revenue per truck is a more meaningful measure for
this segment;
|
|
|
|
in our completion and remedial services segment, we charge
different rates for our pressure pumping trucks based on the
type of services performed and varying horsepower requirements,
making segment profits the most meaningful measure of
performance; and
|
|
|
|
in our contract drilling segment, revenues are derived primarily
from the drilling of new wells, making rig operating days,
revenue per drilling day and segment profits as a percent of
revenues the most meaningful measures of performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
|
Well Servicing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of rigs
|
|
|
405
|
|
|
|
376
|
|
|
|
344
|
|
|
|
414
|
|
|
|
398
|
|
Rig hours (000s)
|
|
|
840.2
|
|
|
|
831.2
|
|
|
|
868.2
|
|
|
|
242.8
|
|
|
|
424.8
|
|
Rig utilization rate
|
|
|
72.5
|
%
|
|
|
77.3
|
%
|
|
|
88.2
|
%
|
|
|
41.0
|
%
|
|
|
74.6
|
%
|
Revenue per rig hour
|
|
$
|
408
|
|
|
$
|
412
|
|
|
$
|
373
|
|
|
$
|
351
|
|
|
$
|
399
|
|
Segment profits per rig hour
|
|
$
|
152
|
|
|
$
|
166
|
|
|
$
|
168
|
|
|
$
|
84
|
|
|
$
|
155
|
|
Segment profits as a percent of revenue
|
|
|
37.3
|
%
|
|
|
40.1
|
%
|
|
|
45.0
|
%
|
|
|
24.0
|
%
|
|
|
38.8
|
%
|
Fluid Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of fluid service trucks
|
|
|
699
|
|
|
|
655
|
|
|
|
588
|
|
|
|
811
|
|
|
|
654
|
|
Revenue per fluid service truck (000s)
|
|
$
|
452
|
|
|
$
|
396
|
|
|
$
|
417
|
|
|
$
|
141
|
|
|
$
|
220
|
|
Segment profits per fluid service truck (000s)
|
|
$
|
161
|
|
|
$
|
144
|
|
|
$
|
156
|
|
|
$
|
42
|
|
|
$
|
75
|
|
Segment profits as a percent of revenue
|
|
|
35.6
|
%
|
|
|
36.2
|
%
|
|
|
37.4
|
%
|
|
|
29.9
|
%
|
|
|
34.0
|
%
|
Completion and Remedial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits as a percent of revenue
|
|
|
45.6
|
%
|
|
|
47.7
|
%
|
|
|
51.5
|
%
|
|
|
28.9
|
%
|
|
|
47.0
|
%
|
Contract Drilling:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of rigs
|
|
|
9
|
|
|
|
8
|
|
|
|
2
|
|
|
|
9
|
|
|
|
9
|
|
Rig operating days
|
|
|
2,777
|
|
|
|
2,233
|
|
|
|
484
|
|
|
|
562
|
|
|
|
1,344
|
|
Revenue per day (000s)
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
14
|
|
|
$
|
14
|
|
|
$
|
15
|
|
Profits (loss) per day (000s)
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
(3
|
)
|
|
$
|
2
|
|
|
$
|
4
|
|
Segment profits as a percent of revenue
|
|
|
31.4
|
%
|
|
|
34.7
|
%
|
|
|
(20.5
|
)%
|
|
|
13.4
|
%
|
|
|
26.5
|
%
|
Please read Managements Discussion and Analysis of
Financial Condition and Results of Operations for an
analysis of our well servicing, fluid services, completion and
remedial services and contract drilling segments.
14
RISK
FACTORS
Prior to making a decision about participating in the
exchange offer, and in consultation with your own financial and
legal advisors, you should carefully consider, among other
matters, the following risk factors. If any of these risks were
to occur, our business, results of operations or financial
condition could be materially and adversely affected.
Risks
Relating to Our Business
Our
business depends on domestic spending by the oil and gas
industry, and this spending and our business have been, and may
continue to be, adversely affected by industry and financial
market conditions that are beyond our control.
We depend on our customers willingness to make operating
and capital expenditures to explore for, develop and produce oil
and gas in the United States. Customers expectations for
lower market prices for oil and gas, as well as the availability
of capital for operating and capital expenditures, may cause
them to curtail spending, thereby reducing demand for our
services and equipment.
Industry conditions are influenced by numerous factors over
which we have no control, such as the supply of and demand for
oil and gas, domestic and worldwide economic conditions,
political instability in oil and gas producing countries and
merger and divestiture activity among oil and gas producers. The
volatility of the oil and gas industry and the consequent impact
on exploration and production activity could adversely impact
the level of drilling and workover activity by some of our
customers. This reduction may cause a decline in the demand for
our services or adversely affect the price of our services. In
addition, reduced discovery rates of new oil and gas reserves in
our market areas also may have a negative long-term impact on
our business, even in an environment of stronger oil and gas
prices, to the extent existing production is not replaced and
the number of producing wells for us to service declines.
Recent deterioration in the global economic environment has
caused the oilfield services industry to cycle into a downturn,
and the rate at which it may continue to slow, or return to
former levels, is uncertain. Recent adverse changes in capital
markets and declines in prices for oil and gas have caused many
oil and gas producers to announce reductions in capital budgets
for future periods. Limitations on the availability of capital,
or higher costs of capital, for financing expenditures have
caused and may continue to cause these and other oil and gas
producers to make additional reductions to capital budgets in
the future even if commodity prices increase from current
levels. These cuts in spending will curtail drilling programs as
well as discretionary spending on well services, which have
resulted in a significant reduction in the demand for our
services, the rates we can charge and our utilization and may
continue to do so in the future. In addition, certain of our
customers could become unable to pay their suppliers, including
us. As a result of these conditions, our customers
spending patterns have become increasingly unpredictable, making
it difficult for us to predict our future operating results.
Accordingly, our results may differ significantly from our
forecasts and those of the investment community. Any of these
conditions or events could adversely affect our operating
results.
If oil
and gas prices remain volatile, remain low or decline further it
could have an adverse effect on the demand for our
services.
The demand for our services is primarily determined by current
and anticipated oil and gas prices and the related general
production spending and level of drilling activity in the areas
in which we have operations. Volatility or weakness in oil and
gas prices (or the perception that oil and gas prices will
decrease) affects the spending patterns of our customers and may
result in the drilling of fewer new wells or lower production
spending on existing wells. This, in turn, could result in lower
demand for our services and may cause lower rates and lower
utilization of our well service equipment. Continued low oil and
gas prices, a further decline in oil and gas prices or a
reduction in drilling activities could materially and adversely
affect the demand for our services and our results of operations.
15
Prices for oil and gas historically have been extremely volatile
and are expected to continue to be volatile. Although oil prices
exceeded $140 per barrel and natural gas prices exceeded $13 per
mcf in 2008, prices fell to below $40 per barrel and $6 per mcf
by the end of 2008. The Cushing WTI Spot Oil Price averaged
$66.05, $72.34 and $99.67 per barrel in 2006, 2007 and 2008,
respectively, and $51.18 per barrel for the first six months of
2009. The average wellhead price for natural gas, as recorded by
the Energy Information Agency, was $6.42, $6.38 and $8.07 per
mcf for 2006, 2007 and 2008, respectively, and $3.99 per mcf for
the first five months of 2009. The speed and severity of the
decline in natural gas prices during the fourth quarter of 2008
and the resulting low prices in the first half of 2009 has
materially affected and may continue to materially affect the
demand for our services and the rates that we are able to
charge. Likewise, the overall decline in oil prices from their
highest levels in 2008 and the uncertainty regarding the
sustainability of current oil prices has materially affected and
may continue to materially affect the demand for our services
and the rates that we are able to charge.
We may
require additional capital in the future. We cannot assure you
that we will be able to generate sufficient cash internally or
obtain alternative sources of capital on favorable terms, if at
all. If we are unable to fund capital expenditures our business
may be adversely affected.
We anticipate that we will continue to make substantial capital
investments to purchase additional equipment to expand our
services, refurbish our well servicing rigs and replace existing
equipment. For the year ended December 31, 2007, we
invested approximately $98.5 million in cash for capital
expenditures, excluding acquisitions. For the year ended
December 31, 2008, we invested approximately
$91.9 million in cash for capital expenditures, excluding
acquisitions. For the six months ended June 30, 2009, we
invested approximately $25.2 million in cash for capital
expenditures, excluding acquisitions, and we currently expect
our aggregate capital expenditures for 2009 to be approximately
$57.5 million. Historically, we have financed these
investments through internally generated funds, debt and equity
offerings, our capital lease program and our prior senior credit
facility, which was terminated on July 31, 2009 in
connection with the offering of the old notes. These significant
capital investments require cash that we could otherwise apply
to other business needs. However, if we do not incur these
expenditures while our competitors make substantial fleet
investments, our market share may decline and our business may
be adversely affected. In addition, if we are unable to generate
sufficient cash internally or obtain alternative sources of
capital to fund our proposed capital expenditures and
acquisitions, take advantage of business opportunities or
respond to competitive pressures, it could materially adversely
affect our results of operations, financial condition and
growth. The recent adverse changes in the capital markets could
make it difficult to obtain capital or obtain it at attractive
rates.
Our
indebtedness could restrict our operations and make us more
vulnerable to adverse economic conditions.
We now have, and will continue to have, a significant amount of
indebtedness. As of June 30, 2009, our total debt was
$480.3 million, including $180.0 million of borrowings
under our prior senior credit facility, the $225.0 million
aggregate principal amount due under our 7.125% Senior
Notes due 2016 and capital lease obligations in the aggregate
amount of $75.3 million. We repaid all borrowings
outstanding under our prior senior credit facility on
July 31, 2009, with the proceeds from the issuance of the
old notes. For the year ended December 31, 2008, we made
cash interest payments totaling $24.5 million. For the six
months ended June 30, 2009, we made cash interest payments
totaling $12.3 million.
Our current and future indebtedness could have important
consequences. For example, it could:
|
|
|
|
|
impair our ability to make investments and obtain additional
financing for working capital, capital expenditures,
acquisitions or other general corporate purposes;
|
|
|
|
limit our ability to use operating cash flow in other areas of
our business because we must dedicate a substantial portion of
these funds to make principal and interest payments on our
indebtedness;
|
|
|
|
make us more vulnerable to a downturn in our business, our
industry or the economy in general as a substantial portion of
our operating cash flow will be required to make principal and
interest payments
|
16
|
|
|
|
|
on our indebtedness, making it more difficult to react to
changes in our business and in industry and market conditions;
|
|
|
|
|
|
limit our ability to obtain additional financing that may be
necessary to operate or expand our business;
|
|
|
|
put us at a competitive disadvantage to competitors that have
less debt; and
|
|
|
|
increase our vulnerability to interest rate increases to the
extent that we incur variable rate indebtedness.
|
If we are unable to generate sufficient cash flow or are
otherwise unable to obtain the funds required to make principal
and interest payments on our indebtedness, or if we otherwise
fail to comply with the various covenants in instruments
governing any existing or future indebtedness, we could be in
default under the terms of such instruments. In the event of a
default, the holders of our indebtedness could elect to declare
all the funds borrowed under those instruments to be due and
payable together with accrued and unpaid interest and we or one
or more of our subsidiaries could be forced into bankruptcy or
liquidation. If our indebtedness is accelerated, or we enter
into bankruptcy, we may be unable to pay all of our indebtedness
in full.
The
indentures governing our 7.125% Senior Notes due 2016 and
our 11.625% Senior Secured Notes due 2014 impose, and
future credit facilities may impose, restrictions on us that may
affect our ability to successfully operate our
business.
The indentures governing our 7.125% Senior Notes due 2016
and our 11.625% Senior Secured Notes due 2014 include, and
we expect future credit facilities may include, limitations on
our ability to take various actions, such as:
|
|
|
|
|
limitations on the incurrence of additional indebtedness;
|
|
|
|
restrictions on mergers, sales or transfer of assets without the
lenders consent; and
|
|
|
|
limitation on dividends and distributions.
|
In addition, a future credit facility could require us to
maintain certain financial ratios and to satisfy certain
financial conditions, several of which could become more
restrictive over time and may require us to reduce our debt or
take some other action in order to comply with them. The failure
to comply with any of these financial conditions, including the
financial ratios or covenants, would cause a default under any
such credit facility. A default, if not waived, could result in
acceleration of the outstanding indebtedness under any such
credit facility, in which case the debt would become immediately
due and payable. In addition, a default or acceleration of
indebtedness under any such credit facility could result in a
default or acceleration of our existing senior notes and senior
secured notes or other indebtedness with cross-default or
cross-acceleration provisions. If this occurs, we may not be
able to pay our debt or borrow sufficient funds to refinance it.
Even if new financing is available, it may not be available on
terms that are acceptable to us. These restrictions could also
limit our ability to obtain future financings, make needed
capital expenditures, withstand a downturn in our business or
the economy in general, or otherwise conduct necessary corporate
activities. We also may be prevented from taking advantage of
business opportunities that arise because of the limitations
imposed on us by the restrictive covenants under a future credit
facility.
At the closing of our offering of the old notes, we pledged cash
collateral with respect to the approximately $16.2 million
of letters of credit that were outstanding under our revolving
credit facility. We terminated the revolving credit facility on
July 31, 2009, and we are unable to borrow any amounts
under it. We expect to rely on cash on hand in the near term and
to evaluate alternatives with respect to a new revolving credit
facility or letter of credit facility in the future to address
our long term liquidity requirements. The indenture governing
the notes limits the amount that we could borrow under a future
secured credit facility to the difference between
(i) $240 million and (ii) the sum of
(a) $212.9 million (the principal amount of the notes,
net of offering discount) and (b) our outstanding
collateralized letters of credit, subject to possible upward
adjustment of the amount in clause (i) based on our
consolidated tangible assets. While we have significant
available cash after closing our offering of the old notes, our
future cash balances could decrease
17
and affect our financial condition. Please read
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources.
Competition
within the well services industry may adversely affect our
ability to market our services.
The well services industry is highly competitive and fragmented
and includes numerous small companies capable of competing
effectively in our markets on a local basis, as well as several
large companies that possess substantially greater financial and
other resources than we do. Our larger competitors greater
resources could allow those competitors to compete more
effectively than we can. The amount of equipment available
currently exceeds demand, which has resulted in active price
competition. Many contracts are awarded on a bid basis, which
may further increase competition based primarily on price. In
addition, recent market conditions and the existence of excess
equipment have resulted in lower utilization rates.
We
depend on several significant customers, and a loss of one or
more significant customers could adversely affect our results of
operations.
Our customers consist primarily of major and independent oil and
gas companies. During 2007 and 2008, our top five customers
accounted for 16% and 18% of our revenues, respectively, and
they accounted for 22% of our revenues for the first six months
of 2009. The loss of any one of our largest customers or a
sustained decrease in demand by any of such customers could
result in a substantial loss of revenues and could have a
material adverse effect on our results of operations.
We may
not be able to grow successfully through future acquisitions or
successfully manage future growth, and we may not be able to
effectively integrate the businesses we do
acquire.
Our business strategy includes growth through the acquisitions
of other businesses. We may not be able to continue to identify
attractive acquisition opportunities or successfully acquire
identified targets. In addition, we may not be successful in
integrating our current or future acquisitions into our existing
operations, which may result in unforeseen operational
difficulties or diminished financial performance or require a
disproportionate amount of our managements attention. Even
if we are successful in integrating our current or future
acquisitions into our existing operations, we may not derive the
benefits, such as operational or administrative synergies, that
we expected from such acquisitions, which may result in the
commitment of our capital resources without the expected returns
on such capital. Furthermore, competition for acquisition
opportunities may escalate, increasing our cost of making
further acquisitions or causing us to refrain from making
additional acquisitions.
Our
industry has experienced a high rate of employee turnover. Any
difficulty we experience replacing or adding personnel could
adversely affect our business.
We may not be able to find enough skilled labor to meet our
needs, which could limit our growth. Our business activity
historically decreases or increases with the price of oil and
gas. We may have problems finding enough skilled and unskilled
laborers in the future if the demand for our services increases.
If we are not able to increase our service rates sufficiently to
compensate for wage rate increases, our operating results may be
adversely affected.
Other factors may also inhibit our ability to find enough
workers to meet our employment needs. Our services require
skilled workers who can perform physically demanding work. As a
result of our industry volatility and the demanding nature of
the work, workers may choose to pursue employment in fields that
offer a more desirable work environment at wage rates that are
competitive with ours. We believe that our success is dependent
upon our ability to continue to employ and retain skilled
technical personnel. Our inability to employ or retain skilled
technical personnel generally could have a material adverse
effect on our operations.
18
Our
success depends on key members of our management, the loss of
any of whom could disrupt our business operations.
We depend to a large extent on the services of some of our
executive officers. The loss of the services of Kenneth V.
Huseman, our President and Chief Executive Officer, or other key
personnel could disrupt our operations. Although we have entered
into employment agreements with Mr. Huseman and our other
executive officers that contain, among other provisions,
non-compete agreements, we may not be able to enforce the
non-compete provisions in the employment agreements.
Our
operations are subject to inherent risks, some of which are
beyond our control. These risks may be self-insured, or may not
be fully covered under our insurance policies.
Our operations are subject to hazards inherent in the oil and
gas industry, such as, but not limited to, accidents, blowouts,
explosions, craterings, fires and oil spills. These conditions
can cause:
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personal injury or loss of life;
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damage to or destruction of property and equipment (including
the collateral securing the notes) and the environment; and
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suspension of operations.
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The occurrence of a significant event or adverse claim in excess
of the insurance coverage that we maintain or that is not
covered by insurance could have a material adverse effect on our
financial condition and results of operations. In addition,
claims for loss of oil and gas production and damage to
formations can occur in the well services industry. Litigation
arising from a catastrophic occurrence at a location where our
equipment and services are being used may result in our being
named as a defendant in lawsuits asserting large claims.
We maintain insurance coverage that we believe to be customary
in the industry against these hazards. However, we do not have
insurance against all foreseeable risks, either because
insurance is not available or because of the high premium costs.
As such, not all of our property is insured. We are also
self-insured up to retention limits with regard to workers
compensation and medical and dental coverage. We maintain
accruals in our consolidated balance sheets related to
self-insurance retentions by using third-party data and
historical claims history. The occurrence of an event not fully
insured against, or the failure of an insurer to meet its
insurance obligations, could result in substantial losses. In
addition, we may not be able to maintain adequate insurance in
the future at rates we consider reasonable. Insurance may not be
available to cover any or all of the risks to which we are
subject, or, even if available, it may be inadequate, or
insurance premiums or other costs could rise significantly in
the future so as to make such insurance prohibitively expensive.
It is likely that, in our insurance renewals, our premiums and
deductibles will be higher, and certain insurance coverage
either will be unavailable or considerably more expensive than
it has been in the recent past. In addition, our insurance is
subject to coverage limits, and some policies exclude coverage
for damages resulting from environmental contamination.
We are
subject to federal, state and local regulations regarding issues
of health, safety and protection of the environment. Under these
regulations, we may become liable for penalties, damages or
costs of remediation. Any changes in laws and government
regulations could increase our costs of doing
business.
Our operations are subject to federal, state and local laws and
regulations relating to protection of natural resources and the
environment, health and safety, waste management, and
transportation of waste and other materials. Our fluid services
segment includes disposal operations into injection wells that
pose some risks of environmental liability, including leakage
from the wells to surface or subsurface soils, surface water or
groundwater. Liability under these laws and regulations could
result in cancellation of well operations, fines and penalties,
expenditures for remediation, and liability for property damage
and personal injuries. Sanctions for noncompliance with
applicable environmental laws and regulations also may include
assessment of administrative, civil and criminal penalties,
revocation of permits and issuance of corrective action orders.
19
Laws protecting the environment generally have become more
stringent over time and are expected to continue to do so, which
could lead to material increases in costs for future
environmental compliance and remediation. The modification or
interpretation of existing laws or regulations, or the adoption
of new laws or regulations, could curtail exploratory or
developmental drilling for oil and gas and could limit well
servicing opportunities. Some environmental laws and regulations
may impose strict liability, which means that in some situations
we could be exposed to liability as a result of our conduct that
was lawful at the time it occurred or the conduct of, or
conditions caused by, prior operators or other third parties.
Clean-up
costs and other damages arising as a result of environmental
laws and costs associated with changes in environmental laws and
regulations could be substantial and could have a material
adverse effect on our financial condition.
Risks
Relating to the Exchange Offer and the New Notes
If you
do not properly tender your old notes, you will continue to hold
unregistered outstanding notes and your ability to transfer
outstanding notes will be adversely affected.
We will only issue new notes in exchange for old notes that you
timely and properly tender. Therefore, you should allow
sufficient time to ensure timely delivery of the old notes, and
you should carefully follow the instructions on how to tender
your old notes. Neither we nor the exchange agent is required to
tell you of any defects or irregularities with respect to your
tender of old notes. Please read The Exchange
Offer Procedures for Tendering and
Description of the New Notes.
If you do not exchange your old notes for new notes in the
exchange offer, you will continue to be subject to the
restrictions on transfer of your old notes described in the
legend on the certificates for your old notes. In general, you
may only offer or sell the old notes if they are registered
under the Securities Act and applicable state securities laws,
or offered and sold under an exemption from these requirements.
We do not plan to register any sale of the old notes under the
Securities Act. For further information regarding the
consequences of failing to tender your old notes in the exchange
offer, please read The Exchange Offer
Consequences of Failure to Exchange Outstanding Securities.
Some
holders who exchange their old notes may be deemed to be
underwriters.
If you exchange your old notes in the exchange offer for the
purpose of participating in a distribution of the new notes, you
may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with
any resale transaction.
There
may not be sufficient collateral to pay all of the new
notes.
The new notes and the guarantees are secured by a first-priority
lien, subject to limited exceptions, on certain of our current
and future assets. See Description of the New
Notes Security.
No appraisals of any collateral have been prepared in connection
with this exchange offer. Estimating the value of the collateral
is a subjective process and subject to considerable uncertainty.
As of June 30, 2009, the net book value of the collateral
included approximately $509 million of property and
equipment. Furthermore, the collateral will likely decline in
value over time, though the value of the collateral at any time
will depend on market and other economic conditions, including
the availability of suitable buyers for the collateral. By its
nature, some or all of the collateral may be illiquid and may
have no readily ascertainable market value. The value of the
assets pledged as collateral for the new notes could be impaired
in the future as a result of changing economic conditions,
volatility of or further reduction in oil and gas prices,
competition or other future trends. As such, the sale value of
the collateral may be substantially different from its book
value. In the event of a foreclosure, liquidation, bankruptcy or
similar proceeding, no assurance can be given that the proceeds
from any sale or liquidation of the collateral will be
sufficient to pay our obligations under the new notes in full.
See Description of the New Notes
Security. Accordingly, there may not be sufficient
collateral to pay all of the amounts due on the new notes. Any
claim for the difference between any amount realized by holders
of the new notes from the sale of the collateral securing the
new notes and the obligations
20
under the new notes will rank equally in right of payment with
all of our other senior indebtedness and other unsubordinated
obligations, including trade payables.
To the extent that third parties enjoy prior liens, such third
parties may have rights and remedies with respect to the
property subject to such liens that, if exercised, could
adversely affect the value of the collateral. Additionally, the
terms of the indenture will allow us to issue additional notes
in certain circumstances. The indenture will not require that we
maintain the current level of collateral or maintain a specific
ratio of indebtedness to asset values. Any additional notes
issued pursuant to the indenture will rank pari passu with the
new notes and be entitled to the same rights and priority with
respect to the collateral. Thus, the issuance of additional
notes pursuant to the indenture may have the effect of
significantly diluting your ability to recover payment in full
from the then existing pool of collateral. Releases of
collateral from the liens securing the new notes are permitted
under some circumstances. See Description of the New
Notes Security.
The
collateral is subject to casualty risks.
We are obligated under the collateral arrangements to maintain
adequate insurance or otherwise insure against hazards as is
usually done by corporations operating assets of a similar
nature in the same or similar localities. There are, however,
certain losses that may be either uninsurable or not
economically insurable, in whole or in part. As a result, it is
possible that the insurance proceeds will not compensate us
fully for our losses. If there is a total or partial loss of any
of the collateral, we cannot assure you that any insurance
proceeds received by us will be sufficient to satisfy all of our
secured obligations, including the new notes. Please read
Risks Relating to Our Business Our
operations are subject to inherent risks, some of which are
beyond our control. These risks may be self-insured, or may not
be fully covered under our insurance policies above for
further discussion of risks to our operations and the collateral
securing the new notes.
In the
event of a bankruptcy, your ability to realize upon the
collateral will be subject to certain bankruptcy law
limitations.
The right of the trustee to repossess and dispose of the
collateral securing the new notes upon acceleration is likely to
be significantly impaired by federal bankruptcy law if
bankruptcy proceedings are commenced by or against us prior to
or possibly even after the trustee has repossessed and disposed
of the collateral. Under the U.S. Bankruptcy Code, a
secured creditor, such as the trustee for the new notes, is
prohibited from repossessing its security from a debtor in a
bankruptcy case, or from disposing of security repossessed from
a debtor, without bankruptcy court approval. Moreover,
bankruptcy law permits the debtor to continue to retain and to
use collateral, and the proceeds, products, rents or profits of
the collateral, even though the debtor is in default under the
applicable debt instruments, provided that the secured creditor
is given adequate protection. The meaning of the
term adequate protection may vary according to
circumstances, but it is intended in general to protect the
value of the secured creditors interest in the collateral
and may include cash payments or the granting of additional
security, if and at such time as the court in its discretion
determines, for any diminution in the value of the collateral as
a result of the stay of repossession or disposition or any use
of the collateral by the debtor during the pendency of the
bankruptcy case. In view of the broad discretionary powers of a
bankruptcy court, it is impossible to predict how long payments
under the new notes could be delayed following commencement of a
bankruptcy case, whether or when the trustee would repossess or
dispose of the collateral, or whether or to what extent holders
of the new notes would be compensated for any delay in payment
of loss of value of the collateral through the requirements of
adequate protection. Furthermore, in the event the
bankruptcy court determines that the value of the collateral is
not sufficient to repay all amounts due on the new notes, the
holders of the new notes would have undersecured
claims as to the difference. Federal bankruptcy laws do
not permit the payment or accrual of interest, costs and
attorneys fees for undersecured claims during
the debtors bankruptcy case. Finally, the trustees
ability to foreclose on the collateral on your behalf may be
subject to procedural restrictions, the consent of third parties
and practicable problems associated with the realization of the
security interest in the collateral.
21
Your
rights in the collateral may be adversely affected by the
failure to perfect security interests in certain collateral
existing or acquired in the future.
The security interest in the collateral securing the new notes
includes our drilling rigs and well service rigs, whether now
owned or acquired in the future, as well as considerable
additional assets. There can be no assurance that the trustee
will monitor, or that we will inform the trustee of, the future
acquisition of assets that constitute collateral, and that the
necessary action will be taken to properly perfect the security
interest in such after-acquired collateral. The failure to
perfect a security interest in respect of such after-acquired
collateral may result in the loss of the security interest
therein or the priority of the security interest in favor of the
new notes against third parties.
If we or any guarantor were to become subject to a bankruptcy
proceeding after the issue date of the old notes, any liens
recorded or perfected after the issue date of the old notes
would face a greater risk of being avoided than if they had been
recorded or perfected on the issue date. If a lien is recorded
or perfected after the issue date, it may be treated under
bankruptcy law as if it were delivered as a preferential
transfer to secure previously existing debt. In bankruptcy
proceedings commenced within 90 days of lien perfection, a
lien given to secure previously existing debt is materially more
likely to be avoided as a preference by the bankruptcy court
than if delivered and promptly recorded on the issue date of the
old notes. Accordingly, if we or a guarantor were to file for
bankruptcy after the issue date of the old notes and the liens
had been perfected less than 90 days before commencement of
such bankruptcy proceeding, the liens securing the notes may be
especially subject to challenge as a result of having been
delivered after the issue date of the old notes. To the extent
that such challenge succeeded, you would lose the benefit of the
security that the collateral was intended to provide.
We
will require a significant amount of cash to service our debt.
Our ability to generate cash depends on many factors beyond our
control.
Our ability to make payments on and to refinance our debt,
including the notes, and to fund planned capital expenditures
will depend on our ability to generate cash in the future. This
is subject to general economic, financial, competitive,
legislative, regulatory and other factors that may be beyond our
control. We cannot assure you that our business will generate
sufficient cash flow from operations in an amount sufficient to
enable us to pay our debt, including the notes, or to fund our
other liquidity needs. We may need to refinance all or a portion
of our debt, including the notes, on or before maturity. We
cannot assure you that we will be able to refinance any of our
debt, including our lease facilities or the notes, on
commercially reasonable terms or at all.
In
addition to our current indebtedness, we may incur substantially
more debt, including additional secured debt. This could further
exacerbate the risks associated with our substantial
debt.
We and our subsidiaries may be able to incur substantial
additional debt in the future. Although the indenture governing
the notes contains restrictions on the incurrence of additional
debt, these restrictions are subject to a number of
qualifications and exceptions and, under certain circumstances,
debt incurred in compliance with these restrictions could be
substantial. If new debt is added to our current debt levels,
the substantial risks described above would intensify. See
Capitalization, Selected Historical Financial
Data and Description of Other Indebtedness.
We are
a holding company with no direct operations.
Basic Energy Services, Inc. is a holding company with no direct
operations. Our principal assets are the equity interests and
investments we hold in our subsidiaries. As a result, we depend
on dividends and other payments from our subsidiaries to
generate the funds necessary to meet our financial obligations,
including the payment of principal of and interest on our
outstanding debt. Our subsidiaries are legally distinct from us
and have no obligation to pay amounts due on our debt or to make
funds available to us for such payment except as provided in the
note guarantees or pursuant to intercompany notes.
22
A
court could cancel the new notes or the guarantees of the
initial or future guarantors and the security interests in the
collateral under fraudulent conveyance laws or certain other
circumstances.
All of our current subsidiaries, other than two immaterial
subsidiaries, and all of our future material restricted
subsidiaries that guarantee our other indebtedness, guarantee
the notes. If we or such a subsidiary becomes a debtor in a case
under the U.S. Bankruptcy Code or encounters other
financial difficulty, under federal or state laws governing
fraudulent transfer, renewable transactions or preferential
payments, a court in the relevant jurisdiction might avoid or
cancel its guarantee
and/or the
liens created by the security interest in its collateral. The
court might do so if it found that, when the subsidiary entered
into its guarantee and security arrangement or, in some states,
when payments became due thereunder, (a) it received less
than reasonably equivalent value or fair consideration for such
guarantee
and/or
security arrangement and (b) either (i) was or was
rendered insolvent, (ii) was left with inadequate capital
to conduct its business, or (iii) believed or should have
believed that it would incur debts beyond its ability to pay.
The court might also avoid such guarantee
and/or
security arrangement, without regard to the above factors, if it
found that the subsidiary entered into its guarantee
and/or
security arrangement with actual or deemed intent to hinder,
delay, or defraud our creditors.
Similarly, if we become a debtor in a case under the
U.S. Bankruptcy Code or encounter other financial
difficulty, a court might cancel our obligations under the
notes, if it found that when we issued the notes (or in some
jurisdictions, when payments become due under the notes),
factors (a) and (b) above applied to us, or if it
found that we issued the notes with actual intent to hinder,
delay or defraud our creditors.
A court would likely find that a subsidiary did not receive
reasonably equivalent value or fair consideration for its
guarantee unless it benefited directly or indirectly from the
issuance of the notes. If a court avoided such guarantee,
holders of the notes would no longer have a claim against such
subsidiary. In addition, the court might direct holders of the
notes to repay any amounts already received from such
subsidiary. If the court were to avoid any guarantee, we cannot
assure you that funds would be available to pay the notes from
another subsidiary or from any other source.
The indenture states that the liability of each subsidiary on
its guarantee and security arrangement is limited to the maximum
amount that the subsidiary can incur without risk that the
guarantee or security arrangement will be subject to avoidance
as a fraudulent conveyance or fraudulent transfer. See
Description of the New Notes Note
Guarantees. This limitation may not protect the guarantees
and/or
security arrangements from a fraudulent conveyance attack or, if
it does, the guarantees
and/or
security arrangements may not be in amounts sufficient, if
necessary, to pay obligations under the notes when due.
We may
not have the ability to raise funds necessary to finance any
change of control offer required under the
indenture.
If a change of control (as defined in the indenture) occurs, we
will be required to offer to purchase your notes at 101% of
their principal amount plus accrued and unpaid interest. Any of
our future debt agreements may contain provisions relating to
the acceleration of indebtedness or restrictions on our ability
to repay the notes upon a change in control. If a purchase offer
obligation arises under the indenture governing the notes, a
similar obligation would likely arise with respect to our
outstanding 7.125% Senior Notes due 2016. If a purchase
offer were required under the indenture for our debt, we may not
have sufficient funds to pay the purchase price of all debt,
including your notes, that we are required to purchase or repay.
In a recent decision, the Chancery Court of Delaware raised the
possibility that a change of control put right occurring as a
result of a failure to have continuing directors
comprising a majority of a board of directors may be
unenforceable on public policy grounds.
An
active trading market may not develop for the new
notes.
The new notes are a new issue of securities. There is no active
public trading market for the new notes, and the new notes will
not be listed on any securities exchange.
We cannot assure you that an active trading market will develop
for the new notes or that the new notes will trade as one class
with the old notes. In addition, the liquidity of the trading
market in the new notes and
23
the market prices quoted for the new notes may be adversely
affected by changes in the overall market for high yield
securities and by changes in our financial performance or
prospects or in the prospects for companies in our industry
generally. As a consequence, an active trading market may not
develop for your notes, you may not be able to sell your notes,
or, even if you can sell your notes, you may not be able to sell
them at an acceptable price.
You
generally are required to accrue income before you receive cash
attributable to original issue discount on the notes.
Additionally, in the event we enter into bankruptcy, you may not
have a claim for all or a portion of any unamortized amount of
the original discount on the notes.
The old notes were issued with original issue discount
(OID) for U.S. federal income tax purposes.
Accordingly, if you are an individual or entity subject to
U.S. tax, you generally are required to accrue interest in
the form of OID on a current basis in respect of the notes,
include such accrued interest in income and pay tax accordingly,
even before you receive cash attributable to that income.
Additionally, a bankruptcy court may not allow a claim for all
or a portion of any unamortized amount of the OID on the notes.
24
FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements
as that term is defined in the Private Securities Litigation
Reform Act of 1995. The forward-looking statements include
statements relating to goals, plans and projections regarding
our financial position, results of operations, market position,
product development and business strategy under the headings
Prospectus Summary and Risk Factors.
These statements are based on managements current
expectations and involve significant risks and uncertainties
that may cause results to differ materially from those set forth
in the statements.
The words believe, may,
estimate, continue,
anticipate, intend, plan,
expect and similar expressions are intended to
identify forward-looking statements. All statements other than
statements of current or historical fact contained in this
prospectus are forward-looking statements. Although we believe
that the forward-looking statements contained in this prospectus
are based upon reasonable assumptions, the forward-looking
events and circumstances discussed in this prospectus may not
occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements.
Important factors that may affect our expectations, estimates or
projections include:
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a decline in, or substantial volatility of, oil and gas prices,
and any related changes in expenditures by our customers;
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the effects of future acquisitions on our business;
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changes in customer requirements in markets or industries we
serve;
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competition within our industry;
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general economic and market conditions;
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our access to current or future financing arrangements;
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our ability to replace or add workers at economic rates; and
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environmental and other governmental regulations.
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Our forward-looking statements speak only as of the date of this
prospectus. Unless otherwise required by law, we undertake no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise.
This prospectus includes market share data, industry data and
forecasts that we obtained from internal company surveys
(including estimates based on our knowledge and experience in
the industry in which we operate), market research, consultant
surveys, publicly available information, industry publications
and surveys. These sources include Baker Hughes Incorporated
(Baker Hughes), the Association of Energy Service
Companies (AESC), and the Energy Information
Administration of the U.S. Department of Energy
(EIA). Industry surveys and publications, consultant
surveys and forecasts generally state that the information
contained therein has been obtained from sources believed to be
reliable. Although we believe such information is accurate and
reliable, we have not independently verified any of the data
from third party sources cited or used for our managements
industry estimates, nor have we ascertained the underlying
economic assumptions relied upon therein. For example, the
number of onshore well servicing rigs in the U.S. could be
lower than our estimate to the extent our two larger competitors
have continued to report as stacked rigs equipment that is not
actually complete or subject to refurbishment. Statements as to
our position relative to our competitors or as to market share
refer to the most recent available data.
25
USE OF
PROCEEDS
The exchange offer is intended to satisfy our obligations under
the registration rights agreement we entered into in connection
with the private offering of the old notes. We will not receive
any proceeds from the issuance of the new notes in the exchange
offer. In consideration for issuing the new notes as
contemplated in this prospectus, we will receive, in exchange,
outstanding old notes in like principal amount. We will cancel
all old notes surrendered in exchange for new notes in the
exchange offer. As a result, the issuance of the new notes will
not result in any increase or decrease in our indebtedness.
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratio of
earnings to fixed charges for the periods shown:
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Six
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Months
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Ended
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Year Ended December 31,
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June 30,
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2008
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2007
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2006
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2005
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2004
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2009
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Ratio of earnings to fixed charges
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4.7
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x
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5.2
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x
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7.9
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x
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5.6
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x
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2.8
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x
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(a)
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For these ratios, earnings means the sum of income
before income taxes and fixed charges exclusive of capitalized
interest, and fixed charges means interest expensed
and capitalized, amortized premiums, discounts and capitalized
expenses relating to indebtedness and an estimate of the portion
of annual rental expense on capital leases that represents the
interest factor.
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Earnings were inadequate to cover fixed charges for the six
months ended June 30, 2009 by $249.3 million. |
26
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of June 30, 2009:
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on an actual basis; and
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on an as adjusted basis to give effect to the offering of our
11.625% Senior Secured Notes due 2014 and the use of
proceeds therefrom.
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This table should be read in conjunction with Summary
Historical Consolidated Financial Information,
Selected Historical Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and the related notes thereto included
elsewhere in this prospectus.
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As of June 30, 2009
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Actual
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As Adjusted
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(In thousands)
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Cash and cash equivalents
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$
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134,304
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$
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162,719
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Total long-term debt, including current portion:
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Notes payable:
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Tranche A and Tranche B loans under revolving credit
facility(1)
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180,000
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|
|
|
|
|
11.625% Senior Secured Notes due 2014
|
|
|
|
|
|
|
212,897
|
(2)
|
7.125% Senior Notes due 2016
|
|
|
225,000
|
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
Other debt and obligations under capital leases
|
|
|
75,274
|
|
|
|
75,274
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
480,274
|
|
|
|
513,171
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 80,000,000 shares
authorized; 42,394,809 shares issued and
40,703,187 shares outstanding
|
|
|
424
|
|
|
|
424
|
|
Additional paid-in capital
|
|
|
328,101
|
|
|
|
328,101
|
|
Deferred compensation
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
72,642
|
|
|
|
72,642
|
|
Treasury stock, 1,691,622 shares, at cost
|
|
|
(13,948
|
)
|
|
|
(13,948
|
)
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
387,219
|
|
|
|
387,219
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
867,493
|
|
|
$
|
900,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of the closing on July 31, 2009, we had borrowings of an
aggregate of $208.8 million under the revolving credit
facility, all of which were repaid with the proceeds from the
offering. We terminated the revolving credit facility after
closing our senior secured notes offering, and we pledged cash
collateral with respect to the approximately $16.2 of million
letters of credit that were outstanding under the revolving
credit facility before closing the senior secured notes offering. |
|
(2) |
|
The $225.0 million of notes are recorded at their
discounted amount, with the discount to be amortized over the
life of the notes. |
27
SELECTED
HISTORICAL FINANCIAL DATA
The following table sets forth our selected historical financial
information for the periods shown. The following information
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements
included elsewhere in this prospectus. The amounts for each
historical annual period presented below were derived from our
audited financial statements. The amounts for each interim
period presented below were derived from our unaudited interim
financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
(Unaudited)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well servicing
|
|
$
|
343,113
|
|
|
$
|
342,697
|
|
|
$
|
323,755
|
|
|
$
|
221,993
|
|
|
$
|
142,551
|
|
|
$
|
85,213
|
|
|
$
|
169,537
|
|
Fluid services
|
|
|
315,768
|
|
|
|
259,324
|
|
|
|
245,011
|
|
|
|
177,927
|
|
|
|
139,610
|
|
|
|
114,065
|
|
|
|
143,980
|
|
Completion and remedial services
|
|
|
304,326
|
|
|
|
240,692
|
|
|
|
154,412
|
|
|
|
59,832
|
|
|
|
29,341
|
|
|
|
66,632
|
|
|
|
148,037
|
|
Contract drilling
|
|
|
41,735
|
|
|
|
34,460
|
|
|
|
6,970
|
|
|
|
|
|
|
|
|
|
|
|
7,626
|
|
|
|
19,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,004,942
|
|
|
|
877,173
|
|
|
|
730,148
|
|
|
|
459,752
|
|
|
|
311,502
|
|
|
|
273,536
|
|
|
|
481,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well servicing
|
|
|
215,243
|
|
|
|
205,132
|
|
|
|
178,028
|
|
|
|
137,392
|
|
|
|
98,058
|
|
|
|
64,742
|
|
|
|
103,759
|
|
Fluid services
|
|
|
203,205
|
|
|
|
165,327
|
|
|
|
153,445
|
|
|
|
114,551
|
|
|
|
96,621
|
|
|
|
79,968
|
|
|
|
94,987
|
|
Completion and remedial services
|
|
|
165,574
|
|
|
|
125,948
|
|
|
|
74,981
|
|
|
|
30,900
|
|
|
|
17,481
|
|
|
|
47,378
|
|
|
|
78,439
|
|
Contract drilling
|
|
|
28,629
|
|
|
|
22,510
|
|
|
|
8,400
|
|
|
|
|
|
|
|
|
|
|
|
6,607
|
|
|
|
14,589
|
|
General and administrative(a)
|
|
|
115,319
|
|
|
|
99,042
|
|
|
|
81,318
|
|
|
|
55,411
|
|
|
|
37,186
|
|
|
|
56,503
|
|
|
|
52,663
|
|
Depreciation and amortization
|
|
|
118,607
|
|
|
|
93,048
|
|
|
|
62,087
|
|
|
|
37,072
|
|
|
|
28,676
|
|
|
|
65,150
|
|
|
|
56,764
|
|
Loss (gain) on disposal of assets
|
|
|
76
|
|
|
|
477
|
|
|
|
277
|
|
|
|
(222
|
)
|
|
|
2,616
|
|
|
|
1,339
|
|
|
|
(584
|
)
|
Goodwill impairment
|
|
|
22,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
869,175
|
|
|
|
711,484
|
|
|
|
558,536
|
|
|
|
375,104
|
|
|
|
280,638
|
|
|
|
525,701
|
|
|
|
400,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
135,767
|
|
|
|
165,689
|
|
|
|
171,612
|
|
|
|
84,648
|
|
|
|
30,864
|
|
|
|
(252,165
|
)
|
|
|
80,778
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(24,630
|
)
|
|
|
(25,136
|
)
|
|
|
(15,504
|
)
|
|
|
(12,660
|
)
|
|
|
(9,550
|
)
|
|
|
(11,317
|
)
|
|
|
(12,630
|
)
|
Gain (loss) on early extinguishment of debt
|
|
|
|
|
|
|
(230
|
)
|
|
|
(2,705
|
)
|
|
|
(627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
12,235
|
|
|
|
176
|
|
|
|
169
|
|
|
|
220
|
|
|
|
(398
|
)
|
|
|
252
|
|
|
|
(6,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
123,372
|
|
|
|
140,499
|
|
|
|
153,572
|
|
|
|
71,581
|
|
|
|
20,916
|
|
|
|
(263,230
|
)
|
|
|
61,717
|
|
Income tax benefit (expense)
|
|
|
(55,134
|
)
|
|
|
(52,766
|
)
|
|
|
(54,742
|
)
|
|
|
(26,800
|
)
|
|
|
(7,984
|
)
|
|
|
59,169
|
|
|
|
(23,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
68,238
|
|
|
|
87,733
|
|
|
|
98,830
|
|
|
|
44,781
|
|
|
|
12,932
|
|
|
|
(204,061
|
)
|
|
|
38,369
|
|
Discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
68,238
|
|
|
$
|
87,733
|
|
|
$
|
98,830
|
|
|
$
|
44,781
|
|
|
$
|
12,861
|
|
|
$
|
(204,061
|
)
|
|
$
|
38,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
(Unaudited)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
$
|
212,827
|
|
|
$
|
198,591
|
|
|
$
|
145,678
|
|
|
$
|
99,189
|
|
|
$
|
46,539
|
|
|
$
|
73,049
|
|
|
$
|
87,328
|
|
Cash flows from investing activities
|
|
|
(197,302
|
)
|
|
|
(294,103
|
)
|
|
|
(241,351
|
)
|
|
|
(107,679
|
)
|
|
|
(73,587
|
)
|
|
|
(25,460
|
)
|
|
|
(91,840
|
)
|
Cash flows from financing activities
|
|
|
3,669
|
|
|
|
136,088
|
|
|
|
114,193
|
|
|
|
21,188
|
|
|
|
21,498
|
|
|
|
(24,420
|
)
|
|
|
(9,645
|
)
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
110,913
|
|
|
|
199,673
|
|
|
|
135,568
|
|
|
|
25,378
|
|
|
|
19,284
|
|
|
|
1,190
|
|
|
|
51,239
|
|
Property and equipment
|
|
|
91,890
|
|
|
|
98,536
|
|
|
|
104,574
|
|
|
|
83,095
|
|
|
|
55,674
|
|
|
|
25,187
|
|
|
|
45,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
(Unaudited)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
111,135
|
|
|
$
|
91,941
|
|
|
$
|
51,365
|
|
|
$
|
32,845
|
|
|
$
|
20,147
|
|
|
$
|
134,304
|
|
|
$
|
77,784
|
|
Property and equipment, net
|
|
|
740,879
|
|
|
|
636,924
|
|
|
|
475,431
|
|
|
|
309,075
|
|
|
|
233,451
|
|
|
|
714,560
|
|
|
|
665,922
|
|
Total assets
|
|
|
1,310,711
|
|
|
|
1,143,609
|
|
|
|
796,260
|
|
|
|
496,957
|
|
|
|
367,601
|
|
|
|
1,068,393
|
|
|
|
1,209,776
|
|
Long-term debt, including current portion
|
|
|
480,323
|
|
|
|
423,719
|
|
|
|
262,743
|
|
|
|
126,887
|
|
|
|
182,476
|
|
|
|
480,274
|
|
|
|
433,367
|
|
Stockholders equity
|
|
|
595,004
|
|
|
|
524,821
|
|
|
|
379,250
|
|
|
|
258,575
|
|
|
|
121,786
|
|
|
|
387,219
|
|
|
|
566,683
|
|
|
|
|
(a) |
|
Includes approximately $4,149,000, $3,964,000, $3,429,000,
$2,890,000 and $1,587,000 of non-cash stock compensation expense
for the years ended December 31, 2008, 2007, 2006, 2005 and
2004, respectively, and $2,665,000 and $2,264,000 in the six
months ended June 30, 2009 and 2008, respectively. |
29
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements
Overview
We provide a wide range of well site services to oil and gas
drilling and producing companies, including well servicing,
fluid services, completion and remedial services and contract
drilling. Our results of operations reflect the impact of our
acquisition strategy as a leading consolidator in the domestic
land-based well services industry. Our acquisitions have
increased our breadth of service offerings at the well site and
expanded our market presence. In implementing this strategy, we
purchased businesses and assets in 40 separate acquisitions from
January 1, 2004 to June 30, 2009. Our weighted average
number of well servicing rigs increased from 279 in 2004 to 414
in the second quarter of 2009 and our weighted average number of
fluid service trucks increased from 386 to 808 in the same
period. We added 98 trucks through the acquisition of Azurite
Services Company, Inc., Azurite Leasing Company, LLC, and
Freestone Disposal, LP (collectively Azurite) in the
third quarter of 2008. We significantly increased our completion
and remedial services segment, principally through the
acquisition of JetStar Consolidated Holdings, Inc. in the first
quarter of 2007. Our weighted average number of drilling rigs
increased from two in the first quarter of 2006 to nine in the
fourth quarter of 2008, principally through the acquisition of
Sledge Drilling Holding Corp. in the second quarter of 2007.
These acquisitions make our revenues, expenses and income not
directly comparable between periods.
Basic revised its business segments beginning in the first
quarter of 2008, and in connection therewith, restated the
corresponding items of segment information for earlier periods.
The new operating segments are Well Servicing, Fluid Services,
Completion and Remedial Services, and Contract Drilling. These
segments were selected based on changes in managements
resource allocation and performance assessment in making
decisions regarding the Company. Contract Drilling was
previously included in our Well Servicing segment. The Well Site
Construction Services segment was consolidated into our Fluid
Services segment. These changes reflect Basics operating
focus in compliance with Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information.
Our operating revenues from each of our segments, and their
relative percentages of our total revenues, consisted of the
following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well servicing
|
|
$
|
343.1
|
|
|
|
34
|
%
|
|
$
|
342.7
|
|
|
|
39
|
%
|
|
$
|
323.7
|
|
|
|
44
|
%
|
|
$
|
85.2
|
|
|
|
31
|
%
|
|
$
|
169.5
|
|
|
|
35
|
%
|
Fluid services
|
|
|
315.8
|
|
|
|
32
|
%
|
|
|
259.3
|
|
|
|
29
|
%
|
|
|
245.0
|
|
|
|
34
|
%
|
|
|
114.1
|
|
|
|
42
|
%
|
|
|
144.0
|
|
|
|
30
|
%
|
Completion and remedial
|
|
|
304.3
|
|
|
|
30
|
%
|
|
|
240.7
|
|
|
|
28
|
%
|
|
|
154.4
|
|
|
|
21
|
%
|
|
|
66.6
|
|
|
|
24
|
%
|
|
|
148.0
|
|
|
|
31
|
%
|
Contract drilling
|
|
|
41.7
|
|
|
|
4
|
%
|
|
|
34.5
|
|
|
|
4
|
%
|
|
|
7.0
|
|
|
|
1
|
%
|
|
|
7.6
|
|
|
|
3
|
%
|
|
|
19.8
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,004.9
|
|
|
|
100
|
%
|
|
$
|
877.2
|
|
|
|
100
|
%
|
|
$
|
730.1
|
|
|
|
100
|
%
|
|
$
|
273.5
|
|
|
|
100
|
%
|
|
$
|
481.3
|
|
|
|
100
|
%
|
Our core businesses depend on our customers willingness to
make expenditures to produce, develop and explore for oil and
gas in the United States. Industry conditions are influenced by
numerous factors, such as the supply of and demand for oil and
gas, domestic and worldwide economic conditions, political
instability in oil producing countries and merger and
divestiture activity among oil and gas producers. The volatility
of the oil and gas industry, and the consequent impact on
exploration and production activity, could adversely impact the
level of drilling and workover activity by some of our
customers. This volatility affects the demand for our services
and the price of our services.
We derive a majority of our revenues from services supporting
production from existing oil and gas operations. Demand for
these production-related services, including well servicing and
fluid services, tends to remain relatively stable, even in
moderate oil and gas price environments, as ongoing maintenance
spending is required to sustain production. As oil and gas
prices fluctuate, demand for all of our services changes
correspondingly as our customers must balance maintenance and
capital expenditures against their available cash flows. Because
our services are required to support drilling and workover
activities, we are also subject
30
to changes in capital spending by our customers as oil and gas
prices increase or decrease. Adverse changes in capital markets
also caused a number of oil and gas producers to reduce their
capital budgets for the remainder of 2009. Limitations on the
availability of capital, or higher costs of capital, for
financing expenditures may cause these and other oil and gas
producers to make additional reductions to capital budgets in
the future even if commodity prices return to historically high
levels.
During 2006, our business activity levels increased due to the
impact of higher oil and gas prices and the expansion of our
equipment fleets. In 2007, natural gas prices declined as an
excess supply of natural gas began to occur, mainly due to
moderate U.S. weather patterns. Utilization for our
services declined from 2006 levels as drilling activity
flattened or declined in several of our markets and new
equipment entered the marketplace balancing supply and demand
for our services. However, pricing for our services improved in
2007 from 2006, mainly reflecting continued increases in labor
costs, and offset a portion the effect of the lower utilization
of our services on our total revenues. By the middle of 2008,
oil and natural gas prices reached historic highs. However, in
the second half of 2008 oil and natural gas prices decreased
substantially, which caused significantly lower utilization of
our services in the fourth quarter of 2008. In the first half of
2009, utilization and pricing for our services continued to
decline from the fourth quarter of 2008. For the second half of
2009, we expect oil and gas prices to remain below the levels
required to support aggressive capital spending programs by our
customers and that their maintenance related spending will be
deferred for as long as possible. The reduced spending by our
customers in the first half of 2009 is expected to continue in
the second half of 2009, which will result in decreased demand
for our services and increased competition among the service
providers in each of our segments. We anticipate that
utilization, revenue and margins in 2009 will be substantially
below 2008 levels. As a result of these conditions, our
customers spending patterns have become increasingly
unpredictable, making it difficult for us to predict our future
operating results. Accordingly, our results may differ
significantly from our forecasts and those of the investment
community.
We believe that the most important performance measures for our
lines of business are as follows:
|
|
|
|
|
Well Servicing rig hours, rig utilization
rate, revenue per rig hour and segment profits as a percent of
revenues;
|
|
|
|
Fluid Services revenue per truck and segment
profits as a percent of revenues;
|
|
|
|
Completion and Remedial Services segment
profits as a percent of revenues; and
|
|
|
|
Contract Drilling rig operating days, revenue
per drilling day and segment profits as a percent of revenues.
|
Segment profits are computed as segment operating revenues less
direct operating costs. These measurements provide important
information to us about the activity and profitability of our
lines of business. For a detailed analysis of these indicators
for our company, see below in Segment Overview.
We will continue to evaluate opportunities to grow our business
through selective acquisitions and internal growth initiatives.
Our capital investment decisions are determined by an analysis
of the projected return on capital employed for each of those
alternatives, which is substantially driven by the cost to
acquire existing assets from a third party, the capital required
to build new equipment and the point in the oil and gas
commodity price cycle. Based on these factors, we make capital
investment decisions that we believe will support our long-term
growth strategy. While we believe our costs of integration for
prior acquisitions have been reflected in our historical results
of operations, integration of acquisitions may result in
unforeseen operational difficulties or require a
disproportionate amount of our managements attention.
Recent
Strategic Acquisitions and Expansions
During the period from 2006 through 2008, we grew significantly
through acquisitions and capital expenditures. During 2006, we
completed ten acquisitions, of which G&L Tool, Ltd. was
considered significant for purposes of SFAS No. 141,
Business Combinations. During 2007, we
completed eight acquisitions, of which JetStar Consolidated
Holdings, Inc. and Sledge Drilling Holding Corp. were considered
significant for
31
purposes of SFAS No. 141. During 2008, we completed
five acquisitions, of which Azurite was considered significant
for purposes of SFAS No. 141.
We discuss the aggregate purchase prices and related financing
issues below in Liquidity and Capital Resources and
present the pro forma effects of the acquisition of G&L
Tool, Ltd., JetStar Consolidated Holdings, Inc., Sledge Drilling
Holding Corp., and Azurite in Note 3 of our audited
historical consolidated financial statements for the year ended
December 31, 2008 included in this prospectus.
Selected
2006 Acquisitions
During 2006, we made several acquisitions that complemented our
existing business segments and provided an entry into the rental
and fishing tool business. These included, among others:
LeBus Oil
Field Service Co.
On January 31, 2006, we acquired all of the outstanding
capital stock of LeBus Oil Field Service Co. (LeBus)
for an acquisition price of $26.0 million, subject to
adjustments. This acquisition significantly expanded our fluid
services segment in the Ark-La-Tex region. The cash used to
acquire LeBus was primarily from borrowings under our senior
credit facility.
G&L
Tool, Ltd.
On February 28, 2006, we acquired substantially all of the
operating assets of G&L Tool, Ltd. (G&L)
for total consideration of $58.5 million in cash. This
acquisition provided an entry into the rental and fishing tool
market and operates within our completion and remedial line of
business. The purchase agreement also contained an earn-out
agreement based on annual EBITDA targets. The cash used to
acquire G&L was primarily from borrowings under our senior
credit facility.
Chaparral
Service, Inc.
On August 15, 2006, we acquired all of the outstanding
capital stock and substantially all operating assets of the
subsidiaries of Chaparral Service, Inc. (Chaparral)
for total consideration of $19.0 million in cash, subject
to adjustments. This acquisition expanded our well servicing and
fluid services capabilities in the eastern New Mexico portion of
the Permian Basin. The cash used to acquire Chaparral was
primarily from operating cash.
Selected
2007 Acquisitions
During 2007, we made several acquisitions that complemented our
existing business segments. These included, among others:
Parker
Drilling Offshore USA, LLC
On January 3, 2007, we acquired two barge-mounted workover
rigs and related equipment from Parker Drilling Offshore USA,
LLC for total consideration of $20.5 million in cash. The
acquired rigs operate in the inland waters of Louisiana and
Texas as a part of Basic Marine Services.
JetStar
Consolidated Holdings, Inc.
On March 6, 2007, we acquired all of the outstanding
capital stock of JetStar Consolidated Holdings, Inc.
(JetStar) for an aggregate purchase price of
approximately $127.3 million, including $86.3 million
in cash, of which approximately $37.6 million was used for
the retirement of JetStars outstanding debt. As part of
the purchase price, we issued 1,794,759 shares of common
stock, at a fair value of $22.86 per share for a total fair
value of approximately $41.0 million. This acquisition
operates in our completion and remedial business segment.
32
Sledge
Drilling Holding Corp.
On April 2, 2007, we acquired all of the outstanding
capital stock of Sledge Drilling Holding Corp.
(Sledge) for an aggregate purchase price of
approximately $60.8 million, including $50.6 million
in cash, of which approximately $19 million was used for
the repayment of Sledges outstanding debt. As part of the
purchase price, we issued 430,191 shares of common stock at
a fair value of $23.63 per share for a total fair value of
approximately $10.2 million. This acquisition allowed us to
expand our drilling operations in the Permian Basin and operates
in our contract drilling segment.
Wildhorse
Services, Inc.
On June 5, 2007, we acquired all of the outstanding capital
stock of Wildhorse Services, Inc. (Wildhorse) for an
aggregate purchase price of approximately $17.3 million,
net of cash acquired. This acquisition allowed us to expand our
rental and fishing tool operations in northwestern Oklahoma and
the Texas panhandle area. This acquisition operates in our
completion and remedial line of business.
Selected
2008 Acquisitions
During the year 2008, we made several acquisitions that
complemented our existing lines of business. These included
among others:
Xterra
Fishing and Rental Tools Co.
On January 28, 2008, we acquired all of the outstanding
capital stock of Xterra Fishing and Rental Tools Co.
(Xterra) for total consideration of
$21.5 million cash. This acquisition operates in our
completion and remedial services line of business.
Azurite
Services Company, Inc.
On September 26, 2008, we acquired substantially all of the
operating assets of Azurite for $61.0 million in cash. This
acquisition operates in our fluid services line of business.
Segment
Overview
Well
Servicing
During the first six months of 2009 and in the year ended
December 31, 2008, our well servicing segment represented
31% and 34% of our revenues, respectively. Revenue in our well
servicing segment is derived from maintenance, workover,
completion, and plugging and abandonment services. We provide
maintenance-related services as part of the normal, periodic
upkeep of producing oil and gas wells. Maintenance-related
services represent a relatively consistent component of our
business. Workover and completion services generate more revenue
per hour than maintenance work, due to the use of auxiliary
equipment, but demand for workover and completion services
fluctuates more with the overall activity level in the industry.
We typically charge our customers for services on an hourly
basis at rates that are determined by the type of service and
equipment required, market conditions in the region in which the
rig operates, the ancillary equipment provided on the rig and
the necessary personnel. Depending on the type of job, we may
also charge by the project or by the day. We measure our
activity levels by the total number of hours worked by all of
the rigs in our fleet. We monitor our fleet utilization levels,
with full utilization deemed to be 55 hours per week per
rig.
Our fleet increased from a weighted average number of 325 rigs
in the first quarter of 2006 to 414 in the second quarter of
2009 through a combination of newbuild purchases and
acquisitions and other individual equipment purchases.
33
The following is an analysis of our well servicing segment for
each of the quarters and years in the years ended
December 31, 2006, 2007 and 2008, and the quarters ended
March 31, 2009 and June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Rig
|
|
|
Revenue
|
|
|
Profits
|
|
|
|
|
|
|
Number of
|
|
|
Rig
|
|
|
Utilization
|
|
|
per Rig
|
|
|
per Rig
|
|
|
Segment
|
|
|
|
Rigs
|
|
|
Hours
|
|
|
Rate
|
|
|
Hour
|
|
|
Hour
|
|
|
Profits %
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
325
|
|
|
|
208,700
|
|
|
|
89.8
|
%
|
|
$
|
349
|
|
|
$
|
157
|
|
|
|
44.9
|
%
|
Second Quarter
|
|
|
337
|
|
|
|
219,300
|
|
|
|
91.0
|
%
|
|
$
|
365
|
|
|
$
|
165
|
|
|
|
45.2
|
%
|
Third Quarter
|
|
|
351
|
|
|
|
226,300
|
|
|
|
90.2
|
%
|
|
$
|
379
|
|
|
$
|
175
|
|
|
|
46.1
|
%
|
Fourth Quarter
|
|
|
360
|
|
|
|
213,900
|
|
|
|
83.1
|
%
|
|
$
|
398
|
|
|
$
|
174
|
|
|
|
43.8
|
%
|
Full Year
|
|
|
344
|
|
|
|
868,200
|
|
|
|
88.2
|
%
|
|
$
|
373
|
|
|
$
|
168
|
|
|
|
45.0
|
%
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
364
|
|
|
|
210,800
|
|
|
|
81.0
|
%
|
|
$
|
411
|
|
|
$
|
174
|
|
|
|
42.2
|
%
|
Second Quarter
|
|
|
371
|
|
|
|
207,700
|
|
|
|
78.3
|
%
|
|
$
|
415
|
|
|
$
|
163
|
|
|
|
39.5
|
%
|
Third Quarter
|
|
|
383
|
|
|
|
212,100
|
|
|
|
77.7
|
%
|
|
$
|
414
|
|
|
$
|
166
|
|
|
|
40.0
|
%
|
Fourth Quarter
|
|
|
386
|
|
|
|
200,600
|
|
|
|
72.7
|
%
|
|
$
|
409
|
|
|
$
|
159
|
|
|
|
38.8
|
%
|
Full Year
|
|
|
376
|
|
|
|
831,200
|
|
|
|
77.3
|
%
|
|
$
|
412
|
|
|
$
|
166
|
|
|
|
40.1
|
%
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
392
|
|
|
|
202,500
|
|
|
|
72.2
|
%
|
|
$
|
398
|
|
|
$
|
158
|
|
|
|
39.8
|
%
|
Second Quarter
|
|
|
403
|
|
|
|
222,300
|
|
|
|
77.1
|
%
|
|
$
|
400
|
|
|
$
|
152
|
|
|
|
37.9
|
%
|
Third Quarter
|
|
|
412
|
|
|
|
233,000
|
|
|
|
79.1
|
%
|
|
$
|
418
|
|
|
$
|
156
|
|
|
|
37.3
|
%
|
Fourth Quarter
|
|
|
414
|
|
|
|
182,400
|
|
|
|
61.6
|
%
|
|
$
|
418
|
|
|
$
|
141
|
|
|
|
33.8
|
%
|
Full Year
|
|
|
405
|
|
|
|
840,200
|
|
|
|
72.5
|
%
|
|
$
|
408
|
|
|
$
|
152
|
|
|
|
37.3
|
%
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
414
|
|
|
|
132,300
|
|
|
|
44.7
|
%
|
|
$
|
369
|
|
|
$
|
90
|
|
|
|
24.4
|
%
|
Second Quarter
|
|
|
414
|
|
|
|
110,500
|
|
|
|
37.3
|
%
|
|
$
|
329
|
|
|
$
|
78
|
|
|
|
23.6
|
%
|
We gauge activity levels in our well servicing rig operations
based on rig utilization rate, revenue per rig hour and profits
per rig hour.
The decrease in oil and gas prices over the last part of 2008,
along with prices remaining depressed and volatile through the
second quarter of 2009, caused a decrease in rig utilization in
the first half of 2009 compared to the same period in 2008, as
our customers decreased their capital and maintenance
expenditures for our services. The decrease in customer demand
was exacerbated by the continued weakness in natural gas prices.
This decrease also caused price pressure, and our revenue per
rig hour decreased in the first half of 2009 compared to the
same period in 2008. Our rates declined faster than our costs,
resulting in the decrease in segment profit percentage in the
first half of 2009 compared to the same period in 2008. Through
our continued cost cutting measures, we were able to minimize
the decrease in segment profit percentage to 23.6% in the second
quarter of 2009 as compared to the first quarter of 2009.
Fluid
Services
During the first six months of 2009 and in the year ended
December 31, 2008, our fluid services segment represented
42% and 32% of our revenues, respectively. Revenues in our fluid
services segment are earned from the sale, transportation,
storage and disposal of fluids used in the drilling, production
and maintenance of oil and gas wells, and well site construction
and maintenance services. The fluid services segment has a base
level of business consisting of transporting and disposing of
salt water produced as a by-product of the production of oil and
gas. These services are necessary for our customers and
generally have a stable demand but typically produce lower
relative segment profits than other parts of our fluid services
segment. Fluid services for completion and workover projects
typically require fresh or brine water for making drilling mud,
circulating fluids or frac fluids used during a job, and all of
these fluids require storage tanks and hauling and
34
disposal. Because we can provide a full complement of fluid
sales, trucking, storage and disposal required on most drilling
and workover projects, the add-on services associated with
drilling and workover activity enable us to generate higher
segment profits contributions. Revenues from our well site
construction services are derived primarily from preparing and
maintaining access roads and well locations, installing small
diameter gathering lines and pipelines, constructing foundations
to support drilling rigs and providing maintenance services for
oil and gas facilities. The higher segment profits are due to
the relatively small incremental labor costs associated with
providing these services in addition to our base fluid services
segment. We typically price fluid services by the job, by the
hour or by the quantities sold, disposed of or hauled.
The following is an analysis of our fluid services segment for
each of the quarters and years in the years ended
December 31, 2006, 2007 and 2008, and the quarters ended
March 31, 2009 and June 30, 2009 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Segment
|
|
|
|
|
|
|
Average
|
|
|
Revenue
|
|
|
Profits
|
|
|
|
|
|
|
Number of
|
|
|
per Fluid
|
|
|
per Fluid
|
|
|
|
|
|
|
Fluid Service
|
|
|
Service
|
|
|
Service
|
|
|
Segment
|
|
|
|
Trucks
|
|
|
Truck
|
|
|
Truck
|
|
|
Profits %
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
529
|
|
|
$
|
101
|
|
|
$
|
37
|
|
|
|
36.4
|
%
|
Second Quarter
|
|
|
568
|
|
|
$
|
109
|
|
|
$
|
42
|
|
|
|
38.2
|
%
|
Third Quarter
|
|
|
614
|
|
|
$
|
105
|
|
|
$
|
38
|
|
|
|
36.7
|
%
|
Fourth Quarter
|
|
|
640
|
|
|
$
|
103
|
|
|
$
|
39
|
|
|
|
38.0
|
%
|
Full Year
|
|
|
588
|
|
|
$
|
417
|
|
|
$
|
156
|
|
|
|
37.4
|
%
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
652
|
|
|
$
|
98
|
|
|
$
|
37
|
|
|
|
37.5
|
%
|
Second Quarter
|
|
|
657
|
|
|
$
|
96
|
|
|
$
|
35
|
|
|
|
36.1
|
%
|
Third Quarter
|
|
|
653
|
|
|
$
|
97
|
|
|
$
|
35
|
|
|
|
35.7
|
%
|
Fourth Quarter
|
|
|
656
|
|
|
$
|
104
|
|
|
$
|
37
|
|
|
|
35.7
|
%
|
Full Year
|
|
|
655
|
|
|
$
|
396
|
|
|
$
|
144
|
|
|
|
36.2
|
%
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
644
|
|
|
$
|
111
|
|
|
$
|
39
|
|
|
|
35.0
|
%
|
Second Quarter
|
|
|
663
|
|
|
$
|
109
|
|
|
$
|
36
|
|
|
|
33.1
|
%
|
Third Quarter
|
|
|
683
|
|
|
$
|
121
|
|
|
$
|
43
|
|
|
|
35.8
|
%
|
Fourth Quarter
|
|
|
804
|
|
|
$
|
111
|
|
|
$
|
42
|
|
|
|
38.1
|
%
|
Full Year
|
|
|
699
|
|
|
$
|
452
|
|
|
$
|
161
|
|
|
|
35.6
|
%
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
814
|
|
|
$
|
80
|
|
|
$
|
25
|
|
|
|
31.4
|
%
|
Second Quarter
|
|
|
808
|
|
|
$
|
61
|
|
|
$
|
17
|
|
|
|
27.9
|
%
|
We gauge activity levels in our fluid services segment based on
revenue and segment profits per fluid service truck.
The decreases in revenue per fluid service truck in the first
half of 2009 compared to the same period in 2008 and the
decrease in segment profit percentage in the first half of 2009
compared to the same period in 2008 were caused by lower
customer demand and rate decreases in all of our market areas.
Completion
and Remedial Services
During the first six months of 2009 and in the year ended
December 31, 2008, our completion and remedial services
segment represented 24% and 30% of our revenues, respectively.
Revenues from our completion and remedial services segment are
generally derived from a variety of services designed to
stimulate oil and gas production or place cement slurry within
the wellbores. Our completion and remedial services segment
includes pressure pumping, cased-hole wireline services,
underbalanced drilling and rental and fishing tool operations.
35
Our pressure pumping operations concentrate on providing
lower-horsepower cementing, acidizing and fracturing services in
selected markets. On March 6, 2007, we acquired all of the
outstanding capital stock of JetStar Consolidated Holdings, Inc.
This acquisition allowed us to enter into the southwest Kansas
market and increased our presence in North Texas. Our total
hydraulic horsepower capacity for our pressure pumping
operations was approximately 139,000 horsepower at
December 31, 2008 compared to 120,000 horsepower at
December 31, 2007 and 58,000 horsepower at
December 31, 2006. At June 30, 2009 and June 30,
2008, our total hydraulic horsepower capacity for our pressure
pumping operations was 139,000 and 128,000, respectively.
We entered the rental and fishing tool business through our
acquisition of G&L in the first quarter of 2006. This
acquisition consisted of 16 rental and fishing tool stores
in the North Texas, West Texas, and Oklahoma markets. We have
since further expanded this business line with several
acquisitions and had 20 rental and fishing tool stores as
of June 30, 2009.
We entered the wireline business in 2004 with our acquisition of
AWS Wireline, a regional firm based in North Texas. We entered
the underbalanced drilling services business in 2004 through our
acquisition of Energy Air Drilling Services, a business
operating in northwest New Mexico and the western slope of
Colorado markets. For a description of our wireline and
underbalanced drilling services, please read Overview of
Our Segments and Services Completion and Remedial
Services Segment included in Business.
In this segment, we generally derive our revenues on a
project-by-project
basis in a competitive bidding process. Our bids are generally
based on the amount and type of equipment and personnel
required, with the materials consumed billed separately. During
periods of decreased spending by oil and gas companies, we may
be required to discount our rates to remain competitive, which
would cause lower segment profits.
The following is an analysis of our completion and remedial
services segment for each of the quarters and years in the years
ended December 31, 2006, 2007 and 2008, and the quarters
ended March 31, 2009 and June 30, 2009 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
Revenues
|
|
|
Profits %
|
|
|
2006:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
27,455
|
|
|
|
49.5
|
%
|
Second Quarter
|
|
$
|
40,939
|
|
|
|
53.1
|
%
|
Third Quarter
|
|
$
|
42,109
|
|
|
|
51.3
|
%
|
Fourth Quarter
|
|
$
|
43,909
|
|
|
|
51.2
|
%
|
Full Year
|
|
$
|
154,412
|
|
|
|
51.5
|
%
|
2007:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
46,137
|
|
|
|
49.9
|
%
|
Second Quarter
|
|
$
|
63,735
|
|
|
|
47.6
|
%
|
Third Quarter
|
|
$
|
66,304
|
|
|
|
47.6
|
%
|
Fourth Quarter
|
|
$
|
64,515
|
|
|
|
46.2
|
%
|
Full Year
|
|
$
|
240,692
|
|
|
|
47.7
|
%
|
2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
68,458
|
|
|
|
47.7
|
%
|
Second Quarter
|
|
$
|
79,579
|
|
|
|
46.4
|
%
|
Third Quarter
|
|
$
|
85,541
|
|
|
|
45.3
|
%
|
Fourth Quarter
|
|
$
|
70,748
|
|
|
|
43.0
|
%
|
Full Year
|
|
$
|
304,326
|
|
|
|
45.6
|
%
|
2009:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
37,259
|
|
|
|
30.5
|
%
|
Second Quarter
|
|
$
|
29,373
|
|
|
|
26.9
|
%
|
36
We gauge the performance of our completion and remedial services
segment based on the segments operating revenues and
segment profits.
The decrease in completion and remedial revenue in the first
half of 2009 compared to the same period in 2008 was caused by
the decline in oil and gas prices in the last part of 2008 and
the first quarter of 2009, and by the continued slowdown in the
economy during the second quarter of 2009 along with natural gas
prices remaining low, which resulted in lower demand for our
services. Demand, particularly in our pressure pumping segment,
and rates for our services decreased faster than our costs,
resulting in the decrease in segment profit percentage in the
first half of 2009 compared to the same period in 2008.
Contract
Drilling
During the first six months of 2009 and in the year ended
December 31, 2008, our contract drilling segment
represented 3% and 4% of our revenues, respectively. Revenues
from our contract drilling segment are derived primarily from
the drilling of new wells.
Within this segment, we typically charge our drilling rig
customers at a daywork daily rate, or footage at an
established rate per number of feet drilled. We measure the
activity level of our drilling rigs on a weekly basis by
calculating a rig utilization rate which is based on a seven day
work week per rig.
Our contract drilling rig fleet grew from two during the first
quarter of 2006 to nine by the fourth quarter of 2008, due to
the Sledge acquisition in April 2007. Our contract drilling rig
fleet had a weighted average of nine rigs during the four
quarters of 2008 and the first and second quarter of 2009.
The following is an analysis of our contract drilling segment
for each of the quarters and years in the years ended
December 31, 2006, 2007 and 2008, and the quarters ended
March 31, 2009 and June 30, 2009 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Rig
|
|
|
Revenue
|
|
|
Profits
|
|
|
|
|
|
|
Number of
|
|
|
Operating
|
|
|
per
|
|
|
(Loss)
|
|
|
Segment
|
|
|
|
Rigs
|
|
|
Days
|
|
|
Day
|
|
|
per Day
|
|
|
Profits %
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
2
|
|
|
|
12
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
Second Quarter
|
|
|
2
|
|
|
|
104
|
|
|
$
|
11,700
|
|
|
$
|
(4,900
|
)
|
|
|
(45.2
|
)%
|
Third Quarter
|
|
|
2
|
|
|
|
160
|
|
|
$
|
14,700
|
|
|
$
|
1,600
|
|
|
|
10.9
|
%
|
Fourth Quarter
|
|
|
3
|
|
|
|
208
|
|
|
$
|
13,300
|
|
|
$
|
(1,600
|
)
|
|
|
(11.7
|
)%
|
Full Year
|
|
|
2
|
|
|
|
484
|
|
|
$
|
14,400
|
|
|
$
|
(3,000
|
)
|
|
|
(20.5
|
)%
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
3
|
|
|
|
168
|
|
|
$
|
11,500
|
|
|
$
|
(5,200
|
)
|
|
|
(44.9
|
)%
|
Second Quarter
|
|
|
8
|
|
|
|
594
|
|
|
$
|
17,200
|
|
|
$
|
6,900
|
|
|
|
39.5
|
%
|
Third Quarter
|
|
|
9
|
|
|
|
723
|
|
|
$
|
15,700
|
|
|
$
|
6,700
|
|
|
|
42.4
|
%
|
Fourth Quarter
|
|
|
10
|
|
|
|
748
|
|
|
$
|
14,600
|
|
|
$
|
5,300
|
|
|
|
36.3
|
%
|
Full Year
|
|
|
8
|
|
|
|
2,233
|
|
|
$
|
15,400
|
|
|
$
|
5,400
|
|
|
|
34.7
|
%
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
9
|
|
|
|
645
|
|
|
$
|
14,700
|
|
|
$
|
3,800
|
|
|
|
25.7
|
%
|
Second Quarter
|
|
|
9
|
|
|
|
699
|
|
|
$
|
14,800
|
|
|
$
|
4,000
|
|
|
|
27.2
|
%
|
Third Quarter
|
|
|
9
|
|
|
|
767
|
|
|
$
|
15,600
|
|
|
$
|
5,600
|
|
|
|
35.6
|
%
|
Fourth Quarter
|
|
|
9
|
|
|
|
666
|
|
|
$
|
14,900
|
|
|
$
|
5,400
|
|
|
|
36.2
|
%
|
Full Year
|
|
|
9
|
|
|
|
2,777
|
|
|
$
|
15,000
|
|
|
$
|
4,700
|
|
|
|
31.4
|
%
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
9
|
|
|
|
248
|
|
|
$
|
14,700
|
|
|
$
|
1,500
|
|
|
|
10.1
|
%
|
Second Quarter
|
|
|
9
|
|
|
|
314
|
|
|
$
|
12,700
|
|
|
$
|
2,100
|
|
|
|
16.3
|
%
|
37
We gauge activity levels in our drilling operations based on rig
operating days, revenue per day and profits per drilling day.
The results of the first quarter 2006 are not considered
meaningful, due to the
start-up
nature of the drilling operations, and the fact that only twelve
operating days were completed in this quarter.
The decrease in segment profits in the first half of 2009
compared to the same period in 2008 was due primarily to the
decline in rig operating days.
Operating
Cost Overview
Our operating costs are comprised primarily of labor, including
workers compensation and health insurance, repair and
maintenance, fuel and insurance. A majority of our employees are
paid on an hourly basis. We also incur costs to employ personnel
to sell and supervise our services and perform maintenance on
our fleet. These costs are not directly tied to our level of
business activity. Compensation for our administrative personnel
in local operating yards and in our corporate office is
accounted for as general and administrative expenses. Repair and
maintenance is performed by our crews, company maintenance
personnel and outside service providers. Insurance is generally
a fixed cost regardless of utilization and relates to the number
of rigs, trucks and other equipment in our fleet, employee
payroll and safety record.
Critical
Accounting Policies and Estimates
Our consolidated financial statements are impacted by the
accounting policies used and the estimates and assumptions made
by management during their preparation. A complete summary of
our critical accounting policies is included in note 2 of
the notes to our historical audited consolidated financial
statements for the year ended December 31, 2008. The
following is a discussion of our critical accounting policies
and estimates.
Critical
Accounting Policies
We have identified below accounting policies that are of
particular importance in the presentation of our financial
position, results of operations and cash flows and which require
the application of significant judgment by management.
Property and Equipment. Property and equipment
are stated at cost or at estimated fair value at acquisition
date if acquired in a business combination. Expenditures for
repairs and maintenance are charged to expenses as incurred. We
also review the capitalization of refurbishment of workover rigs
as described in note 2 of the notes to our historical
audited consolidated financial statements for the year ended
December 31, 2008.
Impairments. We review our assets for
impairment at a minimum annually, or whenever, in
managements judgment, events or changes in circumstances
indicate that the carrying amount of a long-lived asset may not
be recovered over its remaining service life. Provisions for
asset impairment are charged to income when the sum of the
estimated future cash flows, on an undiscounted basis, is less
than the assets carrying amount. When impairment is
indicated, an impairment charge is recorded based on an estimate
of future cash flows on a discounted basis.
Self-Insured Risk Accruals. We are
self-insured up to retention limits with regard to workers
compensation and medical and dental coverage of our employees.
We generally maintain no physical property damage coverage on
our workover rig fleet, with the exception of certain of our
24-hour
workover rigs and newly manufactured rigs. We have deductibles
per occurrence for workers compensation and medical and
dental coverage of $375,000 and $250,000 respectively. We have
lower deductibles per occurrence for automobile liability and
general liability. We maintain accruals in our consolidated
balance sheets related to self-insurance retentions by using
third-party actuarial data and historical claims history.
Revenue Recognition. We recognize revenues
when the services are performed, collection of the relevant
receivables is probable, persuasive evidence of the arrangement
exists and the price is fixed and determinable.
Income Taxes. We account for income taxes
based upon Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income
Taxes (SFAS No. 109). Under
SFAS No. 109, deferred tax
38
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and
liabilities are measured using statutory tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rate
is recognized in the period that includes the statutory
enactment date. A valuation allowance for deferred tax assets is
recognized when it is more likely than not that the benefit of
deferred tax assets will not be realized.
Critical
Accounting Estimates
The preparation of our consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America (GAAP) requires management to make
certain estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities
at the balance sheet date and the amounts of revenues and
expenses recognized during the reporting period. We analyze our
estimates based on historical experience and various other
assumptions that we believe to be reasonable under the
circumstances. However, actual results could differ from such
estimates. The following is a discussion of our critical
accounting estimates.
Depreciation and Amortization. In order to
depreciate and amortize our property and equipment and our
intangible assets with finite lives, we estimate the useful
lives and salvage values of these items. Our estimates may be
affected by such factors as changing market conditions,
technological advances in industry or changes in regulations
governing the industry.
Impairment of Property and Equipment. Our
impairment of property and equipment requires us to estimate
undiscounted future cash flows. Actual impairment charges are
recorded using an estimate of discounted future cash flows. The
determination of future cash flows requires us to estimate rates
and utilization in future periods and such estimates can change
based on market conditions, technological advances in industry
or changes in regulations governing the industry.
Impairment of Goodwill. Our goodwill is
considered to have an indefinite useful economic life and is not
amortized. We assess impairment of our goodwill annually as of
December 31 or on an interim basis if events or circumstances
indicate that the fair value of the asset has decreased below
its carrying value. SFAS No. 142, Goodwill
and Other Intangible Assets
(SFAS No. 142), requires a two-step
process for testing impairment. First, the fair value of each
reporting unit is compared to its carrying value to determine
whether an indication of impairment exists. If impairment is
indicated, then the fair value of the reporting units
goodwill is determined by allocating the units fair value
to its assets and liabilities (including any unrecognized
intangible assets) as if the reporting unit had been acquired in
a business combination. The amount of impairment for goodwill is
measured as the excess of its carrying value over its fair value.
In accordance with SFAS No. 142, we performed an
assessment of goodwill as of December 31, 2008. In step one
of the annual impairment test and due to the adverse equity
market conditions affecting the Companys common stock
price and the declines in oil and natural gas prices in the
fourth quarter of 2008 and continuing into 2009, the Company
tested its four reporting units, well servicing, fluid services,
completion and remedial services, and contract drilling, for
impairment. To estimate the fair value of the reporting units
the Company used a weighting of the discounted cash flow method,
the guideline transaction method, and the public company
guideline method. The Company weighted the discounted cash flow
method 85% in its analysis and the other two methods combined
15% due to differences between the Companys reporting
units and the peer companies size, profitability and diversity
of operations. In order to validate the reasonableness of the
estimated fair values obtained for the reporting units, a
reconciliation of fair value to market capitalization was
performed. The control premium used in the reconciliation was
derived from a market transaction data study along with
historical control premiums from other Basic acquisitions. The
measurement date for the stock price for the reconciliation was
the closing price on December 31, 2008.
Based on the results of step one, impairment was indicated in
the contract drilling reporting unit but not in the other three
reporting units. As a result the Company tested the contract
drilling reporting units long-lived assets for impairment
under SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived
39
Assets (SFAS No. 144), which
indicated no impairment. The Company performed step two for the
contract drilling unit by allocating the estimated fair value to
the tangible and intangible assets and liabilities, which
indicated that the entire value of the goodwill in contract
drilling of $22.5 million was impaired. This non-cash
charge eliminates the goodwill recorded in connection with the
Sledge acquisition in 2007. The goodwill associated with this
acquisition has no tax basis, and accordingly, there is no tax
benefit derived from recording the impairment charge.
Additionally, in accordance with SFAS No. 142, we
performed another assessment of goodwill as of March 31,
2009. A triggering event requiring this assessment
was deemed to occur because the oil and gas services industry
continued to decline in the first quarter and our common stock
price declined by 50% from December 31, 2008 to
March 31, 2009. For SFAS No. 142 Step One testing
purposes, we tested three reporting units for goodwill
impairment: well servicing, fluid services, and completion and
remedial services. Our contract drilling reporting unit does not
carry any goodwill, and is not subject to the test.
To estimate the fair value of the reporting units, we used a
weighting of the discounted cash flow method and the public
company guideline method of determining fair value of a business
unit. We weighted the discounted cash flow method 85% and public
company guideline method 15%, due to differences between our
reporting units and the peer companies size, profitability
and diversity of operations. In order to validate the
reasonableness of the estimated fair values obtained for the
reporting units, a reconciliation of fair value to market
capitalization was performed for each unit on a stand-alone
basis. A control premium, derived from market transaction data,
was used in this reconciliation to ensure that fair values were
reasonably stated in conjunction with the our capitalization.
The measurement date for our common stock price and market
capitalization was the closing price on March 31, 2009.
Based on the results of SFAS No. 142 Step One,
impairment was indicated in all three of the assessed reporting
units. As such, we were required to perform Step Two assessment
on all three of the reporting units. Step Two requires the
allocation of the estimated fair value to the tangible and
intangible assets and liabilities of the respective unit. This
assessment indicated that $204.1 million was considered
impaired as of March 31, 2009. This non-cash charge
eliminated all of our goodwill.
Additionally, in accordance with SFAS No. 144, we
performed an assessment of our long-lived assets for impairment.
This assessment is performed as a comparison of the undiscounted
future cash flows of each reporting unit to the carrying value
of the assets in each unit. No impairment was indicated by this
test.
As of June 30, 2009, we had no goodwill recorded on our
balance sheet.
Allowance for Doubtful Accounts. We estimate
our allowance for doubtful accounts based on an analysis of
historical collection activity and specific identification of
overdue accounts. Factors that may affect this estimate include
(1) changes in the financial positions of significant
customers and (2) a decline in commodity prices that could
affect the entire customer base.
Litigation and Self-Insured Risk Reserves. We
estimate our reserves related to litigation and self-insured
risk based on the facts and circumstances specific to the
litigation and self-insured risk claims and our past experience
with similar claims. The actual outcome of litigated and insured
claims could differ significantly from estimated amounts. As
discussed in Self-Insured Risk Accruals above with
respect to our critical accounting policies, we maintain
accruals on our balance sheet to cover self-insured retentions.
These accruals are based on certain assumptions developed using
third-party data and historical data to project future losses.
Loss estimates in the calculation of these accruals are adjusted
based upon actual claim settlements and reported claims.
Fair Value of Assets Acquired and Liabilities
Assumed. We estimate the fair value of assets
acquired and liabilities assumed in business combinations, which
involves the use of various assumptions. These estimates may be
affected by such factors as changing market conditions,
technological advances in industry or changes in regulations
governing the industry. The most significant assumptions, and
the ones requiring the most judgment, involve the estimated fair
value of property and equipment, intangible assets and the
resulting amount of goodwill, if any. Our adoption of
SFAS No. 142 on January 1, 2002 requires us to
test annually for impairment the goodwill and intangible assets
with indefinite useful lives recorded in business combinations.
40
This requires us to estimate the fair values of our own assets
and liabilities at the reporting unit level. Therefore,
considerable judgment, similar to that described above in
connection with our estimation of the fair value of an acquired
company, is required to assess goodwill and certain intangible
assets for impairment.
Cash Flow Estimates. Our estimates of future
cash flows are based on the most recent available market and
operating data for the applicable asset or reporting unit at the
time the estimate is made. Our cash flow estimates are used for
asset impairment analyses.
Stock-Based Compensation. We account for
stock-based compensation based on Statement of Financial
Accounting Standards No. 123 (revised 2004), Share
Based Payment (SFAS No. 123R).
Options issued are valued on the grant date using the
Black-Scholes-Merton option-pricing model and all awards are
adjusted for an expected forfeiture rate. Awards are amortized
over the vesting period. Compensation expense of the unvested
portion of awards granted as a private company and outstanding
as of January 1, 2006 will be based upon the intrinsic
value method calculated under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25).
The fair value of common stock for options granted from
July 1, 2004 through September 30, 2005 was estimated
by management using an internal valuation methodology. We did
not obtain contemporaneous valuations by an unrelated valuation
specialist because we were focused on internal growth and
acquisitions and because we had consistently used our internal
valuation methodology for previous stock awards.
Income Taxes. The amount and availability of
our loss carryforwards (and certain other tax attributes) are
subject to a variety of interpretations and restrictive tests.
The utilization of such carryforwards could be limited or lost
upon certain changes in ownership and the passage of time.
Accordingly, although we believe substantial loss carryforwards
are available to us, no assurance can be given concerning the
realization of such loss carryforwards, or whether or not such
loss carryforwards will be available in the future.
Asset Retirement
Obligations. SFAS No. 143,
Accounting for Asset Retirement Obligations
(SFAS No. 143), requires us to record
the fair value of an asset retirement obligation as a liability
in the period in which we incur a legal obligation associated
with the retirement of tangible long-lived assets and to
capitalize an equal amount as a cost of the asset, depreciating
it over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation
is adjusted at the end of each quarter to reflect the passage of
time, changes in the estimated future cash flows underlying the
obligation, acquisition or construction of assets, and
settlement of obligations.
Results
of Operations
The results of operations between periods may not be comparable,
primarily due to the significant number of acquisitions made and
their relative timing in the year acquired. See note 3 of
the notes to our historical consolidated financial statements
for more detail.
Three
Months Ended June 30, 2009 Compared to Three Months Ended
June 30, 2008
Revenues. Revenues decreased by 53% to
$118.8 million during the second quarter of 2009 from
$251.5 million during the same period in 2008. This
decrease was primarily due to lower expenditures by our
customers for our services and increased price competition from
our competitors due to the continued decline in oil and natural
gas prices.
Well servicing revenues decreased by 59% to $36.4 million
during the second quarter of 2009 compared to $89.0 million
during the same period in 2008. This decrease was due to the
decrease in rig utilization to 37.3% during the second quarter
of 2009 from 77.1% during the second quarter of 2008, along with
a decrease in revenue per rig hour to $329 during the second
quarter of 2009 from $400 during the second quarter of 2008.
These decreases were due to decreased spending by our customers
for our services along with increased price competition from our
competitors. Our average number of well servicing rigs increased
to 414 during the second quarter of 2009 compared to 403 in the
same period in 2008, due to internal expansion from our newbuild
rig program and the Triple N Services, Inc. acquisition.
41
Fluid services revenues decreased by 32% to $49.1 million
during the second quarter of 2009 compared to $72.6 million
in the same period in 2008. This decrease was primarily due to
decreased rates that we charged to our customers for our
services caused by increased price competition from our
competitors. These decreases were partially offset by the
Azurite acquisition in September 2008 which added 98 fluid
service trucks and 632 frac tanks. This acquisition added
approximately $6.9 million of revenues during the second
quarter of 2009. Our weighted average number of fluid service
trucks increased to 808 during the second quarter of 2009 from
663 in the same period in 2008, although our revenue per fluid
service truck decreased to $61,000 in the second quarter of 2009
compared to $109,000 in the same period in 2008.
Completion and remedial services revenues decreased by 63% to
$29.4 million during the second quarter of 2009 compared to
$79.6 million in the same period in 2008. The decrease in
revenue between these periods was due to decreased utilization
of equipment due to the decline in oil and gas prices. Increased
market competition also caused significant rate declines. Total
hydraulic horsepower increased to 139,000 at June 30, 2009
from 128,000 at June 30, 2008.
Contract drilling revenues decreased by 61% to $4.0 million
during the second quarter in 2009 compared to $10.3 million
in the same period in 2008. The number of rig operating days
decreased to 314 in second quarter of 2009 compared to 699 in
the second quarter of 2008. This decrease was due to lower new
well starts in all of our geographic markets.
Direct Operating Expenses. Direct operating
expenses, which primarily consist of labor, including workers
compensation and health insurance, fuel and maintenance and
repair costs, decreased by 43% to $88.0 million during the
second quarter of 2009 from $154.0 million in the same
period in 2008. This decrease was due to the lower activity
levels in all of our segments.
Direct operating expenses for the well servicing segment
decreased by 50% to $27.8 million during the second quarter
of 2009 as compared to $55.3 million for the same period in
2008, due primarily to the decrease in rig hours to 110,500 in
the second quarter of 2009 from 222,300 for the same period in
2008. Segment profits decreased to 24% of revenues during the
second quarter of 2009 compared to 38% for the same period in
2008, which reflects the faster decline in activity levels and
rates than in costs.
Direct operating expenses for the fluid services segment
decreased by 27% to $35.4 million during the second quarter
of 2009 as compared to $48.6 million for the same period in
2008, which is due to lower activity levels being partially
offset by the Azurite acquisition in September 2008 which added
approximately $5.5 million in direct operating expenses in
the second quarter 2009. Segment profits were 28% of revenues
during the second quarter of 2009 compared to 33% for the same
period in 2008.
Direct operating expenses for the completion and remedial
services segment decreased by 50% to $21.5 million during
the second quarter of 2009 as compared to $42.7 million for
the same period in 2008 due primarily to decreased activity
levels. Segment profits decreased to 27% of revenues during the
second quarter of 2009 compared to 46% for the same period in
2008, due to activity levels and rates declining faster than
costs.
Direct operating expenses for the contract drilling segment
decreased by 56% to $3.3 million during the second quarter
of 2009 as compared to $7.5 million for the same period in
2008 due primarily to lower activity levels. Segment profits for
this segment were 16% of revenues during the second quarter of
2009 compared to 27% for the same period in 2008.
General and Administrative Expenses. General
and administrative expenses increased by 2% to
$27.4 million during the second quarter of 2009 from
$26.8 million for the same period in 2008, which included
$1.3 million and $1.2 million in stock-based
compensation expense during the second quarter of 2009 and 2008,
respectively. The increase primarily reflects higher salary and
office expenses related to businesses acquired during 2008.
Depreciation and Amortization
Expenses. Depreciation and amortization expenses
were $32.4 million during the second quarter of 2009 as
compared to $28.7 million for the same period in 2008,
reflecting the increase in the size of and investment in our
asset base, due to acquisitions as well as the internal
expansion of our business segments.
42
Interest Expense. Interest expense decreased
by 7% to $6.0 million during the second quarter of 2009
compared to $6.5 million for the same period in 2008. The
decrease was due primarily to lower interest rates on our
revolving line of credit.
Income Tax Expense. There was an income tax
benefit of $13.9 million during the second quarter of 2009
as compared to an income tax expense of $11.6 million for
the same period in 2008. Our effective tax rate during the
second quarter of 2009 and 2008 was approximately 39% and 38%,
respectively.
Six
Months Ended June 30, 2009 Compared to Six Months Ended
June 30, 2008
Revenues. Revenues decreased by 43% to
$273.5 million during the first six months of 2009 from
$481.4 million during the same period in 2008. This
decrease was primarily due to lower expenditures by our
customers for our services and increased price competition from
our competitors due to the decline in oil and gas prices.
Well servicing revenues decreased by 50% to $85.2 million
during the first six months of 2009 compared to
$169.5 million during the same period in 2008. This
decrease was due to the decrease in rig utilization to 41%
during the first six months of 2009 from 75% during the first
six months of 2008, along with a decrease in revenue per rig
hour to $351 during the first six months of 2009 from $399
during the first six months of 2008. These decreases were due to
decreased expenditures by our customers for our services along
with increased price competition from our competitors. Our
average number of well servicing rigs increased to
414 during the first six months of 2009 compared to 398 in
the same period in 2008, due to internal expansion from our
newbuild rig program and the Lackey Construction, LLC and the
Triple N Services, Inc. acquisitions.
Fluid services revenues decreased by 21% to $114.1 million
during the first six months of 2009 compared to
$144.0 million in the same period in 2008. This decrease
was primarily due to decreased rates that we charged to our
customers for our services caused by increased price competition
from our competitors. These decreases were partially offset by
the Azurite acquisition in September 2008 which added 98 fluid
service trucks and 632 frac tanks. This acquisition added
approximately $16.6 million of revenues during the first
six months of 2009. Our weighted average number of fluid service
trucks increased to 811 during the first six months of 2009 from
654 in the same period in 2008, although our revenue per fluid
service truck decreased to $141,000 in the first six months of
2009 compared to $220,000 in the same period in 2008.
Completion and remedial services revenues decreased by 55% to
$66.6 million during the first six months of 2009 compared
to $148.0 million in the same period in 2008. The decrease
in revenue between these periods was due to decreased
utilization of equipment due to the decline in oil and gas
prices. Increased market competition also caused significant
rate declines. Total hydraulic horsepower increased to 139,000
at June 30, 2009 from 128,000 at June 30, 2008.
Contract drilling revenues decreased by 62% to $7.6 million
during the first six months in 2009 compared to
$19.8 million in the same period in 2008. The number of rig
operating days decreased to 562 in first six months of 2009
compared to 1,344 in the first six months of 2008. This decrease
was due to lower new well starts in all of our geographic
markets.
Direct Operating Expenses. Direct operating
expenses, which primarily consist of labor, including workers
compensation and health insurance, fuel and maintenance and
repair costs, decreased by 32% to $198.7 million during the
first six months of 2009 from $291.8 million in the same
period in 2008. This decrease was due to the lower activity
levels in all of our segments.
Direct operating expenses for the well servicing segment
decreased by 38% to $64.7 million during the first six
months of 2009 as compared to $103.8 million for the same
period in 2008, due primarily to the decrease in rig hours to
242,800 in the first six months of 2009 from 424,800 for the
same period in 2008. Segment profits decreased to 24% of
revenues during the first six months of 2009 compared to 39% for
the same period in 2008, which reflects the faster decline in
activity levels and rates than in costs.
43
Direct operating expenses for the fluid services segment
decreased by 16% to $80.0 million during the first six
months of 2009 as compared to $95.0 million for the same
period in 2008, which is due to lower activity levels being
partially offset by the Azurite acquisition in September 2008
which added approximately $12.6 million in direct operating
expenses in the first six months 2009. Segment profits were 30%
of revenues during the first six months of 2009 compared to 34%
for the same period in 2008.
Direct operating expenses for the completion and remedial
services segment decreased by 40% to $47.4 million during
the first six months of 2009 as compared to $78.4 million
for the same period in 2008 due primarily to decreased activity
levels. Segment profits decreased to 29% of revenues during the
first six months of 2009 compared to 47% for the same period in
2008, due to activity levels and rates declining faster than
costs.
Direct operating expenses for the contract drilling segment
decreased by 55% to $6.6 million during the first six
months of 2009 as compared to $14.6 million for the same
period in 2008 due primarily to lower activity levels. Segment
profits for this segment were 13% of revenues during the first
six months of 2009 compared to 26% for the same period in 2008.
General and Administrative Expenses. General
and administrative expenses increased by 7% to
$56.5 million during the first six months of 2009 from
$52.7 million for the same period in 2008, which included
$2.7 million and $2.3 million in stock-based
compensation expense during the first six months of 2009 and
2008, respectively. The increase primarily reflects higher
salary and office expenses related to businesses acquired during
2008.
Depreciation and Amortization
Expenses. Depreciation and amortization expenses
were $65.2 million during the first six months of 2009 as
compared to $56.8 million for the same period in 2008,
reflecting the increase in the size of and investment in our
asset base, due to acquisitions as well as the internal
expansion of our business segments.
Goodwill Impairment. In the first six months
of 2009, we recorded a non-cash charge totaling
$204.0 million for impairment of all of the goodwill
associated with our well servicing, fluid services, and
completion and remedial services segments.
Interest Expense. Interest expense decreased
by 15% to $11.7 million during the first six months of 2009
compared to $13.8 million for the same period in 2008. The
decrease was due primarily to lower interest rates on our
revolving line of credit.
Income Tax Expense. There was an income tax
benefit of $59.2 million during the first six months of
2009 as compared to an income tax expense of $23.3 million
for the same period in 2008. Our effective tax rate during the
first six months of 2009 and 2008 was approximately 22% and 38%,
respectively.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Revenues. Revenues increased by 15% to
$1.0 billion in 2008 from $877.2 million in 2007. This
increase was primarily due to acquisitions in the completion and
remedial services and fluid services segments, and to the
internal expansion of our business segments.
Well servicing revenues increased by less than 1% to
$343.1 million in 2008 compared to $342.7 million in
2007. Revenue remained relatively flat due to the increase in
rig hours to 840,200 in 2008 as compared to 831,200 in 2007
being offset by a decrease in revenue per rig hour to $408 in
2008 from $412 in 2007. Similarly, an increase in the weighted
average number of rigs was offset by lower utilization rates.
Our weighted average number of rigs increased to 405 in 2008
from 376 in 2007. The increase was due to the addition of 22
newbuild rigs, 13 rigs from acquisitions and the conversion of
one drilling rig to workover mode, offset by the retirement of 9
rigs in 2008. The rig utilization rate for our well servicing
rigs declined to 73% in 2008 compared to 77% in 2007.
Fluid services revenues increased by 22% to $315.8 million
in 2008 compared to $259.3 million in 2007. This increase
was primarily due to the Azurite acquisition and internal
growth. The Azurite acquisition added 98 trucks, 632 frac tanks
and six disposal wells, which increased revenues by
approximately $10.9 million in
44
2008. Our weighted average number of fluid service trucks
increased to 699 in 2008 compared to 655 in 2007, an increase of
approximately 7%. During 2008, our average revenue per fluid
service truck was approximately $452,000 as compared to $396,000
in 2007.
Completion and remedial services revenues increased by 26% to
$304.3 million in 2008 as compared to $240.7 million
in 2007. The increase in revenue between these periods was
primarily the result of the acquisition of JetStar in March
2007, Xterra in January 2008 and Triple N Services, Inc.
(Triple N) in May 2008. The yards associated
with the JetStar acquisition added approximately
$20.9 million more in revenue in 2008 compared to 2007, the
Xterra yards added $17.7 million in revenues for 2008 and
the Triple N yards added $4.7 million in revenues for 2008.
There was also improved utilization for our services in 2008 due
to higher oil and natural gas prices for the majority of 2008.
Contract drilling revenues increased by 21% to
$41.7 million in 2008 compared to $34.5 million in
2007. The increase was due mainly to the acquisition of Sledge
in April 2007, which added approximately $3.9 million more
in revenues in 2008 compared to 2007. There was also an increase
in rig operating days to 2,777 in 2008 compared to 2,233 in
2007, an increase of 24%. Revenue per drilling day was $15,000
in 2008 compared to $15,400 in 2007, a decrease of 3%.
Direct Operating Expenses. Direct operating
expenses, which primarily consist of labor, including
workers compensation and health insurance, and maintenance
and repair costs, increased by 18% to $612.6 million in
2008 from $518.9 million in 2007. This increase was
primarily due to the acquisitions we completed in 2008, the
expansion of our well servicing rig and fluid service truck
fleets, and increases in personnel and related benefit costs.
Direct operating expenses increased to 61.0% of revenues in 2008
from 59.2% in 2007.
Direct operating expenses for the well servicing segment
increased by 5% to $215.2 million in 2008 as compared to
$205.1 million in 2007 due primarily to the expansion of
our well servicing rig fleet. Segment profits decreased to 37.3%
of revenues in 2008 compared to 40.1% in 2007, which reflects
higher fuel costs in 2008 and higher labor costs since we
generally retain our rig crews during times of lower utilization.
Direct operating expenses for the fluid services segment
increased by 23% to $203.2 million in 2008 as compared to
$165.3 million in 2007 due primarily to the expansion of
our fluid services fleet. The Azurite acquisition added
approximately $7.2 million in operating expense in 2008.
Segment profits decreased slightly to 35.6% of revenues in 2008
compared to 36.2% in 2007, mainly due to higher fuel costs.
Direct operating expenses for the completion and remedial
services segment increased by 31% to $165.6 million in 2008
as compared to $125.9 million in 2007 due primarily to the
expansion of our services and equipment, including the JetStar,
Xterra and Triple N acquisitions, and higher operating costs.
JetStar operating expenses were approximately $18.3 million
more in 2008 than in 2007, Xterra operating expenses were
$7.6 million in 2008 and Triple N operating expenses were
$2.1 million in 2008. Our segment profits decreased to
45.6% of revenues in 2008 from 47.7% in 2007, as we experienced
higher fuel costs and increases in costs of the materials used
in our pressure pumping operations.
Direct operating expenses for the contract drilling segment
increased by 27% to $28.6 million in 2008 as compared to
$22.5 million in 2007. The Sledge acquisition added
approximately $6.6 million of operating expenses. Our
segment profits decreased to 31.4% of revenues in 2008 from
34.7% in 2007, as we experienced increased fuel and
transportation expense.
General and Administrative Expenses. General
and administrative expenses increased by 16% to
$115.3 million in 2008 from $99.0 million in 2007,
which included $4.1 million and $4.0 million of
stock-based compensation expense in 2008 and 2007, respectively.
The increase primarily reflects higher salary and office
expenses related to the expansion of our business.
Depreciation and Amortization
Expenses. Depreciation and amortization expenses
were $118.6 million in 2008, as compared to
$93.0 million in 2007, reflecting the increase in the size
of and investment in our asset base. We invested
$110.9 million for acquisitions, $50.7 million for
capital leases and an additional $91.9 million for capital
expenditures in 2008.
45
Goodwill Impairment. In the fourth quarter of
2008, we recorded a non-cash charge totaling $22.5 million
to impair the contract drilling goodwill.
Interest Expense. Interest expense decreased
by 2% to $26.8 million in 2008 from $27.4 million in
2007. The decrease was due primarily to lower interest rates on
our revolving line of credit, which was offset by an increase in
interest expense due to the $30.0 million draw down on our
revolver in September 2008.
Other Income and Expense. Other income and
expense included $18.2 million of merger costs associated
with the terminated merger agreement with Grey Wolf, Inc.,
offset by termination payments received from Grey Wolf, Inc. for
$30.0 million.
Income Tax Expense. Income tax expense was
$55.1 million in 2008, as compared to $52.8 million in
2007. Our effective tax rate was approximately 45% in 2008 and
38% in 2007.
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006
Revenues. Revenues increased by 20% to
$877.2 million in 2007 from $730.1 million in 2006.
This increase was primarily due to acquisitions in the
completion and remedial services and well servicing segments,
and to the internal expansion of our business segments, mainly
well servicing.
Well servicing revenues increased by 6% to $342.7 million
in 2007 compared to $323.8 million in 2006. The increase
was mainly due to internal growth of this segment as we added 45
newbuild rigs to our fleet in 2007. Our weighted average number
of well servicing rigs increased to 376 in 2007 compared to 344
in 2006, an increase of approximately 9%. The rig utilization
rate for our well servicing rigs declined to 77% in 2007
compared to 88% in 2006. This decline was due to stabilization
of industry markets after experiencing significant growth
throughout 2005 and 2006. The effect on revenue from this lower
rig utilization rate was partially offset by an increase of 10%
in our revenue per rig hour from 2006, which increased to $412
per rig hour, and the expansion of our well servicing fleet.
Fluid services revenues increased by 6% to $259.3 million
in 2007 compared to $245.0 million in 2006. This increase
was primarily due to our internal growth and acquisitions. The
Steve Carter Inc. and Hughes Services Inc. acquisition added 22
trucks to our fleet and increased revenues by approximately
$2.2 million for the fourth quarter of 2007. Our weighted
average number of fluid service trucks increased to 655 in 2007
compared to 588 in 2006, an increase of approximately 11%.
During 2007, our average revenue per fluid service truck was
approximately $396,000 as compared to $417,000 in 2006.
Completion and remedial services revenues increased by 56% to
$240.7 million in 2007 as compared to $154.4 million
in 2006. The increase in revenue between these periods was
primarily the result of the acquisition of JetStar in March
2007, which added revenues of $57.1 million, and improved
pricing and utilization of our services.
Contract drilling revenues increased by 394% to
$34.5 million in 2007 compared to $7.0 million in
2006. The increase was due mainly to the acquisition of Sledge,
which added revenues of $23.9 million. Revenue per drilling
day was $15,400 in 2007 compared to $14,400 in 2006, an increase
of 7%.
Direct Operating Expenses. Direct operating
expenses, which primarily consist of labor, including
workers compensation and health insurance, and maintenance
and repair costs, increased by 25% to $518.9 million in
2007 from $414.9 million in 2006. This increase was
primarily due to the acquisitions we completed in 2007, the
expansion of our well servicing rig and fluid service truck
fleets, and increases in personnel and related benefit costs.
Direct operating expenses increased to 59.2% of revenues in 2007
from 56.8% in 2006.
Direct operating expenses for the well servicing segment
increased by 15% to $205.1 million in 2007 as compared to
$178.0 million in 2006 due primarily to the expansion of
our well servicing rig fleet. Segment profits decreased to 40.1%
of revenues in 2007 compared to 45.0% in 2006, which reflects
higher labor costs as we retained our rig crews during times of
lower utilization.
46
Direct operating expenses for the fluid services segment
increased by 8% to $165.3 million in 2007 as compared to
$153.4 million in 2006 due primarily to the expansion of
our fluid services fleet and higher labor costs. Segment profits
decreased to 36.2% of revenues in 2007 compared to 37.4% in 2006.
Direct operating expenses for the completion and remedial
services segment increased by 68% to $125.9 million in 2007
as compared to $75.0 million in 2006 due primarily to the
expansion of our services and equipment, including the JetStar
acquisition, and higher operating costs. JetStar operating
expenses were approximately $34.1 million in 2007. Our
segment profits decreased to 47.7% of revenues in 2007 from
51.4% in 2006, as we experienced higher labor costs and
increases in costs of the materials used in our pressure pumping
operations.
Direct operating expenses for the contract drilling segment
increased by 168% to $22.5 million in 2007 as compared to
$8.4 million in 2006. The increase was primarily due to the
acquisition of Sledge, which added $11.7 million of
operating expenses.
General and Administrative Expenses. General
and administrative expenses increased by 22% to
$99.0 million in 2007 from $81.3 million in 2006,
which included $4.0 million and $3.4 million of
stock-based compensation expense in 2007 and 2006, respectively.
The increase primarily reflects higher salary and office
expenses related to the expansion of our business.
Depreciation and Amortization
Expenses. Depreciation and amortization expenses
were $93.0 million in 2007 as compared to
$62.1 million in 2006, reflecting the increase in the size
of and investment in our asset base, particularly due to the
Sledge and JetStar acquisitions. We invested $252 million
for acquisitions, $26.8 million for capital leases and an
additional $98.5 million for capital expenditures in 2007.
Interest Expense. Interest expense increased
by 57% to $27.4 million in 2007 from $17.5 million in
2006. The increase was due to an increase in the amount of
long-term debt during the period. In 2007, we used
$150 million of our credit revolver for the acquisitions of
Sledge, JetStar and Wildhorse.
Income Tax Expense. Income tax expense was
$52.8 million in 2007 as compared to $54.7 million in
2006. Our effective tax rate was approximately 38% in 2007 and
36% in 2006.
Loss on Early Extinguishment of Debt. In April
2006, we used the proceeds from our issuance of
$225 million aggregate principal amount of senior notes to
pay in full our Term B Loan under our previous senior credit
facility. In connection with the payment on the Term B Loan, we
recognized a loss on the early extinguishment of debt and
wrote-off unamortized debt issuance costs of approximately
$2.7 million.
Liquidity
and Capital Resources
As of June 30, 2009, our primary capital resources were net
cash flows from our operations, utilization of capital leases as
allowed under our Fourth Amended and Restated Credit Agreement,
as amended by Amendment and Consent No. 1 thereto (the
Credit Facility), and availability under our Credit
Facility, under which approximately $28.8 million of
borrowing capacity was available at June 30, 2009. As of
June 30, 2009, we had cash and cash equivalents of
$134.3 million compared to $111.1 million as of
December 31, 2008. Historically, we have utilized bank and
capital lease financing and sales of equity to obtain capital
resources. When appropriate, we consider public or private debt
and equity offerings and non-recourse transactions to meet our
liquidity needs.
On July 31, 2009, we completed the sale of
$225 million principal amount of our 11.625% Senior
Secured Notes due 2014 (the Senior Secured Notes).
The net proceeds of $208.4 million were used to repay the
$180.0 million of borrowings outstanding under the Credit
Facility as of July 31, 2009. The Credit Facility was then
terminated, and we are unable to borrow any amounts under it. At
the closing of the Senior Secured Notes offering, we also
pledged cash collateral with respect to approximately
$16.2 million of letters of credit under the Credit
Facility. We expect to rely on cash on hand in the near term and
to evaluate alternatives with respect to a new revolving credit
facility or letter of credit facility in the future to address
our long term liquidity requirements. The indenture governing
the Senior Secured Notes limits the amount that we could borrow
under a future secured credit facility to the difference between
(i) $240 million and (ii) the sum of
(a) $212.9 million
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(the principal amount of the Senior Secured Notes, net of
offering discount) and (b) our outstanding collateralized
letters of credit, subject to possible upward adjustment of the
amount in clause (i) based on our consolidated tangible
assets. We currently believe that our operating cash flows and
cash on hand will be sufficient to fund our near-term liquidity
requirements.
Net
Cash Provided by Operating Activities
Cash flow from operating activities was $73.0 million for
the six months ended June 30, 2009 as compared to
$87.3 million during the same period in 2008. Operating
cash flow was lower due to the decrease in revenues partially
offset by a decrease in our accounts receivable.
Capital
Expenditures
Capital expenditures are the main component of our investing
activities. Cash capital expenditures (including acquisitions)
during the first six months of 2009 were $26.4 million as
compared to $96.3 million in the same period of 2008. We
added $15.4 million of additional assets through our
capital lease program during the first six months of 2009
compared to $20.5 million in the same period in 2008.
For 2009, we currently have planned approximately
$40.0 million in cash capital expenditures and
$17.5 million in capital leases, none of which is planned
for acquisitions. We do not budget acquisitions in the normal
course of business. The $57.5 million of capital
expenditures planned for property and equipment is primarily for
(1) purchase of additional equipment to expand our
services, (2) continued refurbishment of our well servicing
rigs and (3) replacement of existing equipment. We
regularly engage in discussions related to potential
acquisitions related to the well services industry.
Capital
Resources and Financing
We currently believe that our operating cash flows and cash on
hand will be sufficient to fund our near term liquidity
requirements.
Our ability to access additional sources of financing will be
dependent on our operating cash flows and demand for our
services, which could be negatively impacted due to the extreme
volatility of commodity prices and declines in capital and debt
markets.
Senior
Notes
In April 2006, we completed a private offering of
$225 million aggregate principal amount of
7.125% Senior Notes due April 15, 2016 (the
Senior Notes). The Senior Notes are currently
jointly and severally guaranteed by each of our subsidiaries,
other than two immaterial subsidiaries that have no indebtedness
and have not guaranteed other debt. The net proceeds from the
offering were used to retire our outstanding Term B Loan balance
and to pay down the outstanding balance under our previous
credit facility. Remaining proceeds were used for general
corporate purposes, including acquisitions.
We issued the Senior Notes pursuant to an indenture, dated as of
April 12, 2006, by and among us, the guarantor parties
thereto and The Bank of New York Trust Company, N.A., as
trustee.
Interest on the Senior Notes accrues at a rate of 7.125% per
year. Interest on the Senior Notes is payable in cash
semi-annually in arrears on April 15 and October 15 of each
year. The Senior Notes mature on April 15, 2016. The Senior
Notes and the guarantees are unsecured and rank equally with all
of our and the guarantors existing and future unsecured
and unsubordinated obligations. The Senior Notes and the
guarantees rank senior in right of payment to any of our and the
guarantors existing and future obligations that are, by
their terms, expressly subordinated in right of payment to the
Senior Notes and the guarantees. The Senior Notes and the
guarantees are effectively subordinated to our and the
guarantors secured obligations to the extent of the value
of the assets securing such obligations.
48
The indenture governing the Senior Notes contains covenants that
limit the ability of us and certain of our subsidiaries to:
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incur additional indebtedness;
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pay dividends or repurchase or redeem capital stock;
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make certain investments;
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incur liens;
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enter into certain types of transactions with affiliates;
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limit dividends or other payments by restricted
subsidiaries; and
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sell assets or consolidate or merge with or into other companies.
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These limitations are subject to a number of important
qualifications and exceptions.
Upon an Event of Default (as defined in the indenture), the
trustee or the holders of at least 25% in aggregate principal
amount of the Senior Notes then outstanding may declare all of
the amounts outstanding under the Senior Notes to be due and
payable immediately.
We may, at our option, redeem all or part of the Senior Notes,
at any time on or after April 15, 2011, at a redemption
price equal to 100% of the principal amount thereof, plus a
premium declining ratably to par and accrued and unpaid
interest, if any, to the date of redemption.
If we experience certain kinds of changes of control, holders of
the Senior Notes will be entitled to require us to purchase all
or a portion of the Senior Notes at 101% of their principal
amount, plus accrued and unpaid interest.
Credit
Facility
On February 6, 2007, we amended and restated our
then-existing credit agreement by entering into the Fourth
Amended and Restated Credit Agreement (the 2007 Credit
Facility), which, among other things, created a new class
of revolving loans that increased the total revolving
commitments from $150 million to $225 million and
increased the Incremental Revolving Commitments
under the 2007 Credit Facility from $75.0 million to an
aggregate principal amount of $100 million.
On May 4, 2009, we amended the 2007 Credit Facility with
our existing syndicate of lenders. The amendment provided for
two tranches whereby the lenders within the syndicate had the
option to participate in the extension of the Revolver.
Tranche A maintained the current agreement, including the
termination date of December 15, 2010, for any lenders who
chose not to participate in the extension of the Revolver.
Tranche B included all lenders who agreed to extend the
Revolvers termination date to January 31, 2012 for
their respective prior commitment. The amount of commitments
under the Tranche A Revolving Loans was $80 million
and amount under the Tranche B Revolving Loans was
$145 million.
On July 31, 2009, in connection with our sale of the Senior
Secured Notes, we repaid all of the borrowings outstanding under
the Credit Facility, and then we terminated the Credit Facility.
Senior
Secured Notes
On July 31, 2009, we completed the issuance and sale of
$225,000,000 aggregate principal amount of the Senior Secured
Notes. The Senior Secured Notes are jointly and severally, and
unconditionally, guaranteed on a senior secured basis initially
by all of our current subsidiaries other than two immaterial
subsidiaries. The Senior Secured Notes and the related
guarantees were offered and sold in private transactions in
accordance with Rule 144A and Regulation S under the
Securities Act of 1933, as amended.
The purchase price for the Senior Secured Notes and the related
guarantees was 92.851% of their principal amount. The net
proceeds from the issuance of the Senior Secured Notes were
approximately $208.4 million after discounts and estimated
offering expenses. We used the net proceeds from the offering,
49
along with other funds, to repay all outstanding indebtedness
under our revolving credit facility, which we terminated in
connection with the offering.
The Senior Secured Notes and the related guarantees were issued
pursuant to an indenture dated as of July 31, 2009 (the
Indenture), by and among us, the guarantors party
thereto and The Bank of New York Mellon Trust Company,
N.A., a national banking association, as trustee. The
obligations under the Indenture are secured as set forth in the
Indenture and in the Security Agreement (as defined below), in
favor of the trustee, by a first-priority lien (other than
Permitted Collateral Liens, as defined in the Indenture) in
favor of the trustee, on the Collateral (as defined below)
described in the Security Agreement.
Interest on the Senior Secured Notes accrues at a rate of
11.625% per year. Interest on the Senior Secured Notes is
payable semi-annually in arrears on February 1 and August 1 of
each year, commencing on February 1, 2010. The Senior
Secured Notes mature on August 1, 2014.
The Indenture contains covenants that, among other things, limit
our ability and the ability of certain of our subsidiaries to:
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incur additional indebtedness;
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pay dividends or repurchase or redeem capital stock;
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make certain investments;
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incur liens;
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enter into certain types of transactions with our affiliates;
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limit dividends or other payments by our restricted subsidiaries
to us; and
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sell assets (including Collateral under the Security Agreement),
or consolidate or merge with or into other companies.
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These limitations are subject to a number of important
exceptions and qualifications.
If we or our restricted subsidiaries sell, transfer or otherwise
dispose of assets or other rights or property that constitute
Collateral (including the same or issuance of equity interests
in a restricted subsidiary that owns Collateral such that it
thereafter is no longer a restricted subsidiary, a
Collateral Disposition), we are required to deposit
any cash or cash equivalent proceeds constituting net available
proceeds into a segregated account under the sole control of the
trustee that includes only proceeds from the Collateral
Disposition and interest earned thereon (an Asset Sale
Proceeds Account). The Asset Sale Proceeds Account will be
subject to a first-priority lien in favor of the trustee, and
the proceeds are subject to release from the account for
specified uses. These permitted uses include:
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acquiring additional assets of a type constituting Collateral
(Additional Assets), provided the trustee has or is
immediately granted a perfected first-priority security interest
(subject only to Permitted Collateral Liens) in such Additional
Assets; and
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repurchasing or redeeming the Senior Secured Notes.
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Upon an Event of Default (as defined in the Indenture), the
trustee or the holders of at least 25% in aggregate principal
amount of the Senior Secured Notes then outstanding may declare
the entire principal of all the Senior Secured Notes to be due
and payable immediately.
We may, at our option, redeem all or part of the Senior Secured
Notes, at any time on or after February 1, 2012, at a
redemption price equal to 100% of the principal amount thereof,
plus a premium declining ratably to par and accrued and unpaid
interest to the date of redemption.
At any time before February 1, 2012, we, at our option, may
redeem up to 35% of the aggregate principal amount of the Senior
Secured Notes issued under the Indenture with the net cash
proceeds of one or more
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qualified equity offerings at a redemption price of 111.625% of
the principal amount of the Senior Secured Notes to be redeemed,
plus accrued and unpaid interest to the date of redemption, as
long as:
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at least 65% of the aggregate principal amount of the Senior
Secured Notes issued under the Indenture remains outstanding
immediately after the occurrence of such redemption; and
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such redemption occurs within 90 days of the date of the
closing of any such qualified equity offering.
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If we experience certain kinds of changes of control, holders of
the Senior Secured Notes will be entitled to require us to
purchase all or a portion of the Senior Secured Notes at 101% of
their principal amount, plus accrued and unpaid interest to the
date of repurchase.
On July 31, 2009, Basic and each of the guarantors party to
the Indenture (the Grantors) entered into a Security
Agreement (the Security Agreement) in favor of The
Bank of New York Mellon Trust Company, N.A., a national
banking association, as trustee under the Indenture, to secure
payment of the Senior Secured Notes and related guarantees. The
Liens (as defined in the Security Agreement) granted by each of
the Grantors under the Security Agreement consist of a security
interest in all of the following personal property now owned or
at any time thereafter acquired by such Grantor or in which such
Grantor now has or at any time in the future may acquire any
right, title or interest and whether existing as of the date of
the Security Agreement or thereafter coming into existence
(together with the Aircraft Collateral (as defined in the
Security Agreement), the Collateral), as collateral
security for the prompt and complete payment and performance
when due (whether at the stated maturity, by acceleration or
otherwise) of the obligations of the Grantors under the
Indenture, the related Senior Secured Notes and the security
documents:
(i) all Commercial Tort Claims;
(ii) all Contracts (as defined in the Security Agreement);
(iii) all Documents;
(iv) all Equipment (other than the Aircraft Collateral);
(v) all General Intangibles (excluding Payment Intangibles
except to the extent included pursuant to clause (xv)
below);
(vi) all Goods (as defined in the Security Agreement);
(vii) all Intellectual Property (as defined in the Security
Agreement);
(viii) all Investment Property;
(ix) all
Letter-of-Credit
Rights (whether or not the letter of credit is evidenced by a
writing);
(x) all Supporting Obligations;
(xi) each Asset Sale Proceeds Account (as defined in the
Security Agreement) and all deposits, Securities and Financial
Assets (as defined in the Security Agreement) therein and
interest or other income thereon and investments thereof, and
all property of every type and description in which any proceeds
of any Collateral Disposition (as defined) or other disposition
of Collateral are invested or upon which the trustee is at any
time granted, or required to be granted, a Lien to secure the
Obligations (as defined in the Security Agreement) as set forth
in Section 4.12 of the Indenture and all proceeds and
products of the Collateral described in this clause (xi);
(xii) all other personal property (other than Excluded
Property), whether tangible or intangible, not otherwise
described above;
(xiii) whatever is received (whether voluntary or
involuntary, whether cash or non cash, including proceeds of
insurance and condemnation awards, rental or lease payments,
accounts, chattel paper, instruments, documents, contract
rights, general intangibles, equipment
and/or
inventory) upon the lease, sale, charter, exchange, transfer, or
other disposition of any of the Collateral described in
clauses (i) through (xii) above;
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(xiv) all books and records pertaining to the
Collateral; and
(xv) to the extent not otherwise included, all Proceeds,
Supporting Obligations and products (including, without
limitation, any Accounts, Chattel Paper, Instruments or Payment
Intangibles constituting Proceeds, Supporting Obligations or
products) of any and all of the foregoing and all collateral
security and guarantees given by any Person with respect to any
of the foregoing;
provided, that notwithstanding the foregoing provisions,
Collateral shall not include Excluded Property.
Excluded Property means the following,
whether now owned or at any time hereafter acquired by any
Grantor or in which such Grantor now has or at any time in the
future may acquire any right, title or interest and whether now
existing or hereafter coming into existence:
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Maritime Assets (as defined in the Security Agreement);
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cash and cash equivalents (as such terms are defined by GAAP)
other than those maintained in an Asset Sales Proceeds Account;
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Securities Accounts containing only cash and cash equivalents
other than any Asset Sale Proceeds Account and Security
Entitlements relating to any such Securities Account;
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equity interests in any subsidiary of any Grantor;
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Inventory;
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trucks, trailers and other motor vehicles covered by a
certificate of title law of any state;
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property
and/or
transactions to which Article 9 of the UCC does not apply
pursuant to
Section 9-109
thereof;
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certain computer software and Equipment acquired prior to the
date thereof and subject to a lien securing purchase money
indebtedness as of the date thereof if (but only to the extent
that) the applicable documentation relating to such lien
prohibits the granting of a lien on such Equipment;
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Equipment leased by any Grantor, other than pursuant to a
capitalized lease, if (but only to the extent that) the lien
securing the Equipment prohibits the granting of a lien on such
Equipment;
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certain General Intangibles, governmental approvals or other
rights arising under any contracts, instruments, permits,
licenses or other documents if the granting of a security
interest therein would cause a breach of a restriction on the
granting of a security interest therein or the assignment
thereof in favor of a third party, subject to exceptions as set
forth in the Security Agreement; and
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Accounts, Chattel Paper, Instruments and Payment Intangibles to
the extent they are not Proceeds, Supporting Obligations or
products of the Collateral.
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The following capitalized terms are used above are as defined in
the Uniform Commercial Code (UCC) of the State of
New York, or such other jurisdiction as may be applicable under
the terms of the Security Agreement) on the date of the Security
Agreement: Accounts, Chattel Paper, Commercial Tort Claims,
Deposit Account, Documents, Electronic Chattel Paper, Equipment,
Financial Assets, General Intangibles, Instruments, Inventory,
Investment Property,
Letter-of-Credit
Rights, Payment Intangibles, Proceeds, Securities, Securities
Accounts, Security Entitlements, Supporting Obligations, and
Tangible Chattel Paper.
Under the Security Agreement, each Grantor must maintain a
perfected security interest in favor of the trustee and take all
steps necessary from time to time in order to maintain the
trustees first-priority security interest (other than
Permitted Collateral Liens). If an event of default were to
occur under the Indenture, the Senior Secured Notes, the
guarantees relating to the Senior Secured Notes, the Security
Agreement or any other agreement, instrument or certificate that
is entered into to secure payment or performance of the Senior
Secured Notes, the trustee would be empowered to exercise all
rights and remedies of a secured party under the UCC, in
addition to all other rights and remedies under the applicable
agreements.
For more information about the Senior Secured Notes, please read
Description of the New Notes.
52
Other
Debt
We have a variety of other capital leases and notes payable
outstanding that is generally customary in our business. None of
these debt instruments is material individually. As of
June 30, 2009, we had total capital leases of approximately
$75.3 million.
Credit
Rating Agencies
In July 2009 our Senior Notes rating was changed from BB- to B-
by Standard and Poors and from B1 to Caa1 by
Moodys, and our Credit Facility rating was changed from
BB+ to BB- by Standard and Poors and from Ba1 to Ba2 by
Moodys. Our Senior Secured Notes were rated at BB- by
Standard and Poors and Ba3 by Moodys.
Preferred
Stock
At June 30, 2009 and December 31, 2008, we had
5,000,000 shares of $0.01 par value preferred stock
authorized, of which none was designated, issued or outstanding.
Other
Matters
Off-Balance
Sheet Arrangements
We have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our
financial condition or results of operations.
Net
Operating Losses
As of June 30, 2009, we had approximately $2.3 million
of net operating loss carryforwards related to the
pre-acquisition period of a 2003 acquisition, which are subject
to an annual limitation of approximately $900,000. The
carryforwards begin to expire in 2017.
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair
Value Measurements
(SFAS No. 157), which became effective
for our financial assets and liabilities on January 1, 2008
and became effective for our non-financial assets and
liabilities on January 1, 2009. This standard defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements.
SFAS No. 157 does not require any new fair value
measurements but would apply to assets and liabilities that are
required to be recorded at fair value under other accounting
standards. This standard was adopted for financial assets and
liabilities as of January 1, 2008 and was adopted for
non-financial assets and liabilities, including fair value
measurements for asset impairments, goodwill and intangible
asset impairments, purchase price allocations and asset
retirement obligations, on January 1, 2009. The adoption of
this standard did not have any impact on the fair value of any
of our financial assets or liabilities.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations
(SFAS No. 141R), which became
effective for us on January 1, 2009. This Statement
requires an acquirer to recognize the assets acquired, the
liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date at their fair values as of that
date. An acquirer is required to recognize assets or liabilities
arising from all other contingencies (contractual contingencies)
as of the acquisition date, measured at their acquisition-date
fair values, only if it is more likely than not that they meet
the definition of an asset or a liability in FASB Concepts
Statement No. 6, Elements of Financial
Statements. Any acquisition related costs are to be
expensed instead of capitalized. The impact to us from the
adoption of SFAS No. 141R in 2009 will vary
acquisition by acquisition.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements (SFAS No. 160), which
became effective for us on January 1, 2009. This standard
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in
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a parents ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting
requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and
the interests of the non-controlling owners. This pronouncement
has not had a significant impact on our results of operation or
consolidated financial position since we do not have any
noncontrolling interests.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161), which
became effective for us on January 1, 2009. This standard
improves financial reporting for derivative instruments and
hedging activities by requiring enhanced disclosures to expand
on these instruments effects on a companys financial
position, financial performance and cash flows. This
pronouncement has not had a significant impact on our results of
operation or consolidated financial position since we do not
have any derivative instruments.
In April 2008, the FASB issued FASB Staff Position
SFAS No. 142-3,
Determination of Useful Life of Intangible Assets
(FSP
No. 142-3).
FSP
No. 142-3
amends the factors that should be considered in developing the
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142. FSP
No. 142-3
is effective for fiscal years beginning after December 15,
2008. This pronouncement has not had a significant impact on our
results of operation or consolidated financial position.
In June 2008, the FASB issued FASB Staff Position
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities
(FSP
EITF 03-6-1).
FSP
EITF 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings per share (EPS) under the
two-class method described in paragraphs 60 and 61 of
SFAS No. 128, Earnings Per Share.
FSP
EITF 03-6-1
is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2008 and
requires retrospective adjustment for all comparable prior
periods presented. FSP
EITF 03-6-1
has not had a significant impact on our results of operation or
consolidated financial position since we do not have any
participating securities.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events
(SFAS No. 165), which became effective for
us on April 1, 2009. This standard establishes principles
and requirements for disclosure of subsequent events. It
establishes the period after the balance sheet date during which
events or transactions are to be evaluated for potential
disclosure. It also establishes the circumstances under which an
entity shall recognize events or transactions occurring after
the balance sheet date. The adoption of this standard requires
us to disclose the date through which subsequent events have
been reviewed.
In June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162
(SFAS No. 168), which became effective for
us on July 1, 2009. SFAS No. 168 establishes the
FASB Accounting Standards Codification as the source of
authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP.
SFAS No. 168 is not expected to change GAAP and will
not have a material impact on our consolidated financial
statements.
Impact
of Inflation on Operations
Management is of the opinion that inflation has not had a
significant impact on our business, other than increases in fuel
costs and personnel expenses during 2008.
Quantitative
and Qualitative Disclosures about Market Risk
As of June 30, 2009, we had $180.0 million outstanding
under the revolving portion of our credit facility subject to
variable interest rate risk. The impact of a 1% increase in
interest rates on this amount of debt would have resulted in
increased interest expense of approximately $1.8 million
annually and a decrease in net income of approximately
$1.1 million.
On July 31, 2009, we terminated the credit facility in
connection with the issuance of our Senior Secured Notes, and we
have no other variable rate indebtedness.
54
BUSINESS
General
We provide a wide range of well site services to oil and gas
drilling and producing companies, including well servicing,
fluid services and well site construction services, completion
and remedial services and contract drilling. These services are
fundamental to establishing and maintaining the flow of oil and
gas throughout the productive life of a well. Our broad range of
services enables us to meet multiple needs of our customers at
the well site. Our operations are managed regionally and are
concentrated in the major United States onshore oil and gas
producing regions in Texas, New Mexico, Oklahoma, Arkansas,
Kansas and Louisiana and the Rocky Mountain states. We provide
our services to a diverse group of over 2,000 oil and gas
companies. We operate the third-largest fleet of well servicing
rigs (also commonly referred to as workover rigs) in the
United States. As of December 31, 2008, our fleet
represented 12% of the overall available U.S. fleet, with
our two larger competitors controlling approximately 27% and
17%, respectively, according to the AESC and other publicly
available data.
Basic revised its business segments beginning in the first
quarter of 2008, and in connection therewith restated the
corresponding items of segment information for earlier periods.
The new operating segments are Well Servicing, Fluid Services,
Completion and Remedial Services, and Contract Drilling. These
segments were selected based on changes in managements
resource allocation and performance assessment in making
decisions regarding the Company. Contract Drilling was
previously included in our Well Servicing segment. Well Site
Construction Services is consolidated with our Fluid Services
segment. These changes reflect Basics operating focus in
compliance with Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information. The following is a
description of the segments:
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Well Servicing. Our well servicing segment
(34% of our revenues in 2008 and 31% of our revenues in the
first six months of 2009) currently operates our fleet of
414 well servicing rigs and related equipment. This
business segment encompasses a full range of services performed
with a mobile well servicing rig, including the installation and
removal of downhole equipment and elimination of obstructions in
the well bore to facilitate the flow of oil and gas. These
services are performed to establish, maintain and improve
production throughout the productive life of an oil and gas well
and to plug and abandon a well at the end of its productive
life. Our well servicing equipment and capabilities are
essential to facilitate most other services performed on a well.
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Fluid Services. Our fluid services segment
(32% of our revenues in 2008 and 42% of our revenues in the
first six months of 2009) currently utilizes our fleet of
805 fluid service trucks and related assets, including
specialized tank trucks, storage tanks, water wells, disposal
facilities, construction and other related equipment. These
assets provide, transport, store and dispose of a variety of
fluids, as well as provide well site construction and
maintenance services. These services are required in most
workover, completion and remedial projects and are routinely
used in daily producing well operations.
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Completion and Remedial Services. Our
completion and remedial services segment (30% of our revenues in
2008 and 24% of our revenues in the first six months of
2009) currently operates our fleet of pressure pumping
units, an array of specialized rental equipment and fishing
tools, air compressor packages specially configured for
underbalanced drilling operations, and cased-hole wireline
units. The largest portion of this business segment consists of
pressure pumping services focused on cementing, acidizing and
fracturing services in niche markets. We entered the rental and
fishing tool business through an acquisition in the first
quarter of 2006.
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Contract Drilling. Our contract drilling
segment (4% of our revenues in 2008 and 3% of our revenues in
the first six months of 2009) currently operates nine
drilling rigs and related equipment. We use these assets to
penetrate the earth to a desired depth and initiate production
from a well. We greatly increased our presence in this line of
business through the Sledge Drilling acquisition in the second
quarter of 2007.
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55
Our
Competitive Strengths
We believe that the following competitive strengths currently
position us well within our industry:
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Significant Market Position. We maintain a
significant market share for our well servicing operations in
our core operating areas throughout Texas and a growing market
share in the other markets that we serve. Our fleet of
414 well servicing rigs as of June 30, 2009 represents
the third-largest fleet in the United States, and our goal is to
be one of the top two providers of well site services in each of
our core operating areas. Our market position allows us to
expand the range of services performed on a well throughout its
life, such as drilling, maintenance, workover, completion and
plugging and abandonment services.
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Modern and Active Well Servicing Fleet. We
operate a modern and active fleet of well servicing rigs. We
believe over 75% of the active U.S. well servicing rig
fleet was built prior to 1985. Greater than 50% of our rigs at
December 31, 2008 were either 2000 model year or newer, or
have undergone major refurbishments during the last five years.
As of March 31, 2009, we had taken delivery of all 134
newbuild well servicing rigs since October 2004 as part of a
newbuild commitment, driven by our desire to maintain one of the
most efficient, reliable and safest fleets in the industry. In
addition to our regular maintenance program, we have an
established program to routinely monitor and evaluate the
condition of our fleet. We selectively refurbish rigs and other
assets to maintain the quality of our service and to provide a
safe work environment for our personnel and have made major
refurbishments on 70 of our rigs since the beginning of 2004.
Since 2003, we have obtained annual independent reviews and
evaluations of substantially all of our assets, which confirmed
the location and condition of these assets.
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Extensive Domestic Footprint in the Most Prolific
Basins. Our operations are concentrated in the
major United States onshore oil and gas producing regions in
Texas, New Mexico, Oklahoma, Arkansas, Kansas and Louisiana and
the Rocky Mountain states. We operate in states that accounted
for approximately 58% of the approximately 900,000 existing
onshore oil and gas wells in the 48 contiguous states and
approximately 73% of onshore oil production and 90% of onshore
gas production in 2008. We believe that our operations are
located in the most active U.S. well services markets, as
we currently focus our operations on onshore domestic oil and
gas production areas that include both the highest concentration
of existing oil and gas production activities and the largest
prospective acreage for new drilling activity. This extensive
footprint allows us to offer our suite of services to more than
2,000 customers who are active in those areas and allows us to
redeploy equipment between markets as activity shifts.
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Diversified Service Offering for Further Revenue
Growth. We believe our range of well site
services provides us a competitive advantage over smaller
companies that typically offer fewer services. Our experience,
equipment and network of 115 area offices position us to market
our full range of well site services to our existing customers.
By utilizing a wider range of our services, our customers can
use fewer service providers, which enables them to reduce their
administrative costs and simplify their logistics. Furthermore,
offering a broader range of services allows us to capitalize on
our existing customer base and management structure to grow
within existing markets, generate more business from existing
customers, and increase our operating profits as we spread our
overhead costs over a larger revenue base.
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Decentralized Management with Strong Corporate
Infrastructure. Our corporate group is
responsible for maintaining a unified infrastructure to support
our diversified operations through standardized financial and
accounting, safety, environmental and maintenance processes and
controls. Below our corporate level, we operate a decentralized
operational organization in which our nine regional or division
managers are responsible for their operations, including asset
management, cost control, policy compliance and training and
other aspects of quality control. With an average of over
25 years of industry experience, each regional manager has
extensive knowledge of the customer base, job requirements and
working conditions in each local market. Below our nine regional
or division managers, our area managers are directly responsible
for customer relationships, personnel management,
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56
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accident prevention and equipment maintenance, the key drivers
of our operating profitability. This management structure allows
us to monitor operating performance on a daily basis, maintain
financial, accounting and asset management controls, integrate
acquisitions, prepare timely financial reports and manage
contractual risk.
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Our
Business Strategy
We intend to increase our shareholder value by pursuing the
following strategies:
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Establish and Maintain Leadership Position in Core Operating
Areas. We strive to establish and maintain market
leadership positions within our core operating areas. To achieve
this goal, we maintain close customer relationships, seek to
expand the breadth of our services and offer high quality
services and equipment that meet the scope of customer
specifications and requirements. In addition, our significant
presence in our core operating areas facilitates employee
retention and attraction, a key factor for success in our
business. Our significant presence in our core operating areas
also provides us with brand recognition that we intend to
utilize in creating leading positions in new operating areas.
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Expand Within Our Regional Markets. We intend
to continue strengthening our presence within our existing
geographic footprint through internal growth and acquisitions of
businesses with strong customer relationships, well-maintained
equipment and experienced and skilled personnel. We typically
enter into new markets through the acquisition of businesses
with strong management teams that will allow us to expand within
these markets. Management of acquired companies often remain
with us and retain key positions within our organization, which
enhances our attractiveness as an acquisition partner. We have a
record of successfully implementing this strategy. During the
past three fiscal years, we have made 23 acquisitions including:
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2006
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LeBus Oil Field Service Co., a fluid service company operating
in our Ark-La-Tex region, and
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G&L Tool, Ltd., a rental and fishing tool company included
in our completion and remedial line of business;
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2007
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JetStar Consolidated Holdings, Inc., a pressure pumping company
operating in our completion and remedial line of
business, and
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Sledge Drilling Holding Corp., a contract drilling company
operating in our contract drilling line of business;
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2008
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Azurite Services Company, Inc., Azurite Leasing Company, LLC and
Freestone Disposal, L.P., a fluid service business operating in
our Ark-La-Tex and Mid-Continent regions.
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Develop Additional Service Offerings Within the Well
Servicing Market. We intend to continue
broadening the portfolio of services we provide to our clients
by leveraging our well servicing infrastructure. A customer
typically begins a new maintenance or workover project by
securing access to a well servicing rig, which generally stays
on site for the duration of the project. As a result, our rigs
are often the first equipment to arrive at the well site and
typically the last to leave, providing us the opportunity to
offer our customers other complementary services. We believe the
fragmented nature of the well servicing market creates an
opportunity to sell more services to our core customers and to
expand our total service offering within each of our markets. We
have expanded our suite of services available to our customers
and increased our opportunities to cross-sell new services to
our core well servicing customers through recent acquisitions
and internal growth. We expect to continue to develop
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57
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or selectively acquire capabilities to provide additional
services to expand and further strengthen our customer
relationships.
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Pursue Growth Through Selective Capital
Deployment. We intend to continue growing our
business through selective acquisitions, continuing a newbuild
program
and/or
upgrading our existing assets. Our capital investment decisions
are determined by an analysis of the projected return on capital
employed of each of those alternatives. Acquisitions are
evaluated for fit with our area and regional
operations management and are thoroughly reviewed by corporate
level financial, equipment, safety and environmental specialists
to ensure consideration is given to identified risks. We also
evaluate the cost to acquire existing assets from a third party,
the capital required to build new equipment and the point in the
oil and gas commodity price cycle. Based on these factors, we
make capital investment decisions that we believe will support
our long-term growth strategy, and these decisions may involve a
combination of asset acquisitions and the purchase of new
equipment. As the oil and gas commodity cycle has declined in
recent quarters, we have taken a disciplined approach to
acquisitions, with our last acquisition completed in September
2008. We expect to continue this strategy in order to maintain
existing operating assets while this cycle continues.
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General
Industry Overview
Demand for services offered by our industry is a function of our
customers willingness to make operating and capital
expenditures to explore for, develop and produce hydrocarbons in
the U.S., which in turn is affected by current and expected
levels of oil and gas prices. As oil and gas prices increased in
recent years, oil and gas companies increased their drilling and
workover activities. The increased activity resulted in
increased domestic exploration and production spending year over
year for the past four years. In the last part of 2008, there
was a rapid decline in oil and gas prices which has resulted in
significant decreases in domestic spending during the first half
of 2009 compared to 2008 domestic spending.
The table below sets forth average daily closing prices for the
Cushing WTI Spot Oil Price and the Energy Information Agency
average wellhead price for natural gas since 2004:
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Cushing WTI Spot
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Average Wellhead Price
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Period
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Oil Price ($/bbl)
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Natural Gas ($/mcf)
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1/1/04 12/31/04
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$
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41.51
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$
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5.49
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1/1/05 12/31/05
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56.64
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7.51
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1/1/06 12/31/06
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66.05
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6.42
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1/1/07 12/31/07
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72.34
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6.38
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1/1/08 12/31/08
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99.67
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8.07
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1/1/09 6/30/09 (5/31/09 for Natural Gas)
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51.18
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3.99
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Source: U.S. Department of Energy
Increased expenditures for exploration and production activities
generally drives the increased demand for our services. Rising
oil and gas prices in recent years and the corresponding
increase in onshore oil exploration and production spending have
led to expanded drilling and well service activity, as the
U.S. land-based drilling rig count increased approximately
22% during 2005, 17% during 2006, and 4% during 2007. With the
rapid decline in oil and gas prices in the second half of 2008
there was a decrease in the land-based drilling rig count of
approximately 15% from the peak of 2008 to the end of the year
and 43% during the first half of 2009, according to Baker
Hughes. The decrease in oil and gas prices coupled with the
buildup of drilling and workover rig counts in recent years is
resulting in both lower utilization of those rigs and decreases
in the rates being charged.
Exploration and production spending is generally categorized as
either an operating expenditure or a capital expenditure.
Activities designed to add hydrocarbon reserves are classified
as capital expenditures, while those associated with maintaining
or accelerating production are categorized as operating
expenditures.
58
Capital expenditures by oil and gas companies tend to be
relatively sensitive to volatility in oil or gas prices because
project decisions are tied to a return on investment spanning a
number of years. As such, capital expenditure economics often
require the use of commodity price forecasts which may prove
inaccurate in the amount of time required to plan and execute a
capital expenditure project (such as the drilling of a deep
well). When commodity prices are depressed for even a short
period of time, capital expenditure projects are routinely
deferred until prices return to an acceptable level.
In contrast, both mandatory and discretionary operating
expenditures are substantially more stable than exploration and
drilling expenditures. Mandatory operating expenditure projects
involve activities that cannot be avoided in the short term,
such as regulatory compliance, safety, contractual obligations
and projects to maintain the well and related infrastructure in
operating condition (for example, repairs to a central tank
battery, downhole pump, saltwater disposal system or gathering
system). Discretionary operating expenditure projects may not be
critical to the short-term viability of a lease or field but
these projects are relatively insensitive to commodity price
volatility. Discretionary operating expenditure work is
evaluated according to a simple short-term payout criterion
which is far less dependent on commodity price forecasts.
Our business is influenced substantially by both operating and
capital expenditures by oil and gas companies. Because existing
oil and gas wells require ongoing spending to maintain
production, expenditures by oil and gas companies for the
maintenance of existing wells are relatively stable and
predictable. In contrast, capital expenditures by oil and gas
companies for exploration and drilling are more directly
influenced by current and expected oil and gas prices and
generally reflect the volatility of commodity prices.
Overview
of Our Segments and Services
Well
Servicing Segment
Our well servicing segment encompasses a full range of services
performed with a mobile well servicing rig, also commonly
referred to as a workover rig, and ancillary equipment. Our rigs
and personnel provide the means for hoisting equipment and tools
into and out of the well bore, and our well servicing equipment
and capabilities are essential to facilitate most other services
performed on a well. Our well servicing segment services, which
are performed to maintain and improve production throughout the
productive life of an oil and gas well, include:
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maintenance work involving removal, repair and replacement of
down-hole equipment and returning the well to production after
these operations are completed;
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hoisting tools and equipment required by the operation into and
out of the well, or removing equipment from the well bore, to
facilitate specialized production enhancement and well repair
operations performed by other oilfield service
companies; and
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plugging and abandonment services when a well has reached the
end of its productive life.
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Regardless of the type of work being performed on the well, our
personnel and rigs are often the first to arrive at the well
site and the last to leave. We generally charge our customers an
hourly rate for these services, which rate varies based on a
number of considerations including market conditions in each
region, the type of rig and ancillary equipment required, and
the necessary personnel.
Our fleet included 414 well servicing rigs as of
December 31, 2008, including 132 newbuilds since October
2004 and 70 rebuilds since the beginning of 2004. Our well
servicing rigs operate from facilities in Texas, Wyoming,
Oklahoma, North Dakota, New Mexico, Louisiana, Colorado, Utah
and Montana. Our well servicing rigs are mobile units that
generally operate within a radius of approximately 75 to
100 miles from their respective bases. Prior to December
2004, our well servicing segment consisted entirely of
land-based equipment. During December 2004, we acquired three
inland barges, two of which were equipped with rigs, which were
refurbished and were placed into service in the second quarter
of 2005. In January 2007, we acquired two additional inland
barges equipped with rigs from Parker Drilling Offshore USA,
LLC. Inland barges are used to service wells in shallow water
marine environments, such as coastal marshes and bays.
59
The following table sets forth the location, characteristics and
number of the well servicing rigs that we operated at
December 31, 2008. We categorize our rig fleet by the rated
capacity of the mast, which indicates the maximum weight that
the rig is capable of lifting. This capability is the limiting
factor in our ability to provide services.
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Market Area
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Permian
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South
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Ark-La-
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Mid-
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Rocky
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Rig Type
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Rated Capacity
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Basin
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Texas
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Tex
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Continent
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Mountain
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Total
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Swab
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N/A
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3
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1
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6
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4
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0
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14
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Light Duty
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<90 tons
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5
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2
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0
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17
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1
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25
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Medium Duty
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³90<125
tons
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133
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38
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29
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58
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54
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312
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Heavy Duty
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³125
tons
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29
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|
4
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6
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4
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8
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51
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24-Hour
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³125
tons
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2
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3
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0
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2
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1
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8
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Inland Barge
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³125
tons
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0
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0
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4
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0
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|
0
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4
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|
|
|
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Total
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172
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|
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48
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45
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|
85
|
|
|
|
64
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|
414
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We operate a total of 414 well servicing rigs, the third
largest fleet in the United States. Based on their most recent
publicly available information, Key Energy Services is our
largest competitor with an estimated total of 943 domestic rigs
and Nabors is the second largest with an estimated 592 domestic
rigs at year end. Our only other competitors operating more than
100 rigs is Complete Production Services with an estimated 267
domestic rigs and Forbes Energy Services with an estimated 169
domestic rigs. Excluding the rigs operated by Nabors in
California where we do not compete, we have the second largest
rig fleet in the United States.
The total number of rigs owned by us and the four other largest
companies referenced above is approximately 2,385, or 69% of the
available fleet owned by member companies of the AESC, the major
trade association of well site service providers. The remaining
31% of the well servicing rigs are owned by more than 100 local
and regional companies. The December 2008 monthly activity
survey conducted by the AESC indicated that 68% of the rigs
owned were active.
Maintenance. Regular maintenance is generally
required throughout the life of a well to sustain optimal levels
of oil and gas production. We believe regular maintenance
comprises the largest portion of our work in this business
segment. We provide well service rigs, equipment and crews for
these maintenance services. Maintenance services are often
performed on a series of wells in proximity to each other. These
services consist of routine mechanical repairs necessary to
maintain production, such as repairing inoperable pumping
equipment in an oil well or replacing defective tubing in a gas
well, and removing debris such as sand and paraffin from the
well. Other services include pulling the rods, tubing, pumps and
other downhole equipment out of the well bore to identify and
repair a production problem. These downhole equipment failures
are typically caused by the repetitive pumping action of an oil
well. Corrosion, water cut, grade of oil, sand production and
other factors can also result in frequent failures of downhole
equipment.
The need for maintenance activity does not directly depend on
the level of drilling activity, although it is somewhat impacted
by short-term fluctuations in oil and gas prices. Demand for our
maintenance services is affected by changes in the total number
of producing oil and gas wells in our geographic service areas.
Accordingly, maintenance services generally experience
relatively stable demand.
Our regular well maintenance services involve relatively
low-cost, short-duration jobs which are part of normal well
operating costs. Demand for well maintenance is driven primarily
by the production requirements of the local oil or gas fields
and, to a lesser degree, the actual prices received for oil and
gas. Well operators cannot delay all maintenance work without a
significant impact on production. Operators may, however, choose
to shut in producing wells temporarily when oil or gas prices
are too low to justify additional expenditures, including
maintenance.
Workover. In addition to periodic maintenance,
producing oil and gas wells occasionally require major repairs
or modifications called workovers, which are typically more
complex and more time consuming than maintenance operations.
Workover services include extensions of existing wells to drain
new formations either
60
through perforating the well casing to expose additional
productive zones not previously produced, deepening well bores
to new zones or the drilling of lateral well bores to improve
reservoir drainage patterns. Our workover rigs are also used to
convert former producing wells to injection wells through which
water or carbon dioxide is then pumped into the formation for
enhanced oil recovery operations. Workovers also include major
subsurface repairs such as repair or replacement of well casing,
recovery or replacement of tubing and removal of foreign objects
from the well bore. These extensive workover operations are
normally performed by a workover rig with additional specialized
auxiliary equipment, which may include rotary drilling
equipment, mud pumps, mud tanks and fishing tools, depending
upon the particular type of workover operation. Most of our well
servicing rigs are designed to perform complex workover
operations. A workover may require a few days to several weeks
and generally require additional auxiliary equipment. The demand
for workover services is sensitive to oil and gas
producers intermediate and long-term expectations for oil
and gas prices. As oil and gas prices increase, the level of
workover activity tends to increase as oil and gas producers
seek to increase output by enhancing the efficiency of their
wells.
New Well Completion. New well completion
services involve the preparation of newly drilled wells for
production. The completion process may involve selectively
perforating the well casing in the productive zones to allow oil
or gas to flow into the well bore, stimulating and testing these
zones and installing the production string and other downhole
equipment. We provide well service rigs to assist in this
completion process. Newly drilled wells are frequently completed
by well servicing rigs to minimize the use of higher cost
drilling rigs in the completion process. The completion process
typically requires a few days to several weeks, depending on the
nature and type of the completion, and generally requires
additional auxiliary equipment. Accordingly, completion services
require less
well-to-well
mobilization of equipment and generally provide higher operating
margins than regular maintenance work. The demand for completion
services is directly related to drilling activity levels, which
are sensitive to expectations relating to and changes in oil and
gas prices.
Plugging and Abandonment. Well servicing rigs
are also used in the process of permanently closing oil and gas
wells no longer capable of producing in economic quantities.
Plugging and abandonment work can be performed with a well
servicing rig along with wireline and cementing equipment;
however, this service is typically provided by companies that
specialize in plugging and abandonment work. Many well operators
bid this work on a turnkey basis, requiring the
service company to perform the entire job, including the sale or
disposal of equipment salvaged from the well as part of the
compensation received, and complying with state regulatory
requirements. Plugging and abandonment work can provide
favorable operating margins and is less sensitive to oil and gas
pricing than drilling and workover activity since well operators
must plug a well in accordance with state regulations when it is
no longer productive. We perform plugging and abandonment work
throughout our core areas of operation in conjunction with
equipment provided by other service companies.
Fluid
Services Segment
Our fluid services segment provides oilfield fluid supply,
transportation, storage and construction services. These
services are required in most workover, completion and remedial
projects and are routinely used in daily producing well
operations. These services include:
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transportation of fluids used in drilling and workover
operations and of salt water produced as a by-product of oil and
gas production;
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sale and transportation of fresh and brine water used in
drilling and workover activities;
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rental of portable frac tanks and test tanks used to store
fluids on well sites;
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operation of company-owned fresh water and brine source wells
and of non-hazardous wastewater disposal wells; and
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preparation, construction and maintenance of access roads,
drilling locations, and production facilities.
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61
This segment utilizes our fleet of fluid service trucks and
related assets, including specialized tank trucks, portable
storage tanks, water wells, disposal facilities and related
equipment. The following table sets forth the type, number and
location of the fluid services equipment that we operated at
December 31, 2008:
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Market Area
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Rocky
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Permian
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Ark-La-
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South
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Mid-
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Mountain
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Basin
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Tex
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Texas
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Continent
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Total
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Fluid Service Trucks
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94
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262
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259
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125
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79
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819
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Salt Water Disposal Wells
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0
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19
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24
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|
8
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10
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61
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Fresh/Brine Water Stations
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0
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37
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0
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2
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0
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39
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|
Fluid Storage Tanks
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268
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499
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1,119
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230
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224
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2,340
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|
Requirements for minor or incidental fluid services are usually
purchased on a call out basis and charged according
to a published schedule of rates. Larger projects, such as
servicing the requirements of a multi-well drilling program or
frac program, generally involve a bidding process. We compete
for services both on a call out basis and for multi-well
contract projects.
We provide a full array of fluid sales, transportation, storage
and disposal services required on most workover, completion and
remedial projects. Our breadth of capabilities in this business
segment allows us to serve as a one-stop source for our
customers. Many of our smaller competitors in this segment can
provide some, but not all, of the equipment and services
required by customers, requiring them to use several companies
to meet their requirements and increasing their administrative
burden.
As in our well servicing segment, our fluid services segment has
a base level of business volume related to the regular
maintenance of oil and gas wells. Most oil and gas fields
produce residual salt water in conjunction with oil or gas.
Fluid service trucks pick up this fluid from tank batteries at
the well site and transport it to a salt water disposal well for
injection. This regular maintenance work must be performed if a
well is to remain active. Transportation and disposal of
produced water is considered a low value service by most
operators, and it is difficult for us to command a premium over
rates charged by our competition. Our ability to outperform
competitors in this segment depends on our ability to achieve
significant economies relating to logistics
specifically, proximity between areas where salt water is
produced and our company owned disposal wells. Ownership of
disposal wells eliminates the need to pay third parties a fee
for disposal. We operate salt water disposal wells in most of
our markets.
Workover, completion and remedial activities also provide the
opportunity for higher operating margins from tank rentals and
fluid sales. Drilling and workover jobs typically require fresh
or brine water for drilling mud or circulating fluid used during
the job. Completion and workover procedures often also require
large volumes of water for fracturing operations, a process of
stimulating a well hydraulically to increase production. Spent
mud and flowback fluids are required to be transported from the
well site to an approved disposal facility.
Competitors in the fluid services industry are mostly small,
regionally focused companies. There are currently no companies
that have a dominant position on a nationwide basis. The level
of activity in the fluid services industry is comprised of a
relatively stable demand for services related to the maintenance
of producing wells and a highly variable demand for services
used in the drilling and completion of new wells. As a result,
the level of onshore drilling activity significantly affects the
level of activity in the fluid services industry. While there
are no industry-wide statistics, the Baker Hughes Land Drilling
Rig Count is an indirect indication of demand for fluid services
because it directly reflects the level of onshore drilling
activity.
Fluid Services. We currently own and operate
805 fluid service trucks equipped with a fluid hauling capacity
of up to 150 barrels. Each fluid service truck is equipped
to pump fluids from or into wells, pits, tanks and other storage
facilities. The majority of our fluid service trucks are also
used to transport water to fill frac tanks on well locations,
including frac tanks provided by us and others, to transport
produced salt water to disposal wells, including injection wells
owned and operated by us, and to transport drilling and
completion fluids to and from well locations. In conjunction
with the rental of our frac tanks, we generally use our fluid
service trucks to transport water for use in fracturing
operations. Following completion of fracturing
62
operations, our fluid service trucks are used to transport the
flowback produced as a result of the fracturing operations from
the well site to disposal wells. Fluid service trucks are
generally provided to oilfield operators within a
50-mile
radius of our nearest yard.
Salt Water Disposal Well Services. We own
disposal wells that are permitted to dispose of salt water and
incidental non-hazardous oil and gas wastes. Our transport
trucks frequently transport fluids that are disposed of in these
salt water disposal wells. The disposal wells have injection
capacities ranging up to 3,500 barrels per day. Our salt
water disposal wells are strategically located in close
proximity to our customers producing wells. Most oil and
gas wells produce varying amounts of salt water throughout their
productive lives. In the states in which we operate, oil and gas
wastes and salt water produced from oil and gas wells are
required by law to be disposed of in authorized facilities,
including permitted salt water disposal wells. Injection wells
are licensed by state authorities and are completed in permeable
formations below the fresh water table. We maintain separators
at most of our disposal wells permitting us to salvage residual
crude oil, which is later sold for our account.
Fresh and Brine Water Stations. Our network of
fresh and brine water stations, particularly in the Permian
Basin, where surface water is generally not available, is used
to supply water necessary for the drilling and completion of oil
and gas wells. Our strategic locations, in combination with our
other fluid handling services, give us a competitive advantage
over other service providers in those areas in which these other
companies cannot provide these services.
Fluid Storage Tanks. Our fluid storage tanks
can store up to 500 barrels of fluid and are used by
oilfield operators to store various fluids at the well site,
including fresh water, brine and acid for frac jobs, flowback,
temporary production and mud storage. We transport the tanks on
our trucks to well locations that are usually within a
50-mile
radius of our nearest yard. Frac tanks are used during all
phases of the life of a producing well. We generally rent fluid
services tanks at daily rates for a minimum of three days. A
typical fracturing operation can be completed within four days
using 5 to 50 frac tanks.
Construction Services. We utilize a fleet of
power units, including dozers, trenchers, motor graders,
backhoes and other heavy equipment used in road construction. In
addition, we own rock pits in some markets in our Rocky Mountain
operations to ensure a reliable source of rock to support our
construction activities. Contracts for well site construction
services are normally awarded by our customers on the basis of
competitive bidding and may range in scope from several days to
several months in duration.
Completion
and Remedial Services Segment
Our completion and remedial services segment provides oil and
gas operators with a package of services that include the
following:
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pressure pumping services, such as cementing, acidizing,
fracturing, coiled tubing, nitrogen and pressure testing;
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rental and fishing tools;
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cased-hole wireline services; and
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underbalanced drilling in low pressure and fluid sensitive
reservoirs.
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This segment currently operates 142 pressure pumping units, with
approximately 139,000 of horsepower capacity, to conduct a
variety of services designed to stimulate oil and gas production
or to enable cement slurry to be placed in or circulated within
a well. As of December 31, 2008, we also operated 46 air
compressor packages, including foam circulation units, for
underbalanced drilling and 15 wireline units for cased-hole
measurement and pipe recovery services.
Just as a well servicing rig is required to perform various
operations over the life cycle of a well, there is a similar
need for equipment capable of pumping fluids into the well under
varying degrees of pressure. During the drilling and completion
phase, the well bore is lined with large diameter steel pipe
called casing. Casing is cemented into place by circulating
slurry into the annulus created between the pipe and the rock
63
wall of the well bore. The cement slurry is forced into the well
by pressure pumping equipment located on the surface. Cementing
services are also utilized over the life of a well to repair
leaks in the casing, to close perforations that are no longer
productive and ultimately to plug the well at the
end of its productive life.
A hydrocarbon reservoir is essentially an interval of rock that
is saturated with oil
and/or gas,
usually in combination with water. Three primary factors
determine the productivity of a well that intersects a
hydrocarbon reservoir: porosity the percentage of
the reservoir volume represented by pore space in which the
hydrocarbons reside, permeability the natural
propensity for the flow of hydrocarbons toward the well bore,
and skin the degree to which the portion
of the reservoir in close proximity to the well bore has
experienced reduced permeability as a result of exposure to
drilling fluids or other contaminants. Well productivity can be
increased by artificially improving either permeability or skin
through stimulation methods.
Permeability can be increased through the use of fracturing
methods. The reservoir is subjected to fluids pumped into it
under high pressure. This pressure creates stress in the
reservoir and causes the rock to fracture thereby creating
additional channels through which hydrocarbons can flow. In most
cases, sand or another form of proppant is pumped with the fluid
as a means of holding open the newly created fractures.
The most common means of reducing near-well bore damage, or
skin, is the injection of a highly reactive solvent (such as
hydrochloric acid) solution into the area where the hydrocarbons
enter the well. This solution has the effect of dissolving
contaminants which have accumulated and are restricting flow.
This process is generically known as acidizing.
As a well is drilled, long intervals of rock are left exposed
and unprotected. In order to prevent the exposed rock from
caving and to prevent fluids from entering or leaving the
exposed sections, steel casing is lowered into the hole and
cemented in place. Pressure pumping equipment is utilized to
force cement slurry into the area between the rock face and the
casing, thereby securing it. After a well is drilled and
completed, the casing may develop leaks as a result of abrasion
from production tubing, exposure to corrosive elements or
inadequate support from the original attempt to cement it in
place. When a leak develops, it is necessary to place
specialized equipment into the well and to pump cement in such a
way as to seal the leak. Repairing leaks in this manner is known
as squeeze cementing a method that
utilizes pressure pumping equipment.
The following table sets forth the type, number and location of
the completion and remedial services equipment that we operated
at December 31, 2008:
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Market Area
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Ark-La-
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|
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Mid-
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|
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Rocky
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Permian
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|
|
|
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|
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Tex
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Continent
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Mountain
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Basin
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Total
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Pressure Pumping Units
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|
|
21
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|
|
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118
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|
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|
3
|
|
|
|
0
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|
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142
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|
Coiled Tubing Units
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|
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0
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4
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0
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0
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4
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Air/Foam Packages
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0
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6
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34
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6
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46
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|
Wireline Units
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|
|
0
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15
|
|
|
|
0
|
|
|
|
0
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|
|
|
15
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|
Rental and Fishing Tool Stores
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|
|
0
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|
9
|
|
|
|
3
|
|
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|
8
|
|
|
|
20
|
|
Our pressure pumping business focuses primarily on lower
horsepower cementing, acidizing and fracturing services markets.
Currently, there are several pressure pumping companies that
provide their services on a national basis. For the most part,
these companies have concentrated their assets in markets
characterized by complex work with higher horsepower
requirements. This has created an opportunity in the markets for
pressure pumping services in mature areas with less complex
characteristics and lower horsepower requirements. We, along
with a number of smaller, regional companies, have concentrated
our efforts on these markets. Two of our major well servicing
competitors also participate in the pressure pumping business,
but primarily outside our core areas of operations for pumping
services.
Like our fluid services business, the level of activity of our
pressure pumping business is tied to drilling and workover
activity. The bulk of pressure pumping work is associated with
cementing casing in place as the well is drilled or pumping
fluid that stimulates production from the well during the
completion phase. Pressure pumping work is awarded based on a
combination of price and expertise.
64
Our rental and fishing tool business provides a range of
specialized services and equipment that are utilized on a
non-routine basis for both drilling and well servicing
operations. Drilling and well servicing rigs are equipped with a
complement of tools to complete routine operations under normal
conditions for most projects in the geographic area where they
are employed. When downhole problems develop with drilling or
servicing operations, or conditions require non-routine
equipment, our customers will usually rely on a provider of
rental and fishing tools to augment equipment that is provided
with a typical drilling or well servicing rig package.
The term fishing applies to a wide variety of
downhole operations designed to correct a problem that has
developed when drilling or servicing a well. Most commonly the
problem involves equipment that has become lodged in the well
and cannot be removed without special equipment. Our customers
employ our technicians and our tools that are specifically
suited to retrieve the trapped equipment, or fish,
in order for operations to resume.
Cased-hole wireline services typically utilize a single truck
equipped with a spool of wireline that is used to lower and
raise a variety of specialized tools in and out of a cased
wellbore. These tools can be used to measure pressures and
temperatures as well as the condition of the casing and the
cement that holds the casing in place. Other applications for
wireline tools include placing equipment in or retrieving
equipment from the wellbore, or perforating the casing and
cutting off pipe that is stuck in the well so that the free
section can be recovered. Electric wireline contains a conduit
that allows signals to be transmitted to or from tools located
in the well. A simpler form of wireline, slickline, lacks an
electrical conduit and is used only to perform mechanical tasks
such as setting or retrieving various tools. Wireline trucks are
often used in place of a well servicing rig when there is no
requirement to remove tubulars from the well in order to make
repairs. Wireline trucks, like well servicing rigs, are utilized
throughout the life of a well.
Underbalanced drilling services, unlike pressure pumping and
wireline services, are not utilized universally throughout oil
and gas operations. Underbalanced drilling is a technique that
involves maintaining the pressure in a well at or slightly below
that of the surrounding formation using air, nitrogen, mist,
foam or lightweight drilling fluids instead of conventional
drilling fluid. The most common method of reducing the weight of
drilling fluid is to mix it with air as the fluid is pumped into
the well. By varying the volume of air pumped with the fluid,
the net hydrostatic pressure can be adjusted to the desired
level. In extreme cases, air alone can be used to circulate rock
cuttings from the well.
Contract
Drilling Segment
Our contract drilling segment employs drilling rigs and related
equipment to penetrate the earth to a desired depth and initiate
production.
We own and operate nine land drilling rigs, which are currently
deployed in the Permian Basin of Texas and New Mexico. A land
drilling rig generally consists of engines, a drawworks, a mast,
pumps to circulate the drilling fluid (mud) under various
pressures, blowout preventers, drill string, and related
equipment. The engines power the different pieces of equipment,
including a rotary table or top drives that turns the drill
string, causing the drill bit to bore through the subsurface
rock layers. These jobs are typically bid by daywork
contracts, in which an agreed upon rate per day is charged to
the customer, or footage contracts, in which an
agreed upon rate per the number of feet drilled is charged to
the customer. The demand for drilling services is highly
dependent on the availability of new drilling locations
available to well operators, as well as sensitivity to
expectations relating to and changes in oil and gas prices.
Our drilling rig services grew significantly in 2007 with the
acquisition of Sledge Drilling in April. We acquired six
drilling rigs in this acquisition.
Properties
Our principal executive offices are located at
500 W. Illinois, Suite 100, Midland, Texas 79701.
We currently conduct our business from 115 area offices, 59 of
which we own and 56 of which we lease. Each office typically
includes a yard, administrative office and maintenance facility.
Of our 115 area offices, 72 are
65
located in Texas, 11 are in Oklahoma, nine are in New Mexico,
six are in Wyoming, four are in Colorado, four are in Louisiana,
three are in North Dakota, two are in Montana, two are in
Kansas, one is in Arkansas and one is in Utah.
Customers
We serve numerous major and independent oil and gas companies
that are active in our core areas of operations. During 2008, no
single customer comprised over 5% of our total revenues. The
majority of our business is with independent oil and gas
companies. Based on current lower utilization rates and the
current market environment, we may not be able to redeploy
equipment if we lost any material customers, and such loss could
have an adverse effect on our business until the equipment is
redeployed.
Operating
Risks and Insurance
Our operations are subject to hazards inherent in the oil and
gas industry, such as accidents, blowouts, explosions,
craterings, fires and oil spills that can cause:
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personal injury or loss of life;
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damage to or destruction of property and equipment (including
the collateral securing the notes) and the environment; and
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suspension of operations.
|
In addition, claims for loss of oil and gas production and
damage to formations can occur in the well services industry. If
a serious accident were to occur at a location where our
equipment and services are being used, it could result in our
being named as a defendant in lawsuits asserting large claims.
Because our business involves the transportation of heavy
equipment and materials, we may also experience traffic
accidents which may result in spills, property damage and
personal injury.
Despite our efforts to maintain high safety standards, we from
time to time have suffered accidents in the past and anticipate
that we could experience accidents in the future. In addition to
the property and personal losses from these accidents, the
frequency and severity of these incidents affect our operating
costs and insurability and our relationships with customers,
employees and regulatory agencies. Any significant increase in
the frequency or severity of these incidents, or the general
level of damage awards, could adversely affect the cost of, or
our ability to obtain, workers compensation and other
forms of insurance, and could have other material adverse
effects on our financial condition and results of operations.
Although we maintain insurance coverage of types and amounts
that we believe to be customary in the industry, we are not
fully insured against all risks, either because insurance is not
available or because of the high premium costs. We do maintain
employers liability, pollution, cargo, umbrella,
comprehensive commercial general liability, workers
compensation and limited physical damage insurance. There can be
no assurance, however, that any insurance obtained by us will be
adequate to cover any losses or liabilities, or that this
insurance will continue to be available or available on terms
which are acceptable to us. Liabilities for which we are not
insured, or which exceed the policy limits of our applicable
insurance, could have a material adverse effect on us.
Competition
Our competition includes small regional contractors as well as
larger companies with international operations. We believe our
two largest competitors, Key Energy Services, Inc. and Nabors
Well Services Co., combined own approximately 44% of the
U.S. marketable well servicing rigs according to the most
recent publicly available data including the Guiberson-AESC well
service rig count. Both of these competitors are public
companies or subsidiaries of public companies that operate in
most of the large oil and gas producing regions in the
U.S. These competitors have centralized management teams
that direct their operations and decision-making primarily from
corporate and regional headquarters. In addition, because of
their size, these companies market a large portion of their work
to the major oil and gas companies.
66
We differentiate ourselves from our major competition by our
operating philosophy. We operate a decentralized organization,
where local management teams are largely responsible for sales
and operations to develop stronger relationships with our
customers at the field level. We target areas that are
attractive to independent oil and gas operators who in our
opinion tend to be more aggressive in spending, less focused on
price and more likely to award work based on performance. With
the major oil and gas companies divesting mature
U.S. properties, we expect our target customers well
population to grow over time through acquisition of properties
formerly operated by major oil and gas companies. We concentrate
on providing services to a diverse group of large and small
independent oil and gas companies. These independents typically
are relationship driven, make decisions at the local level and
are willing to pay higher rates for services. We have been
successful using this business model and believe it will enable
us to continue to grow our business and maintain or expand our
operating margins.
Safety
Program
Our business involves the operation of heavy and powerful
equipment which can result in serious injuries to our employees
and third parties and substantial damage to property. We have
comprehensive safety and training programs designed to minimize
accidents in the workplace and improve the efficiency of our
operations. In addition, many of our larger customers now place
greater emphasis on safety and quality management programs of
their contractors. We believe that these factors will gain
further importance in the future. We have directed substantial
resources toward employee safety and quality management training
programs as well as our employee review process. While our
efforts in these areas are not unique, we believe many
competitors, and particularly smaller contractors, have not
undertaken similar training programs for their employees.
We believe our approach to safety management is consistent with
our decentralized management structure. Company-mandated
policies and procedures provide the overall framework to ensure
our operations minimize the hazards inherent in our work and are
intended to meet regulatory requirements, while allowing our
operations to satisfy customer-mandated policies and local needs
and practices.
Environmental
Regulation
Our operations are subject to stringent federal, state and local
laws regulating the discharge of materials into the environment
or otherwise relating to health and safety or the protection of
the environment. Numerous governmental agencies, such as the
U.S. Environmental Protection Agency, commonly referred to
as the EPA, issue regulations to implement and
enforce these laws, which often require difficult and costly
compliance measures. Failure to comply with these laws and
regulations may result in the assessment of substantial
administrative, civil and criminal penalties, as well as the
issuance of injunctions limiting or prohibiting our activities.
We are currently involved in negotiations with the District
Attorneys office in Jefferson County, Texas, regarding an
alleged unauthorized discharge into or adjacent to waters in the
state from one of our land farms in Jefferson County that could
result in criminal sanctions, but we do not believe that this
matter will have a material effect on our results of operations
or financial condition. In addition, some laws and regulations
relating to protection of the environment may, in certain
circumstances, impose strict liability for environmental
contamination, rendering a person liable for environmental
damages and cleanup costs without regard to negligence or fault
on the part of that person. Strict adherence with these
regulatory requirements increases our cost of doing business and
consequently affects our profitability. While acknowledging the
current proceeding in Jefferson County, Texas, we believe that
we are in substantial compliance with current applicable
environmental laws and regulations and that continued compliance
with existing requirements will not have a material adverse
impact on our operations. However, environmental laws and
regulations have been subject to frequent changes over the
years, and the imposition of more stringent requirements could
have a materially adverse effect upon our capital expenditures,
earnings or our competitive position.
The Comprehensive Environmental Response, Compensation and
Liability Act, referred to as CERCLA or the
Superfund law, and comparable state laws impose liability,
without regard to fault on certain classes of persons that are
considered to be responsible for the release of a hazardous
substance into the environment.
67
These persons include the current or former owner or operator of
the disposal site or sites where the release occurred and
companies that disposed or arranged for the disposal of
hazardous substances that have been released at the site. Under
CERCLA, these persons may be subject to joint and several
liability for the costs of investigating and cleaning up
hazardous substances that have been released into the
environment, for damages to natural resources and for the costs
of some health studies. In addition, companies that incur
liability frequently confront additional claims because it is
not uncommon for neighboring landowners and other third parties
to file claims for personal injury and property damage allegedly
caused by hazardous substances or other pollutants released into
the environment.
The federal Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976, referred to as
RCRA, generally does not regulate most wastes
generated by the exploration and production of oil and natural
gas because that act specifically excludes drilling fluids,
produced waters and other wastes associated with the
exploration, development or production of oil and gas from
regulation as hazardous wastes. However, these wastes may be
regulated by the EPA or state agencies as non-hazardous wastes
as long as these wastes are not commingled with regulated
hazardous wastes. Moreover, in the ordinary course of our
operations, industrial wastes such as paint wastes and waste
solvents as well as wastes generated in the course of our
providing well services may be regulated as hazardous waste
under RCRA or hazardous substances under CERCLA.
We currently own or lease, and have in the past owned or leased,
a number of properties that have been used for many years as
service yards in support of oil and natural gas exploration and
production activities. Although we have utilized operating and
disposal practices that were standard in the industry at the
time, there is the possibility that repair and maintenance
activities on rigs and equipment stored in these service yards,
as well as well bore fluids stored at these yards, may have
resulted in the disposal or release of hydrocarbons or other
wastes on or under these yards or other locations where these
wastes have been taken for disposal. In addition, we own or
lease properties that in the past were operated by third parties
whose operations were not under our control. These properties
and the hydrocarbons or wastes disposed thereon may be subject
to CERCLA, RCRA and analogous state laws. Under these laws, we
could be required to remove or remediate previously disposed
wastes or property contamination. We believe that we are in
substantial compliance with the requirements of CERCLA and RCRA.
Our operations are also subject to the federal Clean Water Act
and analogous state laws. Under the Clean Water Act, the EPA has
adopted regulations concerning discharges of storm water runoff.
This program requires covered facilities to obtain individual
permits, or seek coverage under a general permit. Some of our
properties may require permits for discharges of storm water
runoff and, as part of our overall evaluation of our current
operations, we are applying for storm water discharge permit
coverage and updating storm water discharge management practices
at some of our facilities. We believe that we will be able to
obtain, or be included under, these permits, where necessary,
and make minor modifications to existing facilities and
operations that would not have a material effect on us.
The federal Clean Water Act and the federal Oil Pollution Act of
1990, which contains numerous requirements relating to the
prevention of and response to oil spills into waters of the
United States, require some owners or operators of facilities
that store or otherwise handle oil to prepare and implement
spill prevention, control and countermeasure plans, also
referred to as SPCC plans, relating to the possible
discharge of oil into surface waters. In the course of our
ongoing operations, we recently updated and implemented SPCC
plans for several of our facilities. We believe we are in
substantial compliance with these regulations.
Our underground injection operations are subject to the federal
Safe Drinking Water Act, as well as analogous state and local
laws and regulations. Under Part C of the Safe Drinking
Water Act, the EPA established the Underground Injection Control
program, which established the minimum program requirements for
state and local programs regulating underground injection
activities. The Underground Injection Control program includes
requirements for permitting, testing, monitoring, record keeping
and reporting of injection well activities, as well as a
prohibition against the migration of fluid containing any
contaminant into underground sources of drinking water. The
substantial majority of our saltwater disposal wells are located
in
68
the State of Texas and regulated by the Texas Railroad
Commission, also known as the RRC. We also operate
salt water disposal wells in Oklahoma and Wyoming and are
subject to similar regulatory controls in those states.
Regulations in these states require us to obtain a permit from
the applicable regulatory agencies to operate each of our
underground injection wells. We believe that we have obtained
the necessary permits from these agencies for each of our
underground injection wells and that we are in substantial
compliance with permit conditions and commission rules.
Nevertheless, these regulatory agencies have the general
authority to suspend or modify one or more of these permits if
continued operation of one of our underground injection wells is
likely to result in pollution of freshwater, substantial
violation of permit conditions or applicable rules, or leaks to
the environment. Although we monitor the injection process of
our wells, any leakage from the subsurface portions of the
injection wells could cause degradation of fresh groundwater
resources, potentially resulting in cancellation of operations
of a well, issuance of fines and penalties from governmental
agencies, incurrence of expenditures for remediation of the
affected resource and imposition of liability by third parties
for property damages and personal injuries. In addition, our
sales of residual crude oil collected as part of the saltwater
injection process could impose liability on us in the event that
the entity to which the oil was transferred fails to manage the
residual crude oil in accordance with applicable environmental
health and safety laws.
The Clean Air Act and comparable state laws restrict the
emission of air pollutants from many sources in the United
States. These laws and any implementing regulations may require
us to obtain pre-approval for the construction or modification
of certain projects or facilities expected to produce air
emissions, impose stringent air permit requirements, or utilize
specific equipment or technologies to control emissions. We
believe we are in sufficient compliance with the Clean Air Act.
There are a variety of regulatory developments arising in the
United States that are focused on restricting the emission of
carbon dioxide, methane and other greenhouse gases that may be
contributing to warming of the Earths atmosphere. Among
these developments are the Regional Greenhouse Gas Initiative or
RGGI in the Northeastern United States, the Western
Regional Climate Action Initiative in the Western United States,
including partners states New Mexico, Utah, and Montana and
observer states Colorado and Wyoming, and
legislation the American Clean Energy and Security
Act of 2009 that has already been passed by the
House of Representatives in Congress that, if adopted, could
restrict the emission of greenhouse gases. Also, in 2007, the
U.S. Supreme Court held in Massachusetts, et al. v.
EPA that greenhouse gases are an air pollutant
under the federal Clean Air Act and thus subject to future
regulation by the EPA. These developments could curtail the
demand for fossil fuels such as oil and gas in areas of the
United States where our customers operate and thus adversely
affect demand for our services.
We maintain insurance against some risks associated with
underground contamination that may occur as a result of well
service activities. However, this insurance is limited to
activities at the wellsite and there can be no assurance that
this insurance will continue to be commercially available or
that this insurance will be available at premium levels that
justify its purchase by us. The occurrence of a significant
event that is not fully insured or indemnified against could
have a materially adverse effect on our financial condition and
operations.
We are also subject to the requirements of the federal
Occupational Safety and Health Act, or OSHA, and
comparable state statutes that regulate the protection of the
health and safety of workers. In addition, the OSHA hazard
communication standard requires that information be maintained
about hazardous materials used or produced in operations and
that this information be provided to employees, state and local
government authorities and the public. We believe that our
operations are in substantial compliance with the OSHA
requirements, including general industry standards, record
keeping requirements, and monitoring of occupational exposure to
regulated substances.
Employees
As of June 30, 2009, we employed approximately
3,900 people, with approximately 80% employed on an hourly
basis. Our future success will depend partially on our ability
to attract, retain and motivate qualified personnel. We are not
a party to any collective bargaining agreements, and we consider
our relations with our employees to be satisfactory.
Legal
Proceedings
From time to time, we are a party to litigation or other legal
proceedings that we consider to be a part of the ordinary course
of business. We are not currently involved in any legal
proceedings that we consider probable or reasonably possible,
individually or in the aggregate, to result in a material
adverse effect on our financial condition, results of operations
or liquidity.
69
MANAGEMENT
Executive
Officers and Directors
The following table sets forth certain information with respect
to our executive officers and directors. As of August 28,
2009, their respective ages and positions are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Kenneth V. Huseman
|
|
|
57
|
|
|
President, Chief Executive Officer and Director
|
Alan Krenek
|
|
|
54
|
|
|
Senior Vice President, Chief Financial Officer, Treasurer and
Secretary
|
T.M. Roe Patterson
|
|
|
35
|
|
|
Senior Vice President Rig and Truck Operations
|
James F. Newman
|
|
|
45
|
|
|
Group Vice President Completion and Remedial Services
|
Stephen J. McCoy
|
|
|
54
|
|
|
Vice President Contract Drilling
|
Charles W. Swift
|
|
|
61
|
|
|
Vice President Gulf Coast Region
|
Mark D. Rankin
|
|
|
56
|
|
|
Vice President Risk Management
|
James E. Tyner
|
|
|
59
|
|
|
Vice President Human Resources
|
Steven A. Webster
|
|
|
57
|
|
|
Chairman of the Board
|
Sylvester P. Johnson, IV
|
|
|
53
|
|
|
Director
|
William E. Chiles
|
|
|
60
|
|
|
Director
|
Robert F. Fulton
|
|
|
58
|
|
|
Director
|
James S. DAgostino
|
|
|
63
|
|
|
Director
|
Thomas P. Moore, Jr.
|
|
|
70
|
|
|
Director
|
Antonio O. Garza, Jr.
|
|
|
50
|
|
|
Director
|
Kenneth V. Huseman (President Chief Executive
Officer and Director) has 30 years of well servicing
experience. He has been our President and Chief Executive
Officer and a Director since 1999. Prior to joining Basic, he
was Chief Operating Officer at Key Energy Services from 1996 to
1999. He was a Divisional Vice President at WellTech, Inc., from
1993 to 1996. From 1978 to 1993, he was employed at Pool Energy
Services Co., where he managed operations throughout the United
States, including drilling operations in Alaska.
Mr. Huseman graduated with a B.B.A. degree in Accounting
from Texas Tech University.
Alan Krenek (Senior Vice President, Chief Financial Officer,
Treasurer and Secretary) has 21 years of related
industry experience. He has been our Vice President, Chief
Financial Officer and Treasurer since January 2005. He became
Senior Vice President and Secretary in May 2006. From October
2002 to January 2005, he served as Vice President and Controller
of Fleetwood Retail Corp., a subsidiary in the manufactured
housing division of Fleetwood Enterprises, Inc. He worked in
various financial management positions at Pool Energy Services
Co. from 1980 to 1993 and at Noble Corporation from 1993 to
1995. Mr. Krenek graduated with a B.B.A. degree in
Accounting from Texas A&M University and is a certified
public accountant.
T. M. Roe Patterson (Senior Vice
President Rig and Truck Operations) has
14 years of related industry experience. He has been our
Senior Vice President of Rig and Truck operations since
September 2008, and has been the Vice President of various
different groups within Basic since February 2006. Prior to
joining us, he was president of his own manufacturing and
oilfield service company, TMP Companies, Inc., from 2000 to
2006. He was a Contracts/Sales Manager for the Permian Division
of Patterson Drilling Company from 1996 to 2000. He was an
Engine Sales Manager for West Texas Caterpillar from 1995 to
1996. Mr. Patterson graduated with a B.S. degree in Biology
from Texas Tech University.
James F. Newman (Group Vice President Completion
and Remedial Services) has 24 years of related industry
experience and has been our Group Vice President of Completion
and Remedial Services since September 2008. Prior to joining
Basic, he co-founded Triple N Services in 1986 and served as its
President thru May 2008. He initially served Basic as an Area
Manager in the plugging and abandonment operations.
70
Mr. Newman is a registered Professional Engineer and is
active in the Society of Professional Engineers. Mr. Newman
graduated with a BSc in Petroleum Engineering from Colorado
School of Mines.
Stephen J. McCoy (Vice President Contract
Drilling) has 33 years of related industry experience.
Mr. McCoy has served as our Vice President
Contract Drilling since February 2009 after serving as our Vice
President Contracts since joining the company in
June 2008. Prior to joining us, he was the Chief Operating
Officer of H&M Resources from August 2007 to June 2008 and
handled various operating duties in drilling and operating wells
in the Permian Basin. He served as Vice President of Marketing
for Patterson-UTI over their Permian Basin Division and in other
various capacities from November 1996 until July of 2007 after
Patterson Drilling purchased Gene Sledge Drilling Company.
Mr. McCoy started with the Western Company in January 1978
before joining Cactus Drilling Corporation as a Contract
Representative in October 1978 until May 1991. He joined
Ranchland Rental Tools as Vice President of Marketing in 1991
and worked there through the mergers of Triumph Tools and Total
Energy and then as District Manager for Enterras drilling
tool division until joining Nabors Drilling as a Contracts
Manager in January 1996. Mr. McCoy graduated with a B.B.A.
degree in Business Management from Texas Tech University.
Charles W. Swift (Vice President Gulf Coast
Region) has 36 years of related industry experience,
including 27 years specifically in the domestic well
service business. Mr. Swift has been our Vice
President Gulf Coast Region since March 2009. He
served as Senior Vice President Operations Support
from November 2008 until March 2009. He was our Senior Vice
President Rig and Truck Operations from
July 2006 to November 2008. He has served as a Vice
President since 1997 and was involved in integrating several
acquisitions during our expansion phase in late 1997. He was a
co-owner of S&N Well Service from 1986 to 1997 and expanded
the business to 17 rigs at the time of sale of the Company to
us. From 1980 to 1986, he worked at Pool Energy Services Co.
where he managed well service and fluid services businesses.
Mr. Swift graduated with a B.B.A. degree in International
Trade from Texas Tech University.
Mark D. Rankin (Vice President Risk Management)
has 31 years of related industry experience. He has
been a Vice President since 2004. From 1997 to 2004, he was a
consultant to oil and gas companies and was involved in
operations research and work process redesign. From 1985 to
1995, he acted as Director of International Marketing and
Marketing for U.S. Operations and a District Manager at
Pool Energy Services Co. He was an International Sales Manager
and Director of Planning and Market Research at Zapata Off-Shore
Company from 1979 to 1985. From 1977 to 1979, he was a Contract
Manager at Western Oceanic, Inc. He graduated with a B.A. in
Political Science from Texas A&M University.
James E. Tyner (Vice President Human Resources)
has been a Vice President since January 2004. From 1999 to
June 2003, he was the General Manager of Human Resources at CMS
Panhandle Companies, where he directed delivery of HR Services.
Mr. Tyner was the Director of Human Resources
Administration and Payroll Services at Duke Energys Gas
Transmission Group from 1998 to 1999. From 1981 to 1998,
Mr. Tyner held various positions at Panhandle Eastern
Corporation. At Panhandle, he managed all Human Resources
functions and developed corporate policies and as a Certified
Safety Professional, he designed and implemented programs to
control workplace hazards. Mr. Tyner received a B.S. in
General Science and M.S. in Microbiology from Mississippi State
University.
Steven A. Webster (Chairman of the
Board). Mr. Webster has served as a director
of Basic Energy Services since 2001. Mr. Webster has served
as Co-Managing Partner and President of Avista Capital Holdings,
L.P., a private equity firm focused on investments in the
energy, media and healthcare sectors, since July 1, 2005.
From 2000 until June 30, 2005, Mr. Webster served as
Chairman of Global Energy Partners, a specialty group within
Credit Suisses Alternative Capital Division that made
investments in energy companies. From 1998 to 1999,
Mr. Webster served as Chief Executive Officer and President
of R&B Falcon Corporation, and from 1988 to 1998,
Mr. Webster served as Chairman and Chief Executive Officer
of Falcon Drilling Company, both offshore drilling contractors.
Mr. Webster serves as Chairman of Carrizo Oil &
Gas, Inc. and as a director of SEACOR Holdings Inc., Hercules
Offshore, Inc., Camden Property Trust, Geokinetics, Inc. and
various privately held companies. Mr. Webster was the
founder and an original shareholder of Falcon, a predecessor to
Transocean, Inc., and was a co-founder and original shareholder
of Carrizo. Mr. Webster holds a B.S.I.M. from Purdue
University and an M.B.A. from Harvard Business School.
71
Sylvester P. Johnson, IV
(Director). Mr. Johnson has served as a
director of Basic Energy Services since 2001. Mr. Johnson
has served as President and Chief Executive Officer and a
director of Carrizo Oil & Gas, Inc. since December
1993. Prior to that, he worked for Shell Oil Company for
15 years. His managerial positions included Operations
Superintendent, Manager of Planning and Finance and Manager of
Development Engineering. Mr. Johnson is a director of
Pinnacle Gas Resources, Inc. Mr. Johnson is a Registered
Petroleum Engineer and has a B.S. in Mechanical Engineering from
the University of Colorado.
William E. Chiles (Director). Mr. Chiles
has served as a director of Basic Energy Services since 2003.
Mr. Chiles has served as the Chief Executive Officer and
President and a director of Bristow Group Inc. (formerly
Offshore Logistics, Inc.), a provider of helicopter
transportation services to the worldwide offshore oil and gas
industry, since July 2004. Mr. Chiles served as Executive
Vice President and Chief Operating Officer of Grey Wolf, Inc.
from March 2003 until June 2004. Mr. Chiles served as Vice
President of Business Development at ENSCO International
Incorporated from August 2002 until March 2003. From August 1997
until its merger into an ENSCO International affiliate in August
2002, Mr. Chiles served as President and Chief Executive
Officer of Chiles Offshore Inc. Mr. Chiles has a B.B.A. in
Petroleum Land Management from the University of Texas and an
M.B.A. in Finance and Accounting with honors from Southern
Methodist University, Dallas.
Robert F. Fulton (Director). Mr. Fulton
has served as a director of Basic Energy Services since 2001.
Mr. Fulton has served as President and Chief Executive
Officer of Frontier Drilling ASA, an offshore oil and gas
drilling and production contractor, since September 2002. From
December 2001 to August 2002, Mr. Fulton managed personal
investments. Prior to December 2001, Mr. Fulton spent most
of his business career in the energy service and contract
drilling industry. He served as Executive Vice President and
Chief Financial Officer of Merlin Offshore Holdings, Inc. from
August 1999 until November 2001. From 1998 to June 1999,
Mr. Fulton served as Executive Vice President of Finance
for R&B Falcon Corporation, during which time he closed the
merger of Falcon Drilling Company with Reading & Bates
Corporation to create R&B Falcon Corporation and then the
merger of R&B Falcon Corporation with Cliffs Drilling
Company. He graduated with a B.S. degree in Accountancy from the
University of Illinois and an M.B.A. in finance from
Northwestern University.
James S. DAgostino
(Director). Mr. DAgostino has served
as a director of Basic Energy Services since 2004.
Mr. DAgostino serves as Chairman of the Board,
President and Chief Executive Officer of Encore Bancshares,
Inc., a banking, wealth management and insurance services
holding company currently listed on the NASDAQ Global Market,
and has served in such capacities for its subsidiary, Encore
Bank, N.A., since November 1999. From 1998 to 1999,
Mr. DAgostino served as Vice Chairman and Group
Executive, and from 1997 until 1998, he served as President,
Member of the Office of Chairman and a director, of American
General Corporation. Mr. DAgostino graduated with an
economics degree from Villanova University and a J.D. from Seton
Hall University School of Law.
Thomas P. Moore, Jr.
(Director). Mr. Moore has served as a
director of Basic Energy Services since 2005. Mr. Moore was
a Senior Principal of State Street Global Advisors, the head of
Global Fundamental Strategies, and a member of the Senior
Management Group from 2001 through July 2005. Mr. Moore
retired from this position in July 2005. From 1986 through 2001,
he was a Senior Vice President of State Street
Research & Management Company and was head of the
State Street Research International Equity Team. From 1977 to
1986 he served in positions of increasing responsibility with
Petrolane, Inc., including Administrative Vice President
(1977-1981),
President of Drilling Tools, Inc., an oilfield equipment rental
subsidiary
(1981-1984),
and President of Brinkerhoff-Signal, Inc., an oil well contract
drilling subsidiary
(1984-1986).
Mr. Moore is a Chartered Financial Analyst and holds an
M.B.A. degree from Harvard Business School.
Antonio O. Garza, Jr.
(Director). Mr. Garza was appointed as a
director of Basic Energy Services in 2009. Mr. Garza joined
ViaNovo, a management and communications consultancy, as a
partner in June 2009 and also serves as the chair of its new
business enterprise, ViaNovo Ventures. Additionally,
Mr. Garza currently acts as Counsel in the Mexico City
office of White & Case, an international practice law
firm. Prior to joining ViaNovo and White & Case,
Mr. Garza served as U.S. Ambassador to Mexico from the
summer of 2002 to May 2009. In 1998, Mr. Garza was elected
to the Texas Railroad Commission and served as Chairman of the
Commission from 1999 to 2002. Mr. Garza holds a B.B.A. from
The University of Texas at Austin and a J.D. from Southern
Methodist University School of Law.
72
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of common
stock beneficially owned as of August 28, 2009 by
(1) all persons who beneficially own more than 5% of the
outstanding voting securities of the Company, to the knowledge
of the Companys management, (2) each current
director, (3) each executive officer named in the Summary
Compensation Table and (4) all current directors and
executive officers as a group.
|
|
|
|
|
|
|
|
|
|
|
Amount and
|
|
|
|
|
|
|
Nature of
|
|
|
Percent of
|
|
|
|
Beneficial
|
|
|
Shares
|
|
Name
|
|
Ownership
|
|
|
Outstanding
|
|
|
DLJ Merchant Banking Partners III, L.P. and affiliated funds(1)
|
|
|
18,059,424
|
|
|
|
44.4
|
%
|
FMR LLC(2)
|
|
|
4,000,000
|
|
|
|
9.8
|
%
|
Barclays Global Investors, NA.(3)
|
|
|
2,372,189
|
|
|
|
5.8
|
%
|
Kenneth V. Huseman(4)
|
|
|
882,873
|
|
|
|
2.2
|
%
|
Alan Krenek(5)
|
|
|
182,290
|
|
|
|
*
|
|
Charles W. Swift(6)
|
|
|
193,006
|
|
|
|
*
|
|
T.M. Roe Patterson(7)
|
|
|
63,360
|
|
|
|
*
|
|
James E. Tyner(8)
|
|
|
36,477
|
|
|
|
*
|
|
James F. Newman(9)
|
|
|
28,475
|
|
|
|
*
|
|
Mark D. Rankin(10)
|
|
|
55,881
|
|
|
|
*
|
|
Douglas B. Rogers(11)
|
|
|
24,749
|
|
|
|
*
|
|
Stephen J. McCoy(12)
|
|
|
5,488
|
|
|
|
*
|
|
Steven A. Webster(13)(14)
|
|
|
302,750
|
|
|
|
*
|
|
James S. DAgostino, Jr.(13)(15)
|
|
|
84,950
|
|
|
|
*
|
|
William E. Chiles(13)(16)
|
|
|
20,750
|
|
|
|
*
|
|
Robert F. Fulton(13)(17)
|
|
|
100,750
|
|
|
|
*
|
|
Sylvester P. Johnson, IV(13)(17)
|
|
|
100,750
|
|
|
|
*
|
|
Thomas P. Moore, Jr.(13)(18)
|
|
|
105,000
|
|
|
|
*
|
|
Antonio O. Garza, Jr.(19)
|
|
|
37,500
|
|
|
|
*
|
|
Directors and Executive Officers as a Group (16 persons)(20)
|
|
|
2,225,049
|
|
|
|
5.4
|
%
|
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
Includes 18,059,424 shares of common stock owned by DLJ
Merchant Banking and its affiliates as follows: DLJ Merchant
Banking Partners III, L.P. (12,650,117 shares); DLJ ESC II,
L.P. (1,493,185 shares); DLJ Offshore Partners III, C.V.
(884,531 shares); DLJ Offshore Partners III-1, C.V.
(228,284 shares); DLJ Offshore Partners III-2, C.V.
(162,622 shares); DLJMB Partners III GmbH &
Co. KG (107,898 shares); DLJMB Funding III, Inc.
(132,220 shares); Millennium Partners II, L.P.
(21,516 shares); MBP III Plan Investors, L.P.
(2,379,051 shares). |
|
|
|
Credit Suisse, a Swiss bank, owns the majority of the voting
stock of Credit Suisse Holdings (USA), Inc., a Delaware
corporation which in turn owns all of the voting stock of Credit
Suisse (USA) Inc., a Delaware corporation (CS-USA).
The entities discussed in the above paragraph are merchant
banking funds managed by indirect subsidiaries of CS-USA and
form part of Credit Suisses Alternative Capital Division.
The ultimate parent company of Credit Suisse is Credit Suisse
Group (CSG). CSG disclaims beneficial ownership of
the reported common stock that is beneficially owned by its
direct and indirect subsidiaries. Steven A. Webster served as
the Chairman of Global Energy Partners, a specialty group within
Credit Suisses Alternative Capital Division, from 1999
until June 30, 2005. |
|
|
|
All of the DLJ Merchant Banking entities can be contacted at
Eleven Madison Avenue, New York, New York
10010-3629
except for the three Offshore Partners entities,
which can be contacted at John B. Gosiraweg, 14,
Willemstad, Curacao, Netherlands Antilles. |
73
|
|
|
(2) |
|
Fidelity Management & Research Company
(Fidelity), a wholly-owned subsidiary of FMR LLC, is
the beneficial owner of all 4,000,000 shares as a result of
acting as investment adviser to various investment companies
registered under Section 8 of the Investment Company Act of
1940. The ownership of one investment company, Fidelity Low
Priced Stock Fund, amounted to 4,000,000 shares of common
stock. Edward C. Johnson 3d and FMR LLC, through its control of
Fidelity, and the funds each has sole power to dispose of the
4,000,000 shares owned by Fidelity. |
|
|
|
Members of the family of Edward C. Johnson 3d, Chairman of FMR
LLC, are the predominant owners, directly or through trusts, of
Series B voting common shares of FMR LLC, representing 49%
of the voting power of FMR LLC. The Johnson family group and all
other Series B shareholders have entered into a
shareholders voting agreement under which all
Series B voting common shares will be voted in accordance
with the majority vote of Series B voting common shares.
Accordingly, through their ownership of voting common shares and
the execution of the shareholders voting agreement,
members of the Johnson family may be deemed, under the
Investment Company Act of 1940, to form a controlling group with
respect to FMR LLC. Neither FMR LLC nor Edward C. Johnson 3d,
Chairman of FMR LLC, has the sole power to vote or direct the
voting of the shares owned directly by the Fidelity Funds, which
power resides with the Funds Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines
established by the Funds Boards of Trustees. FMR
LLCs address is 82 Devonshire Street, Boston,
Massachusetts 02109 |
|
(3) |
|
Includes 969,239 shares beneficially owned by Barclays
Global Investors, NA.; 1,387,267 shares beneficially owned
by Barclays Global Fund Advisors; and 15,683 shares
beneficially owned by Barclays Global Investors, Ltd. |
|
(4) |
|
Includes 390,948 shares of restricted stock, a portion of
which are subject to forfeiture and generally vest over the next
four years. Includes 268,200 shares issuable within
60 days upon the exercise of options granted under our 2003
Incentive Plan. Does not include 100,000 shares underlying
options that are not exercisable within 60 days granted
under our 2003 Incentive Plan. Includes 476,415 shares
owned subject to bank pledges. |
|
(5) |
|
Includes 70,840 shares of restricted stock, a portion of
which are subject to forfeiture and generally vest over the next
four years. Includes 111,250 shares issuable within
60 days upon the exercise of options granted under our 2003
Incentive Plan. Does not include 30,000 shares underlying
options that are not exercisable within 60 days granted
under our 2003 Incentive Plan. |
|
(6) |
|
Includes 81,376 shares of restricted stock, a portion of
which are subject to forfeiture and generally vest over the next
four years. Includes 96,750 shares issuable within
60 days upon the exercise of options granted under our 2003
Incentive Plan. Does not include 25,250 shares underlying
options that are not exercisable within 60 days granted
under our 2003 Incentive Plan. |
|
(7) |
|
Includes 48,060 shares of restricted stock, a portion of
which are subject to forfeiture and generally vest over the next
four years. Includes 8,750 shares issuable within
60 days upon the exercise of options granted under our 2003
Incentive Plan. Does not include 11,250 shares underlying
options that are not exercisable within 60 days granted
under our 2003 Incentive Plan. |
|
(8) |
|
Includes 23,477 shares of restricted stock, a portion of
which are subject to forfeiture and generally vest over the next
four years. Includes 12,500 shares issuable within
60 days upon the exercise of options granted under our 2003
Incentive Plan. Does not include 10,000 shares underlying
options that are not exercisable within 60 days granted
under our 2003 Incentive Plan. |
|
(9) |
|
Includes 10,975 shares of restricted stock, a portion of
which are subject to forfeiture and generally vest over the next
four years. |
|
(10) |
|
Includes 15,381 shares of restricted stock, a portion of
which are subject to forfeiture and generally vest over the next
four years. Includes 40,000 shares issuable within
60 days upon the exercise of options granted under our 2003
Incentive Plan. Does not include 10,000 shares underlying
options that are not exercisable within 60 days granted
under our 2003 Incentive Plan. |
|
(11) |
|
Includes 20,592 shares of restricted stock, a portion of
which are subject to forfeiture and generally vest over the next
four years. |
74
|
|
|
(12) |
|
Includes 5,488 shares of restricted stock, a portion of
which are subject to forfeiture and generally vest over the next
four years. |
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(13) |
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Includes 12,000 shares of restricted stock, a portion of
which are subject to forfeiture and generally vest over the next
four years. |
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(14) |
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Includes 88,750 shares issuable within 60 days upon
the exercise of options granted under our 2003 Incentive Plan.
Does not include 8,750 shares underlying options that are
not exercisable within 60 days granted under our 2003
Incentive Plan. |
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(15) |
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Includes 68,750 shares issuable within 60 days upon
the exercise of options granted under our 2003 Incentive Plan.
Does not include 8,750 shares underlying options that are
not exercisable within 60 days granted under our 2003
Incentive Plan. |
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(16) |
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Includes 8,750 shares issuable within 60 days upon the
exercise of options granted under our 2003 Incentive Plan. Does
not include 8,750 shares underlying options that are not
exercisable within 60 days granted under our 2003 Incentive
Plan. |
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(17) |
|
Includes 88,750 shares issuable within 60 days upon
the exercise of options granted under our 2003 Incentive Plan.
Does not include 8,750 shares underlying options that are
not exercisable within 60 days granted under our 2003
Incentive Plan. |
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(18) |
|
Includes 40,000 shares issuable within 60 days upon
the exercise of options granted under our 2003 Incentive Plan.
Does not include 2,500 shares underlying options that are
not exercisable within 60 days granted under our 2003
Incentive Plan. |
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(19) |
|
Includes 37,500 shares of restricted stock, all of which
are subject to forfeiture and generally vest over the next three
years. |
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(20) |
|
Includes an aggregate of 776,637 restricted shares, of which
453,071 remain subject to vesting, and an aggregate of
921,200 shares issuable within 60 days upon the
exercise of options granted under our 2003 Incentive Plan. Does
not include 232,750 shares underlying options that are not
exercisable within 60 days granted under our 2003 Incentive
Plan. |
75
COMPENSATION
DISCUSSION AND ANALYSIS
The following discussion and analysis addresses compensation
with respect to fiscal 2008 for our named executive officers.
Overview of Our Compensation Philosophy and
Objectives. The Companys overall philosophy
on compensation of the Companys executive officers is to
provide competitive salary levels and compensation incentives
that:
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attract, reward and retain individuals of the highest quality in
these key positions;
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recognize individual performance and the performance of the
Company relative to the performance of other companies of
comparable size, complexity and quality;
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provide motivation toward, and reward the accomplishment of,
corporate annual objectives;
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align the executive officers compensation to shareholder
interests; and
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align the executives incentives with both the short-term
and long-term goals of the Company.
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We also have the following compensation objectives when setting
the compensation programs for our executive officers:
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provide a significant percentage of long-term equity
compensation that is at-risk based on predetermined performance
criteria;
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maintain an opportunity for increased equity ownership by the
Companys executives; and
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set compensation levels that are competitive within the market
in which positions are located.
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In addition, the Compensation Committee considers the
anticipated tax treatment of the Companys executive
compensation program.
Elements of Compensation. The executive
compensation program for our named executive officers and other
senior executives included five principal elements that, taken
together, constitute a flexible and balanced method of
establishing total compensation. These elements are:
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base salary;
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quarterly incentive bonus plan cash awards to certain executive
officers (excluding our CEO and CFO);
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annual cash incentive bonuses;
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long-term incentive awards (which during 2008 consisted solely
of restricted stock awards); and
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beginning in 2008, a performance-based incentive program (the
Three-Year PB Incentive Program) which reflects a
three-year performance period and is based on performance
factors contained in the 2003 Incentive Plan; if the performance
measures are met, the participants will earn their
restricted stock awards, which shares of restricted stock will
then be issued and remain subject to time-based vesting in
one-third increments in each of the subsequent three years.
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In addition to these principal elements, special 2008 bonuses
were granted by the Committee to executive officers, including
two named executive officers, in connection with work and
sacrifices made related to the proposed Grey Wolf merger. The
compensation program for our named executive officers during the
periods covered under the Summary Compensation Table below
included only very limited additional perquisites not offered to
employees generally.
The Companys executive compensation program is consistent
with the Companys philosophy of tying a significant
portion of each executives compensation to performance
because this aligns the executive officers compensation to
shareholder interests. Under the performance-based Three-Year PB
Incentive Program, executive compensation is based on the
Company achieving pre-established targets relative to its
selected peer group. Similarly, the quarterly incentive bonus
plan ties the compensation of the area, region, and
division-level employees directly to the financial return on
assets employed within their particular operations and ties
76
corporate-level bonuses to the Companys net income. Annual
cash incentive bonuses and long-term incentive awards also take
into account a set of Company and individual performance metrics
used by the Compensation Committee.
The performance-based awards and discretionary restricted stock
and stock option grants also provide retention benefits because
the executive officers must remain in the employ of the Company
throughout the applicable vesting period to receive the full
benefit, subject to exceptions as applicable under certain
agreements for termination of executives by the Company not for
cause, termination by executives for good reason, the death or
disability of the executives, or, under certain agreements and
with additional limitations, the retirement of the executives.
These time-based awards also provide an opportunity for
increased equity ownership by the executives to further the link
between the executive officers interests, shareholder
interests and the short-term and long-term goals of the Company.
In addition, the Company uses market survey data from comparable
companies to set base salary and total compensation levels that
are competitive within the market.
Selection of Elements to Provide Competitive Levels of
Compensation. The Compensation Committee
generally attempts to provide the Companys senior
executives with a total compensation package that is competitive
and reflective of the performance achieved by the Company
compared to the performance achieved by the Companys
peers. During the periods covered by the Summary Compensation
Table included in this prospectus, the Compensation Committee
has attempted to weight compensation generally toward long-term
incentives. The Committee has determined a competitive level of
compensation for each executive based on information drawn from
a variety of sources, including proxy statements of other
companies and surveys. The Company initially engaged Pearl
Meyer & Partners during 2005 to perform an executive
compensation review, and the Compensation Committee has
continued to engage them for compensation consulting since that
time.
For the periods from
2006-2008,
the peer groups used by Pearl Meyer & Partners have
been comprised of a combination of the Companys direct
competitors and other energy and energy services companies that
experience similar market forces and are looked at similarly by
the investment community. Compensation norms for the group were
adjusted for comparability of revenue size to the Company, and
data is trended forward based on what Pearl Meyer &
Partners believes is occurring with other companies. These
reviews have been used by the Compensation Committee in
establishing executive base salaries, the range for potential
cash incentive bonuses, and aggregate long-term incentive plan
payouts and equity awards.
During 2008, the Company continued to make equity grant levels
somewhat higher than the median, particularly with respect to
its CEO, as part of its objective to weight compensation
generally toward long-term incentives. With respect to cash
bonuses for 2007 paid in 2008, the total cash paid to officers
was generally determined to be at or slightly above the survey
midpoints for officers other than our CEO, whose total cash was
below the mid-point due to desired equity weighting for his
compensation. For 2008 bonuses paid in 2009 and new salaries and
equity grants made in 2009, Pearl Meyer noted certain wage
freezes being implemented by certain energy companies, and this
information and industry conditions were reflected in decisions
made by the Compensation Committee and the Company in March
2009. While the targeted value of an executives
compensation package may be competitive, its actual value may
exceed or fall below market average levels depending on
performance, as discussed below.
The Company also engaged Pearl Meyer & Partners during
2006 to review the terms of the employment agreements for its
named executive officers and other senior executives, and to
recommend changes to these agreements. New agreements with the
executive officers were entered into effective December 31,
2006. The principal effect of these new agreements was to
streamline severance and non-competition provisions among our
executive officers into three tiers, with our CEO in one tier,
our CFO and Senior Vice President Rig and Truck
Operations in a second tier, and our other Vice Presidents in a
third tier. Severance benefits are discussed below under
Severance Benefits. In November 2008, in
connection with the promotion of Thomas M. Patterson to Senior
Vice President Rig and Truck Operations,
Mr. Pattersons employment agreement was amended to
make his terms consistent with the second tier described above.
Mr. Swift, the
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prior Senior Vice President Rig and Truck
Operations, remains our current Vice
President Gulf Coast Region.
Mix and Allocation of Compensation
Components. As noted above, the salary for our
named executive officers can represent 100% of compensation in
any given year when incentives do not pay out or long-term
awards are not made. However, the general mix of compensation
for individual performance in the annual incentive plans, plus
the net annualized present value of long-term compensation
grants, can range as follows, depending upon the executive. The
following general percentage mix would apply to the typical
approach in establishing the total compensation for the
Companys executives at 2008 performance. It is important
to note that the influences of the timing of awards,
availability of stock, company financial performance and stock
price performance could significantly change the basic mix of
compensation components as a percentage of total compensation:
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For the CEO:
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Base pay = 25% to 30%
Bonus compensation at target = 20% to 30%
Long-term compensation annualized = 40% to 50%
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For the other named executives:
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Base pay = 35% to 45%
Bonus compensation at target = 20% to 25%
(excluding special 2008 bonuses)
Long-term compensation annualized = 30% to 45%
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Base Salaries. The Compensation Committee
periodically reviews and establishes executive base salaries.
Generally, base salaries are based on (1) the scope and
complexity of the position held, (2) market survey data
from comparable companies and (3) the incumbents
competency level based on overall experience and past
performance. In February 2008, our Compensation Committee, based
on its review of peer group data and discussion with its
compensation consultant, increased base salaries for each of our
executive officers, including our named executive officers, for
2008. In March 2009, our Compensation Committee, based on its
review of peer group data and discussion with its compensation
consultant, initially approved base salaries for each of our
named executive officers that remained the same as their
then-current salaries (including Mr. Swift, whose salary
had been previously reduced in connection with his change in
position). Subsequently, in connection with wage and salary
reductions announced throughout the Company effective
March 30, 2009, these salaries were reduced 10% for our
CEO, 7-8% for three of our other named executive officers and 0%
for one named executive officer whose salary had already been
decreased due to a change in position.
Quarterly Incentive Bonus Plans. The Company
has maintained three individual Quarterly Incentive Bonus Plans
for management and administrative personnel. These plans address
(1) area-level personnel, (2) non-administrative
region- and division-level personnel and
(3) non-administrative corporate-level personnel, except
for the CEO and CFO. The Company also maintained an annual
incentive bonus plan for executive officers. Employees
participating under these plans were eligible for cash bonuses.
Compensation potential and actual compensation received from all
the plans are part of the cash compensation review process.
The purpose of the area, region, and division-level plans is to
tie the compensation of the respective employees directly to the
financial return on assets employed within their particular
operations. During 2008, corporate-level bonuses were tied to
the Companys region and division-level bonuses.
Messrs. Huseman and Krenek have not participated in any of
the Quarterly Incentive Bonus Plans during the periods included
in the Summary Compensation Table in this prospectus.
Mr. Swift participated in the division-level Quarterly
Incentive Bonus Plan in 2007 and 2008, which payments were
factored into his annual cash bonuses received by him in early
2008 and 2009. Messrs. Patterson and Tyner each
participated in the corporate-level Quarterly Incentive
Bonus Plans in 2007 and 2008, which payments were factored into
annual cash bonuses received by them in early 2008 and 2009.
Annual Cash Bonuses (Non-Equity Incentive Plan Compensation)
and Special Bonuses. The purpose of annual cash
bonuses under our Third Amended and Restated 2003 Incentive Plan
(the 2003 Incentive Plan) is to provide motivation
toward, and reward the accomplishment of, corporate annual
objectives and to provide a competitive compensation package
that will attract, reward and retain individuals of the highest
quality. The annual cash bonus awards to our named executive
officers for 2008 were paid as non-equity incentive plan
78
compensation based upon the achievement of corporate performance
objectives. The special 2008 bonuses were paid as cash bonus
compensation.
2008 Annual Cash Bonuses. During 2008,
the Compensation Committee of the Company utilized a set of
metrics, which we refer to as our 2008 annual incentive
compensation plan, for determining aggregate annual bonuses for
our senior executive officers, including each of our named
executive officers, consisting of (including relative weighting):
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earnings per share (25%);
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peer-group prior
3-year
average return on capital employed (25%);
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safety record (based on total reportable incident rates) (10%);
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preventable motor vehicle accident rate (10%);
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revenue growth (10%); and
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personal performance, based on board discretion (20%).
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Target bonus award levels for the Companys executive
officers during 2008 were established by senior management
working with the Compensation Committee. Target levels represent
the award level attainable when the plans are performed fully to
expectations or plan and individual performance is rated
accordingly. Potential annual cash awards for 2008 for our CEO
ranged from zero to 90% of base salary, with a target level of
60%. Potential annual cash awards for 2008 for our Tier II
named executive officers (Messrs. Krenek, Patterson and
Swift) ranged from zero to 75% of base salary, with a target
level of 50%. Potential annual cash awards for 2008 for our
Tier III named executive officer (Mr. Tyner) ranged
from zero to 60% of base salary, with a target level of 40%.
Payments made under our Quarterly Incentive Bonus Plan offset
the annual bonus awards.
The earnings per share factor used by the Compensation Committee
in 2008 included the net cash received by the Company as the
termination fee in connection with the Grey Wolf merger and
excluded the impact of goodwill impairment, for an actual result
of $2.18 compared to a target of $2.23. The actual result for
three-year average ROCE was 21% compared to a 20% target. The
total reportable incident rate and preventable motor vehicle
accident rate were higher than target levels, thus resulting in
lower than target factor allocations. Mr. Huseman received
a target-level annual cash bonus for 2008. Messrs. Krenek,
Patterson Swift and Tyner received annual cash bonuses for 2008
equal to approximately 57%, 55%, 30% and 42% of base salary,
respectively. These annual cash bonuses (reduced by amounts paid
for prior payments under the Quarterly Incentive Bonus Plan, as
applicable) were paid during the first quarter of 2009. Payments
under these metrics were not qualified performance based
compensation within the meaning of Section 162(m) of
the Code.
Special 2008 Bonuses. In addition to
the annual cash bonuses, special bonuses were granted and paid
during 2008 by the Committee to Messrs. Krenek and Tyner in
connection with the terminated Grey Wolf merger. These bonuses
reflected extraordinary time, effort and sacrifices made in
connection with the transaction, which was terminated but
resulted in the payment of a termination fee to the Company.
2008 Equity Awards. In addition to the annual
cash bonus awards discussed above, the Compensation Committee
used the same metrics to determine the potential value of equity
incentive rewards in the form of 2009 performance-based
restricted stock or restricted stock, which targeted a range
from zero to 250% for our CEO, zero to 200% for our CFO and
Senior Vice President Rig and Truck Operations, and
zero to 100% for the other named executive officers. These
awards were issued in March 2009 based on 2008 performance.
Equity awards granted in March 2008 were based on metrics used
by the Compensation Committee in 2007 to determine the potential
value of equity incentive rewards in the form of 2008
performance-based restricted stock or restricted stock, which
targeted a range from zero to 250% for our CEO, zero to 200% for
our CFO and Senior Vice President Rig and Truck
Operations, and zero to 100% for other named executive officers.
These awards were issued in March 2008 based on 2007
performance. The set of 2007 metrics used by the Committee were
used as guidelines, generally without employing specific
quantitative targets or
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thresholds, for determining aggregate annual bonuses for our
senior executive officers, including each of our named executive
officers. Certain factors in 2007, including the JetStar and
Sledge acquisitions, materially changed the Companys
business and caused the Companys initial budget for 2007
and historical metrics for evaluating executive compensation to
no longer be useful or directly comparable. The metrics used as
guidelines consisted of:
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EBITDA return on capital employed (EBITDA/net debt and equity);
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accident record, including both the overall frequency rates and
levels of preventable accidents;
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revenue growth;
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return on equity; and
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individual performance, including extraordinary efforts and
results.
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The Companys annual performance measures for officers for
2008 were recommended by the Chief Executive Officer and used by
the Compensation Committee. The Compensation Committee also
based its determination of CEO compensation and levels of annual
performance measures based on input from its compensation
consultant and, with respect to the CEOs personal
performance, based on additional input from members of the
Nominating and Governance Committee and other board members.
Annual cash bonuses for 2008 were paid to each of our executive
officers during March of 2009. The Compensation Committee
periodically monitors the award target levels and variances to
assure their competitiveness and that they mesh with
compensation strategy for incentives and for total compensation.
During March 2009, the Compensation Committee of the Company
discussed the potential utilization of a new set of metrics for
use in our 2009 annual incentive compensation plan in light of
current industry conditions and matters of specific interest to
the Company. The Committee has not formalized the weighting of
these metrics or approved the targets, but these metrics would
include: (i) revenue; (ii) EBITDA; (iii) earnings
per share (fully diluted); (iv) return on average capital
employed; (v) turnover rate; (vi) safety record (based
on total reportable incident rate); (vii) preventable motor
vehicle accident rate; and (viii) personal performance,
based on board discretion.
2008 and 2009 Long-Term Incentive
Programs. During 2007, the Compensation Committee
engaged Pearl Meyer & Associates to assist it in
designing a new long-term incentive program under the 2003
Incentive Plan, including the development of performance
measures to determine ultimate payouts. After due consideration,
pursuant to its authorization under the 2003 Incentive Plan, the
Compensation Committee approved and implemented in March 2008 a
comprehensive long-term incentive plan, which we refer to as our
2008 Long-Term Incentive Program and discuss further below,
consisting of:
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a performance-based plan looking at a three-year performance
period, which we refer to as our Three-Year PB Incentive
Program, that is based on performance factors contained in the
2003 Incentive Plan; and
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discretionary, time-based restricted stock awards.
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The performance-based Three-Year PB Incentive Program represents
approximately 50% of total potential long-term incentive
compensation, with approximately 50% of our long-term
compensation (including time-based restricted stock grants)
remaining discretionary.
During March 2009, the Compensation Committee and the Board
continued this performance-based Three-Year PB Incentive Program
along with discretionary, time-based restricted stock awards as
part of its 2009 Long-Term Incentive Program, which awards are
also discussed further below.
Long-Term Incentive Program. The long-term
incentive program is used to focus management attention on
Company performance over a period of time longer than one year
in recognition of the long-term horizons for return on
investments and strategic decisions in the energy services
industry. The program is designed to motivate management to
assist the Company in achieving a high level of long-term
performance and serves to link this portion of executive
compensation to long-term stockholder value. The Compensation
Committee generally attempts to provide the Companys
executives, including Mr. Huseman, with a total
compensation
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package that is competitive and reflective of the performance
achieved by the Company compared to its peers, and is typically
weighted toward long-term incentives. Aggregate stock or option
holdings of the executive have no bearing on the size of a
performance award.
The Companys 2003 Incentive Plan, which was adopted by the
board and has been approved by the Companys stockholders
as amended, covers stock awards issued under the Companys
original 2003 Incentive Plan and predecessor equity plan. The
2003 Incentive Plan permits the granting of any or all of the
following types of awards: stock options; restricted stock;
performance awards; phantom shares; other stock based awards;
bonus shares; and cash awards. In fiscal 2006, the Committee
made grants of stock options, which vest ratably over a
four-year period beginning in 2008. In fiscal 2007, the
Committee made a combination of stock option grants and
restricted stock awards, which each vest ratably over a
four-year period beginning in 2009. In fiscal 2008, the
Committee made grants of restricted stock, which vest ratably
over a four-year period beginning in 2010.
All non-employee directors and employees of, or consultants to,
the Company or any of its affiliates are eligible for
participation under the 2003 Incentive Plan. The 2003 Incentive
Plan is administered by the Compensation Committee. The
Compensation Committee directly oversees the plan as it relates
to officers of the Company and oversees the plan in general, its
funding and award components, the type and terms of the awards
to be granted and interprets and administers the 2003 Incentive
Plan for all participants. No awards may be granted under the
2003 Incentive Plan after April 12, 2014.
Options granted pursuant to the 2003 Incentive Plan may be
either incentive options qualifying for beneficial tax treatment
for the recipient as incentive stock options under
Section 422 of the Code or non-qualified options. No person
may be issued incentive stock options that first become
exercisable in any calendar year with respect to shares having
an aggregate fair market value, at the date of grant, in excess
of $100,000. No incentive stock option may be granted to a
person if at the time such option is granted the person owns
stock representing more than 10% of the total combined voting
power of all classes of the Companys stock or any of it
subsidiaries as defined in Section 424 of the Code, unless
at the time incentive stock options are granted the purchase
price for the option shares is at least 110% of the fair market
value of the option shares on the date of grant and the
incentive stock options are not exercisable after five years
from the date of grant.
The 2003 Incentive Plan permits the payment of qualified
performance based compensation within the meaning of
Section 162(m) of the Code, which generally limits the
deduction that the Company may take for compensation paid in
excess of $1,000,000 to certain of the Companys
covered officers in any one calendar year unless the
compensation is qualified performance based
compensation within the meaning of Section 162(m) of
the Code. Prior stockholder approval of the 2003 Incentive Plan
(assuming no further material modifications of the plan) will
satisfy the stockholder approval requirements of
Section 162(m) for the transition period beginning with the
Companys initial public offering in December 2005 and
ending not later than the Companys annual meeting of
stockholders in 2009. While the Compensation Committee reserves
the right to grant ad hoc or special awards at any time that are
subject to the limits of deductibility, the main awards under
the plan are administered consistent with the requirements of
162(m) for performance based compensation.
Three-Year PB Incentive Program. Under the
Three-Year PB Incentive Program initially implemented during
March 2008 and continued during March 2009, the executive
officers and certain middle management personnel (total of 17
participants for 2008 awards and a total of 19 participants for
2009 awards) may earn restricted stock at the end of a one-year
period, based on the Companys performance over a
three-year period. The performance measures are based on the
Company achieving pre-established targets relative to its
selected peer group (the PB Peer Group) based on the
following factors/metrics:
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earnings per share (EPS) growth (50% of
performance-based awards), subject to forfeiture or a negative
adjustment of 100% if the Company either (i) has EPS growth
less than the worst performing PB Peer Group member or
(ii) incurs a net loss based on the Companys average
EPS for the three-year period; and
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return on capital employed (ROCE) (50% of
performance-based awards), subject to forfeiture or a negative
adjustment of 100% if (i) the Companys ROCE for the
three-year period is equal to or less than the worst performing
PB Peer Group member and (ii) the Companys ROCE is
less than 75% of the next lowest PB Peer Group member.
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If the performance measures are met, the plan participants will
earn their restricted stock awards, which will then
remain subject to time-based vesting in one-third increments in
each of the subsequent three years. The combination of the
performance period and the vesting schedule results in the
awards being realized by the executive over a period of
4 years from the initial award date.
Achievement of the maximum goals will require superior
performance of the executives and the Company relative to the
Companys peer group, and the relative difficulty of
achieving this performance may be affected by certain risk
factors outside the control of the Company and the executives,
including risk factors disclosed in the Companys
Form 10-K
and other periodic filings.
Target award levels for 2008 and in 2009 were set for each
participant based on a multiple of the recommended annual base
salary of each executive officer. In determining the number of
restricted shares to award, the Compensation Committee used a
$10 price applicable on the date the proposed grant schedule was
prepared, compared to a lower price on the date of the
Committees March 11, 2008 meeting at which the awards
were actually approved. In determining the number of shares of
restricted stock to award, the Committee used this same price.
For awards in each of 2008 and 2009, the PB Peer Group consisted
of each of the following companies: (1) Pioneer Drilling
Co.; (2) Bronco Drilling Company, Inc.; (3) Tetra
Technologies, Inc.; (4) Oil States International, Inc.;
(5) Union Drilling, Inc.; (6) Superior Well Services,
Inc.; (7) Complete Production Services, Inc.;
(8) Allis-Chalmers Energy, Inc. (which also represents the
substitute for W-H Energy Services, Inc. as set forth in the
2008 Award Agreement in accordance with its terms due to the
merger of W-H Energy Services during 2008); (9) Superior
Energy Services, Inc.; and (10) Key Energy Services, Inc.
In general terms, if we rank first among our applicable peer
group for both the EPS growth and ROCE measures, our executive
officers will earn all of their restricted shares, equal to 150%
of the target shares, in each case subject to further time-based
vesting. In the event our performance is between the minimum
(resulting in forfeiture) and maximum limits, our executive
officers may earn a percentage of restricted shares between
50-100%.
The total maximum number of shares for all participants for the
Three-Year PB Incentive Program awards granted in March 2008
(150% of target) was 152,250 shares, which earned shares
would then remain subject to time-based vesting over a
three-year period. Of these shares, 84,750 was the maximum
number of shares which may be earned by the named executive
officers if the Company ranks as the highest in its PB Peer
Group for both the EPS growth and ROCE performance measures.
Based on peer performance data and the Companys actual
performance for the year, the Committee determined in March 2009
that an aggregate of 56,500 shares (100% of target) were
actually earned by the named executive officers under these 2008
awards.
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The following LTIP payout grid shows the actual effect of
2006-2008
and the percentage earned based on our ranking within the PB
Peer Group (including ourselves):
LTIP
Payout Grids Percentage of Equity Compensation
that may be Retained Based on Relative EPS growth/ROCE
Ranking
Peer EPS Change
Peer
ROCE Performance
The total maximum number of shares for all participants for the
Three-Year PB Incentive Program awards granted in March 2009
(150% of target) was 397,500 shares, which earned shares
will then remain subject to time-based vesting in increments
over a three-year period. Of these shares, 230,250 is the
maximum number of shares which may be earned by the named
executive officers if the Company ranks as the highest in its
PB Peer Group for both the EPS growth and ROCE performance
measures. Annual awards earned are not determinable by the
Committee until peer performance data is available. When
available, the data will be compiled and compared to the
Companys EPS growth and ROCE performance measures in light
of the Companys actual performance for the year.
The 2008 and 2009 awards under the Three-Year PB Incentive
Program, including performance-based awards, do not comply with
the provisions of Internal Revenue Code Section 162(m) due
to the use of performance periods prior to the grant date.
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Similar to the Quarterly Incentive Bonus Plan, the Three-Year PB
Incentive Program is consistent with the Companys
philosophy of tying a significant portion of each
executives compensation to performance because this aligns
the executive officers compensation to shareholder
interests. This program differs from the Quarterly Incentive
Bonus Plan in that it also provides retention benefits, because
the executive officers must remain in the employ of the Company
for four years from the grant date (including three years of
vesting after shares are earned) to receive the full
benefit, subject to exceptions for termination of executives not
for cause, termination for good reason, termination due to death
or disability and termination due to change in control.
Discretionary Restricted Stock Grants. The
Committee has used traditional discretionary grants of
restricted stock to supplement the Three-Year PB Incentive
Program for approximately 50% of total potential awards. Because
any awards of restricted stock earned under the Three-Year PB
Incentive Program will not begin to vest until the second year
after the date of grant of the restricted stock in order to
provide continued long-term incentives that are competitive, the
Committee determined in March 2008 to make a special grant of
restricted stock to the executive officers, which grant is
consistent with the equity awards to comparable positions at our
peer companies. These time-based awards also provide an
opportunity for increased equity ownership by the executives to
further the link between the creation of shareholder value and
long term incentive compensation. This restricted stock grant
will vest in four equal portions beginning two years from the
date of the grant.
All restricted stock earned under the Three-Year PB Incentive
Program and the special non-performance based restricted stock
grant, as is the case with the earlier grants of restricted
stock and stock options, will be forfeited if they are not
vested prior to the date the executive officer terminates his
employment, except in the cases of termination of executives not
for cause, termination for good reason, termination due to death
or disability and termination due to change in control.
Compensation for our Named Executive
Officers. The 2008 and current 2009 salaries of
our named executive officers, including our CEO, were
established by the entire Board of Directors at the
recommendation of the Compensation Committee. The basis for
selecting the severance benefits of each of the named executive
officers, including our CEO, as of December 31, 2008 is
discussed below under Severance Benefits.
CEO Compensation. A separate process of
evaluating Mr. Huseman was conducted for purposes of
determining his 2008 annual bonus paid during March 2009.
Specifically, the Committees considerations included:
(1) earnings per share; (2) three-year average return
on capital employed compared to our peer group; (3) our
safety record based on total reportable incident rates;
(4) our preventable motor vehicle accident rate;
(5) our revenue growth; and
(6) Mr. Husemans personal performance, including
Mr. Husemans individual goals for fiscal 2008. Based
on these considerations, Mr. Huseman was granted an annual
cash bonus for 2008 performance of $330,000, equal to
approximately 60% of his base salary in effect on
December 31, 2008, which bonus was paid during the first
quarter of 2009.
Compensation of Other Named Executive
Officers. The Committee reviewed the
recommendations of the CEO regarding 2008 bonuses and awards.
The Committees considerations included the same general
Company performance-based factors as well as the individual
performance of each of the officers. The annual cash bonuses
paid to each of the other named executive officers for 2008
performance was equal to between approximately 30% to 57% of his
base salary in effect on December 31, 2008.
During 2008 and continuing into 2009, the Compensation Committee
has elected to use restricted stock awards as the primary
component of long-term compensation for our executive officers.
The rationale behind this shift to use restricted stock awards
is that we believe that restricted stock awards provide stronger
retention benefits than stock options, especially in slower
economic markets. Also, we believe that restricted stock awards
more closely align the interests of management with the
interests of our other shareholders. Finally, we undertake to
provide a compensation package to our executive officers that is
competitive with our peers, and the use of restricted stock as
long-term incentive compensation has increased among our peer
group compared to prior years.
84
In 2008, the Committee approved and implemented the 2008
Long-Term Incentive Program consisting of the Three-Year PB
Incentive Program and discretionary, time-based restricted stock
awards. The rationale behind this was to create a program
consistent with the Companys philosophy of tying a
significant portion of each executives compensation to
performance because this aligns the executive officers
compensation to shareholder interests, while maintaining an
opportunity for increased equity ownership by the executives to
further the link between the creation of shareholder value and
long term incentive compensation.
In 2009, the Committee approved and implemented its 2009
Long-Term Incentive Program consisting of substantially the same
Three-Year PB Incentive Program and discretionary, time-based
restricted stock awards for the same rationale.
Perquisites. The Company provides limited
perquisites to its senior executives. Perquisites may include
vehicle allowances, club memberships and long-term disability
insurance. During 2008, those perquisites were provided to
senior management based on individual employment agreements.
Each category of perquisites and amounts are set forth in the
footnotes to the Summary Compensation Table below under
Executive Compensation and Corporate Governance
Matters.
Severance Benefits. We entered into amended
and restated employment agreements with each of our named
executive officers as of December 31, 2006. In addition, in
November 2008, in connection with the promotion of officers into
new positions, new agreements were entered into with Charles W.
Swift, our Senior Vice President Operations Support
(now currently our Vice President Gulf Coast Region,
who executed an amended and restated agreement in March 2009
containing the lower Tier III severance terms as set forth
below), and Thomas Monroe Patterson, our Senior Vice
President Rig and Truck Operations. Pursuant to
these agreements, each of the named executive officers are
entitled to severance payments in the event the officer is
terminated at any time by us without Cause as
defined in the agreements or by the officer for Good
Reason. In addition, each of the named executive officers
is entitled to severance payments in the event of a
change-in-control
if the officers employment is terminated for certain
reasons within the six months preceding or the twelve months
following a change in control of our company.
The severance payments outside a
change-in-control
are based on a multiple (for Mr. Huseman 3.0
times; for Messrs. Krenek and Patterson 1.5
times; and for Mr. Tyner and (currently)
Mr. Swift 0.75 times) of the sum of the
officers base salary plus his current annual incentive
target bonus for the full year in which the termination of
employment occurred.
The severance payments associated with a
change-in-control
are based on a multiple (for Mr. Huseman 3.0
times; for Messrs. Krenek and Patterson 2.0
times; and for Mr. Tyner and (currently)
Mr. Swift 1.0 times) of the sum of the
officers base salary plus the higher of (i) his
current annual incentive target bonus for the full year in which
the termination of employment occurred or (ii) the highest
annual incentive bonus received by him for any of the last three
fiscal years. Mr. Husemans current agreement reduced
his previous enhanced
change-in-control
benefit level that was agreed upon while the Company was a
private, controlled company prior to its initial public offering.
The officers employment agreements were initially
effective through December 31, 2008 (other than those of
Messrs. Huseman, Swift and Patterson, whose remain
effective through December 31, 2009) and automatically
renew for subsequent one year periods unless notice of
termination is properly given by us or the officer. In the event
that the employment agreement of Messrs. Huseman, Krenek,
Swift or Patterson is not renewed by us and a new employment
agreement has not been entered into, the officer will be
entitled to the same severance benefits described above. We
believe this severance requirement is reasonable and not
uncommon for persons in the offices and rendering the level of
services performed by these individuals.
We selected higher multiples for terminations associated with a
change-in-control
to provide additional reasonable protections and benefits to the
officers in such event, while basing these
change-in-control
termination payments on a double trigger requiring
additional reasons such as Good Reason or the officer being
terminated without Cause. We believe that providing higher
multiples for
change-in-control
terminations for up to a one-year period after a change in
control will provide for their commitment to the Company or its
85
potential acquirer through a
change-in-control
event providing a continuity of leadership and preserving the
shareholders interests before and after a transaction.
The employment agreements for Messrs. Huseman, Krenek,
Swift and Patterson also provide for gross up payments to the
extent Section 280G of the Internal Revenue Code would
apply to such payments as excess parachute payments.
The employment agreement for the other named executive officer
does not contain these provisions.
For information regarding the
change-in-control
benefits to our chief executive officer based on a hypothetical
termination date of December 31, 2008, see Executive
Compensation and Corporate Governance Matters
Potential Payments upon Termination or
Change-in-Control.
Board Process. The Compensation Committee of
the Board of Directors reviews all compensation and awards to
executive officers. The Compensation Committee on its own, based
on input from the Nominating and Governance Committee and
discussions with other persons and advisors as it deems
appropriate, reviews the performance and compensation of the CEO
and approves his level of compensation. For the other executive
officers, the Compensation Committee receives recommendations
from the CEO. These recommendations are generally approved with
minor adjustments. The Compensation Committee grants options and
restricted stock, generally based on recommendations from the
CEO, pursuant to its authority under the Compensation Committee
Charter and the Companys 2003 Incentive Plan.
Compensation of Directors. The Compensation
Committee is also responsible for determining the annual
retainer, meeting fees, stock options and other benefits for
members of the Board of Directors. The Compensation
Committees objective with respect to director compensation
is to provide compensation incentives that attract and retain
individuals of outstanding ability.
86
Directors who are Company employees do not receive a retainer or
fees for service on the board or any committees. The Company
pays non-employee members of the board for their service as
directors. Directors who are not employees received in 2008 and
continue to receive as of August 2009:
|
|
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Annual director fee:
|
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$35,000
|
Committee Chairmen annual fees:
|
|
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Audit Committee
|
|
$15,000
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Compensation Committee
|
|
$10,000
|
Nominating and Corporate Governance Committee
|
|
$10,000
|
Attendance fees (per meeting):
|
|
|
Board
|
|
$2,000 (whether in person or telephonic)
|
Committee
|
|
$2,000 (whether in person or telephonic)
|
Equity-based compensation:
|
|
|
Upon election
|
|
37,500 shares of the Companys common stock at the
market price on the date of grant that vest ratably over three
years. This prior policy remains subject to change whenever
applicable for future directors based on the stock price at such
time.
|
Annual awards
|
|
In March 2008, each non-employee director was granted
4,000 shares of restricted stock that vest ratably in four
increments of 1,000 shares on March 15, 2010, 2011, 2012
and 2013. In March 2009, each non-employee director was granted
4,000 shares of restricted stock that vest ratably in four
increments of 1,000 shares on March 15, 2011, 2012, 2013
and 2014. Our Chairman was also granted an additional
4,000 shares of restricted stock in each of March 2008 and
2009 that was vested upon issuance as consideration for services
in his capacity as Chairman and in lieu of the 2008 and 2009
annual director fees, respectively.
|
Directors are also reimbursed for reasonable
out-of-pocket
expenses incurred in attending meetings of the board or
committees and for other reasonable expenses related to the
performance of their duties as directors. Director compensation
currently in effect for 2009 was based in part on a review and
recommendations by Pearl Meyer & Partners.
Compensation
Committee Report
The Compensation Committee has reviewed and discussed the above
Compensation Discussion and Analysis with management and, based
on such review and discussions, the Compensation Committee
recommended to the Board of Directors that the Compensation
Discussion and Analysis be included in the Proxy Statement filed
by the Company on April 24, 2009.
This report of the Compensation Committee shall not be deemed
soliciting material, or to be filed with
the Securities and Exchange Commission or subject to
Regulation 14A or 14C or to the liabilities of
Section 18 of the Securities Exchange Act of 1934 (the
Exchange Act), except to the extent that the Company
specifically requests that the information be treated as
soliciting material or specifically incorporates it by reference
into a document filed under the Securities Act of 1933 (the
Securities Act) or the Exchange Act.
William E. Chiles, Chairman
James S. DAgostino, Jr.
H. H. Wommack, III
87
EXECUTIVE
COMPENSATION AND CORPORATE GOVERNANCE MATTERS
Summary
Compensation Table
The following information relates to compensation paid by the
Company for fiscal 2008, 2007 and 2006 to the Companys
Chief Executive Officer, Chief Financial Officer and each of the
other three most highly compensated executive officers in fiscal
2008, 2007 and 2006:
Summary
Compensation Table
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Change in
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Pension
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Value and
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Non-Equity
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Nonqualified
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Incentive
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Deferred
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Stock
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Option
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Plan
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Compensation
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All Other
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Salary
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Bonus
|
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Awards
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Awards
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Compensation
|
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Earnings
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Compensation
|
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Total
|
Name and Principal Position
|
|
Year
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($)(1)
|
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($)(2)
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($)(3)
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($)(3)
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($)(4)
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($)
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($)(5)
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($)
|
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Kenneth V. Huseman,
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2008
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$
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550,000
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|
|
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$
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380,585
|
|
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$
|
449,536
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|
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$
|
330,000
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$
|
|
|
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$
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9,200
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|
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$
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1,719,321
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President and Chief
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2007
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$
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515,384
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|
|
|
|
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$
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799,460
|
|
|
$
|
322,565
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|
|
$
|
400,000
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|
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$
|
|
|
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$
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8,800
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|
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$
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2,046,209
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Executive Officer
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2006
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$
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382,692
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|
|
|
|
|
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$
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785,250
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|
|
$
|
256,281
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|
|
$
|
400,000
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|
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$
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|
|
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$
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16,142
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|
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$
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1,840,365
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Alan Krenek,
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2008
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$
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300,000
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$
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50,000
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|
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$
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161,516
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|
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$
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142,579
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$
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170,000
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$
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$
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9,200
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$
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833,295
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Senior Vice President,
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2007
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$
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258,462
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$
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28,704
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$
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244,738
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$
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240,000
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$
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$
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8,800
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$
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780,704
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Chief Financial Officer, Treasurer and Secretary
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2006
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$
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227,308
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$
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$
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235,719
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$
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240,000
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$
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$
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10,619
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$
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713,646
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Charles W. Swift,
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2008
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$
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250,000
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$
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140,765
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$
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116,962
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$
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75,000
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$
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$
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20,796
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$
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603,523
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Senior Vice President,
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2007
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$
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200,000
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$
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104,474
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$
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87,058
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$
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160,000
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$
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$
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10,597
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$
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562,129
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Operations Support
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2006
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$
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176,154
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$
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87,250
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$
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76,067
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$
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200,000
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$
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$
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12,081
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$
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551,552
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T.M. Roe Patterson,
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2008
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$
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243,846
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$
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109,553
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$
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57,663
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$
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150,000
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$
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$
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20,233
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$
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581,295
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Senior Vice President,
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2007
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$
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167,692
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$
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17,224
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$
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32,051
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$
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140,000
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$
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$
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18,764
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$
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375,731
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Rig and Truck Operations
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2006
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$
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118,462
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$
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$
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34,079
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$
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140,000
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$
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$
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4,542
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$
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297,083
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James E. Tyner
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2008
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$
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190,000
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$
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30,000
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$
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55,228
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$
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57,297
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$
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80,000
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$
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$
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9,546
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$
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422,071
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Vice President,
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2007
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$
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158,462
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$
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11,480
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$
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35,937
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$
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80,000
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$
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|
|
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$
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7,219
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$
|
293,098
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Human Resources
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2006
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$
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135,891
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$
|
|
|
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$
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60,313
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|
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$
|
140,000
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|
|
$
|
|
|
|
$
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6,484
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$
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342,688
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|
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(1) |
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Under the terms of their employment agreements,
Messrs. Huseman, Krenek, Swift, Patterson and Tyner are
entitled to the compensation described under Employment
Agreements below. |
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(2) |
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Reflects special bonuses paid during 2008 relating to the
terminated merger with Grey Wolf, Inc. |
|
(3) |
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Reflects the dollar amounts recognized for financial reporting
purposes with respect to the fiscal year in accordance with
FAS 123R. For Stock Awards, includes performance-based
awards granted in March 2008 that were earned and issued in
March 2009 at 100% of target shares. During 2008 it was
estimated that 85% of the target shares would be granted in
March 2009. There were no forfeitures in 2008. For Option
Awards, assumptions made in the valuation are included in
Note 10 to the Companys audited financial statements
for the year ended December 31, 2008. |
|
(4) |
|
Reflects aggregate bonus payments made utilizing metrics under
our annual incentive compensation plan and
division-level Quarterly Incentive Bonus Plan.
Messrs. Huseman and Krenek did not participate in any of
the Quarterly Incentive Bonus Plans during 2006, 2007 or 2008
and received only an annual cash bonus in early 2007, 2008 and
2009, respectively. Mr. Swift participated in the
division-level Quarterly Incentive Bonus Plan for the first
three quarters of 2006 and received an annual cash bonus in
early 2007 and participated in the Quarterly Incentive Bonus
Plan in the third and fourth quarters of 2007 and all of 2008
and received an annual cash bonus in early 2008 and 2009.
Messrs. Patterson and Tyner each participated in the
Quarterly Incentive Bonus Plans in 2006, 2007 and 2008 and
received an annual cash bonus in early 2007, 2008 and 2009,
respectively. |
|
(5) |
|
Includes employer contributions to Executive Deferred
Compensation Plan for 2006 as follows: for Huseman, $16,142; for
Krenek, $10,619; for Swift, $2,481; and for Tyner, $6,484.
Includes employer contributions to Executive Deferred
Compensation Plan for 2007 as follows: for Huseman, $8,800; for
Krenek, $8,800; for Swift, $457; for Patterson, $8,624; and for
Tyner, $7,219. Includes employer contributions to Executive
Deferred Compensation Plan for 2008 as follows: for Huseman,
$9,200; for Krenek, $9,200; for Swift, $9,936; for Patterson,
$9,373; and for Tyner, $9,546. Includes vehicle allowance of
$9,600 for 2006, $10,140 for 2007 and $10,860 for 2008 for
Mr. Swift and of $4,542 for 2006, $10,140 for 2007 and
$10,860 for 2008 for Mr. Patterson. |
88
Grants of
Plan-Based Awards
The following table sets forth information concerning grants of
awards to each of our named executive officers under our 2003
Incentive Plan during fiscal 2008:
Grants of
Plan-Based Awards 2008
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All Other
|
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All Other
|
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Stock
|
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Option
|
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Awards:
|
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Awards:
|
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|
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|
|
|
|
|
|
|
Estimated Future Payouts
|
|
|
Estimated Future Payouts
|
|
|
Number of
|
|
|
Number of
|
|
|
Exercise or
|
|
|
Grant Date
|
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
|
Under Equity Incentive
|
|
|
Shares of
|
|
|
Securities
|
|
|
Base Price
|
|
|
Fair Value
|
|
|
|
|
|
|
Plan Awards
|
|
|
Plan Awards
|
|
|
Stock or
|
|
|
Underlying
|
|
|
of Option
|
|
|
of Stock
|
|
|
|
Grant
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units
|
|
|
Options
|
|
|
Awards
|
|
|
and Option
|
|
Name
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
($/Sh)
|
|
|
Awards
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
(k)
|
|
|
(l)
|
|
|
Kenneth V. Huseman
|
|
|
03/18/08
|
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
927,900
|
|
|
|
|
03/11/08
|
(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
22,500
|
|
|
|
33,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
404,876
|
|
|
|
|
03/11/08
|
(3)
|
|
$
|
0
|
|
|
$
|
330,000
|
|
|
$
|
495,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Alan Krenek
|
|
|
03/18/08
|
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
463,950
|
|
|
|
|
03/11/08
|
(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
215,934
|
|
|
|
|
03/11/08
|
(3)
|
|
$
|
0
|
|
|
$
|
150,000
|
|
|
$
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Charles W. Swift
|
|
|
03/18/08
|
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
17,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
360,850
|
|
|
|
|
03/11/08
|
(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
179,945
|
|
|
|
|
03/11/08
|
(3)
|
|
$
|
0
|
|
|
$
|
125,000
|
|
|
$
|
187,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
T.M. Roe Patterson
|
|
|
03/18/08
|
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
16,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
340,230
|
|
|
|
|
03/11/08
|
(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
143,956
|
|
|
|
|
03/11/08
|
(3)
|
|
$
|
0
|
|
|
$
|
137,500
|
|
|
$
|
206,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
James E. Tyner
|
|
|
03/18/08
|
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
144,340
|
|
|
|
|
03/11/08
|
(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,978
|
|
|
|
|
03/11/08
|
(3)
|
|
$
|
0
|
|
|
$
|
76,000
|
|
|
$
|
142,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Shares of restricted stock were granted by our Compensation
Committee to certain of our employees, including our named
executive officers, on March 18, 2008. The shares of
restricted stock vest in one-fourth increments on each of
March 15, 2010, 2011, 2012 and 2013. The shares of
restricted stock were granted pursuant to our 2003 Incentive
Plan. |
|
(2) |
|
Performance-based stock awards approved by our Compensation
Committee to certain members of management including our named
executive officers on March 11, 2008. The performance-based
awards consist of the Company achieving certain earnings per
share growth targets and certain return on capital employed
performance, over the performance period from January 1,
2006 through December 31, 2008 as compared to other member
of a defined peer group. The number of shares to be issued could
have ranged from 0% to 150% of the target number of shares
depending on the performance noted above. The number of target
shares set forth for each named executive officer was earned and
issued in March 2009. These shares will vest in one-third
increments on each of March 15, 2010, 2011, and 2012. |
|
(3) |
|
Cash incentive bonuses are determined by our Compensation
Committee utilizing a set of metrics along with board
discretion. These bonuses for 2008 performance were paid in
March 2009. Performance targets were communicated to the named
executive officers and other members of management that
participate in the bonus on March 11, 2008. Potential
annual cash awards for our CEO ranged from zero to 90% of base
pay with a target level of 60%. Potential annual cash awards for
our Tier II named executive officers (Messrs. Krenek,
Swift and Patterson) ranged from zero to 75% of base salary,
with a target level of 50%. Potential annual cash awards for our
Tier III named executive officer (Mr. Tyner) ranged
from zero to 60% of base salary, with a target level of 40%. |
Employment
Agreements
Pursuant to our employment agreement with Kenneth V. Huseman,
our President and Chief Executive Officer, Mr. Huseman is
entitled to an initial annual base salary of $400,000.
Mr. Huseman is also entitled to an annual performance bonus
if certain performance criteria are met. In addition,
Mr. Huseman is eligible from time to time to receive grants
of stock options and other long-term equity incentive
compensation under our equity compensation plan. If
Mr. Husemans employment were to be terminated for
certain reasons, he
89
would be entitled to a lump sum severance payment equal to three
times the sum of his base salary plus his current annual
incentive target bonus for the full year in which the
termination of employment occurred. Additionally, if
Mr. Husemans employment were to be terminated for
certain reasons within the six months preceding or the twelve
months following a change in control of our company, he would be
entitled to a lump sum severance payment equal to three times
the sum of his base salary plus the higher of (i) his
current annual incentive target bonus for the full year in which
the termination of employment occurred or (ii) the highest
annual incentive bonus received by him for any of the last three
fiscal years. Mr. Husemans employment agreement is
effective through December 31, 2009 and will automatically
renew for subsequent one year periods unless notice of
termination is properly given by us or Mr. Huseman. In the
event that Mr. Husemans employment agreement is not
renewed by us for any reason other than cause and a new
employment agreement has not been entered into prior to the
expiration of the then-current term, Mr. Huseman will be
entitled to the same severance benefits described above.
We have also entered into employment agreements with Alan
Krenek, our Senior Vice President, Chief Financial Officer,
Treasurer and Secretary, Charles W. Swift, our Vice President
Gulf Coast Region, and Thomas Monroe Patterson, our
Senior Vice President Rig and Truck Operations.
Pursuant to their agreements, Messrs. Krenek, Swift and
Patterson are entitled to initial base salaries of $240,000,
$250,000 and $275,000, respectively. Each of
Messrs. Krenek, Swift and Patterson is also entitled to an
annual performance bonus if certain performance criteria are
met. In addition, each of Messrs. Krenek, Swift and
Patterson is eligible from time to time to receive grants of
stock options and other long-term equity incentive compensation
under our equity compensation plan. If the employment of any of
these officers was to be terminated for certain reasons, he
would be entitled to a lump sum severance payment equal to 1.5
times the sum of his base salary plus his current annual
incentive target bonus for the full year in which the
termination of employment occurred. Additionally, if the
employment of any of these officers was to be terminated for
certain reasons within the six months preceding or the twelve
months following a change in control of our company, he would be
entitled to a lump sum severance payment equal to two times the
sum of his base salary plus the higher of (i) his current
annual incentive target bonus for the full year in which the
termination of employment occurred or (ii) the highest
annual incentive bonus received by him for any of the last three
fiscal years. Each of these employment agreements is effective
through December 31, 2009 and will automatically renew for
subsequent one year periods unless notice of termination is
properly given by us or the officer. In the event that any of
these employment agreements is not renewed by us for any reason
other than cause and a new employment agreement has not been
entered into prior to the expiration of the then-current term,
the officer will be entitled to the same severance benefits
described above. In March 2009, Mr. Swifts position
was changed from Senior Vice President Operations to
Vice President Gulf Coast Region.
The employment agreements for Messrs. Huseman, Krenek,
Swift and Patterson also provide for gross up payments to the
extent Section 280G of the Internal Revenue Code would
apply to such payments as excess parachute payments.
We have also entered into an employment agreement with James E.
Tyner, our Vice President Human Resources. Pursuant
to his agreement, Mr. Tyner is entitled to an initial base
salary of $140,000. Mr. Tyner is also entitled to an annual
performance bonus if certain performance criteria are met. In
addition, Mr. Tyner is eligible from time to time to
receive grants of stock options and other long-term equity
incentive compensation under our equity incentive plan. If
Mr. Tyners employment was to be terminated for
certain reasons, he would be entitled to a lump sum severance
payment equal to 0.75 times the sum of his base salary plus his
current annual incentive target bonus for the full year in which
the termination of employment occurred. Additionally, if
Mr. Tyners employment was to be terminated for
certain reasons within the six months preceding or the twelve
months following a change in control of our company, he would be
entitled to a lump sum severance payment equal to one times the
sum of his base salary plus the higher of (i) his current
annual incentive target bonus for the full year in which the
termination of employment occurred or (ii) the highest
annual incentive bonus received by him for any of the last three
fiscal years. Mr. Tyners employment agreement is
effective through December 31, 2009 and will automatically
renew for subsequent one year periods unless notice of
termination is properly given by us or Mr. Tyner. In the
event that within the six months preceding or the twelve months
following a change in control of our company,
Mr. Tyners employment agreement is not
90
renewed by us for any reason other than cause and a new
employment agreement has not been entered into prior to the
expiration of the then-current term, Mr. Tyner will be
entitled to the change of control severance benefits described
above.
As consideration for us entering into the above employment
agreements, each of Messrs. Huseman, Krenek, Swift, Tyner
and Patterson has agreed in his employment agreement that, for a
period of 6 months following the termination of his
employment by us without cause or by him for good reason, and
for a period of two years following the termination of his
employment for retirement or any other reason, he will not,
among other things, engage in any business competitive with
ours, render services to any entity that is competitive with us
or solicit business from certain of our customers or potential
customers. These non-competition restrictions will not apply in
the event that such termination is within 12 months of a
change of control of our company. Additionally, each officer has
agreed not to solicit any of our employees to terminate, reduce
or otherwise adversely affect his or her employment with us for
a period of two years from such officers termination of
employment for any reason.
The Board initially approved 2009 base salaries for our named
executive officers as follows: Huseman $550,000;
Krenek $300,000; Patterson $275,000;
Swift $200,000; and Tyner $190,000. In
connection with salary and wage reductions for employees
throughout the company that were effective March 30, 2009,
the 2009 base salaries for our named executive officers other
than Mr. Swift were reduced to: Huseman
$495,000; Krenek $276,000; Patterson
$253,000; and Tyner $176,700.
Outstanding
Equity Awards at Fiscal Year-End
The following table sets forth information concerning
unexercised stock options and unvested restricted stock of each
of our named executive officers as of December 31, 2008:
Outstanding
Equity Awards at Fiscal Year-End 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
or Payout
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Number of
|
|
|
Unearned
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
Unearned
|
|
|
Shares,
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Shares or
|
|
|
Shares,
|
|
|
Units or
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
or Units of
|
|
|
Units of
|
|
|
Units or
|
|
|
Other
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Other Rights
|
|
|
Rights
|
|
|
|
Options
|
|
|
Options
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Option
|
|
|
|
Have Not
|
|
|
Have Not
|
|
|
that Have
|
|
|
That Have
|
|
|
|
(#)
|
|
|
(#)
|
|
|
Options
|
|
|
Price
|
|
|
Expiration
|
|
|
|
Vested
|
|
|
Vested
|
|
|
Not Vested
|
|
|
Not Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
(#)
|
|
|
($)
|
|
|
Date
|
|
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
Kenneth V. Huseman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/5/2003
|
|
|
148,200
|
|
|
|
|
|
|
|
|
|
|
$
|
4.00
|
|
|
|
5/4/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2005(1)
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
$
|
6.98
|
|
|
|
3/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/15/2006(2)
|
|
|
15,000
|
|
|
|
45,000
|
|
|
|
|
|
|
$
|
26.84
|
|
|
|
3/14/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/15/2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
$
|
65,200
|
|
|
|
|
|
|
|
|
|
3/15/2007(4)
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
$
|
22.66
|
|
|
|
3/15/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/11/2008(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
22,500
|
|
|
$
|
293,400
|
|
|
|
|
|
|
|
|
|
3/18/2008(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
45,000
|
|
|
$
|
586,800
|
|
|
|
|
|
|
|
|
|
Alan Krenek
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/26/2005
|
|
|
76,250
|
|
|
|
|
|
|
|
|
|
|
$
|
5.16
|
|
|
|
1/25/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2005(1)
|
|
|
12,500
|
|
|
|
12,500
|
|
|
|
|
|
|
$
|
6.98
|
|
|
|
3/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/15/2006(2)
|
|
|
6,250
|
|
|
|
18,750
|
|
|
|
|
|
|
$
|
26.84
|
|
|
|
3/14/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/15/2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
$
|
130,400
|
|
|
|
|
|
|
|
|
|
3/15/2007(4)
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
$
|
22.66
|
|
|
|
3/15/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/11/2008(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
$
|
156,480
|
|
|
|
|
|
|
|
|
|
3/18/2008(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
22,500
|
|
|
$
|
293,400
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
or Payout
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Number of
|
|
|
Unearned
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
Unearned
|
|
|
Shares,
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Shares or
|
|
|
Shares,
|
|
|
Units or
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
or Units of
|
|
|
Units of
|
|
|
Units or
|
|
|
Other
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Other Rights
|
|
|
Rights
|
|
|
|
Options
|
|
|
Options
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Option
|
|
|
|
Have Not
|
|
|
Have Not
|
|
|
that Have
|
|
|
That Have
|
|
|
|
(#)
|
|
|
(#)
|
|
|
Options
|
|
|
Price
|
|
|
Expiration
|
|
|
|
Vested
|
|
|
Vested
|
|
|
Not Vested
|
|
|
Not Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
(#)
|
|
|
($)
|
|
|
Date
|
|
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
Charles W. Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/13/2001
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
$
|
4.00
|
|
|
|
8/12/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/5/2003
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
$
|
4.00
|
|
|
|
5/4/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2005(1)
|
|
|
17,500
|
|
|
|
17,500
|
|
|
|
|
|
|
$
|
6.98
|
|
|
|
3/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/15/2006(2)
|
|
|
3,750
|
|
|
|
11,250
|
|
|
|
|
|
|
$
|
26.84
|
|
|
|
3/14/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/15/2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
78,240
|
|
|
|
|
|
|
|
|
|
3/15/2007(4)
|
|
|
|
|
|
|
12,000
|
|
|
|
|
|
|
$
|
22.66
|
|
|
|
3/15/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/11/2008(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
$
|
130,400
|
|
|
|
|
|
|
|
|
|
3/18/2008(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
17,500
|
|
|
$
|
228,200
|
|
|
|
|
|
|
|
|
|
T.M. Roe Patterson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/15/2006(2)
|
|
|
3,750
|
|
|
|
11,250
|
|
|
|
|
|
|
$
|
26.84
|
|
|
|
3/14/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/15/2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
78,240
|
|
|
|
|
|
|
|
|
|
3/15/2007(4)
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
$
|
22.66
|
|
|
|
3/15/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/11/2008(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
$
|
104,320
|
|
|
|
|
|
|
|
|
|
3/18/2008(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
16,500
|
|
|
$
|
215,160
|
|
|
|
|
|
|
|
|
|
James E. Tyner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2005(1)
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
$
|
6.98
|
|
|
|
3/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/15/2006(2)
|
|
|
3,750
|
|
|
|
11,250
|
|
|
|
|
|
|
$
|
26.84
|
|
|
|
3/14/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/15/2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
$
|
52,160
|
|
|
|
|
|
|
|
|
|
3/11/2008(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
$
|
52,160
|
|
|
|
|
|
|
|
|
|
3/18/2008(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
$
|
91,280
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
One half of the unvested options vested on January 1, 2009.
The remainder will vest on January 1, 2010. |
|
(2) |
|
One third of the unvested options vested on January 1,
2009. The remainder will vest in equal increments on
January 1, 2010 and 2011. |
|
(3) |
|
One fourth of the unvested shares of restricted stock vested on
March 15, 2009. The remainder will vest in equal increments
on March 15, 2010, 2011 and 2012. |
|
(4) |
|
One fourth of the unvested options vested on January 1,
2009. The remainder will vest in equal increments on
January 1, 2010, 2011 and 2012. |
|
(5) |
|
Unvested shares of restricted stock will vest in three equal
increments on March 15, 2010, 2011 and 2012. |
|
(6) |
|
Unvested shares of restricted stock will vest in four equal
increments on March 15, 2010, 2011, 2012 and 2013. |
92
Option
Exercises and Stock Vested
The following table sets forth information concerning exercises
of stock options and vesting of restricted stock of each of our
named executive officers during fiscal 2008:
Option
Exercises and Stock Vested 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
|
Acquired
|
|
|
Realized on
|
|
|
Acquired
|
|
|
Realized on
|
|
|
|
on Exercise
|
|
|
Exercise
|
|
|
on Vesting
|
|
|
Vesting
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth V. Huseman
|
|
|
316,205
|
|
|
$
|
6,345,422
|
|
|
|
112,500
|
|
|
$
|
2,352,375
|
|
Alan Krenek
|
|
|
11,750
|
|
|
$
|
187,330
|
|
|
|
|
|
|
$
|
|
|
Charles W. Swift
|
|
|
23,225
|
|
|
$
|
534,392
|
|
|
|
12,500
|
|
|
$
|
261,375
|
|
T.M. Roe Patterson
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
James E. Tyner
|
|
|
500
|
|
|
$
|
9,010
|
|
|
|
|
|
|
$
|
|
|
Nonqualified
Deferred Compensation Plans
The following table sets forth information concerning the
nonqualified deferred compensation of our named executive
officers during fiscal 2008:
Nonqualified
Deferred Compensation 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
Contributions
|
|
|
Contributions
|
|
|
Earnings in
|
|
|
Withdrawals/
|
|
|
Balance at
|
|
|
|
in Last FY
|
|
|
in Last FY
|
|
|
Last FY
|
|
|
Distributions
|
|
|
Last FY
|
|
Name
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
(a)
|
|
(b)(1)
|
|
|
(c)(2)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)(3)
|
|
|
Kenneth V. Huseman
|
|
$
|
85,308
|
|
|
$
|
9,200
|
|
|
$
|
(147,114
|
)
|
|
$
|
|
|
|
$
|
170,398
|
|
Alan Krenek
|
|
$
|
46,192
|
|
|
$
|
9,200
|
|
|
$
|
(60,580
|
)
|
|
$
|
|
|
|
$
|
96,128
|
|
Charles W. Swift
|
|
$
|
39,205
|
|
|
$
|
9,936
|
|
|
$
|
(44,085
|
)
|
|
$
|
|
|
|
$
|
84,226
|
|
T.M. Roe Patterson
|
|
$
|
20,798
|
|
|
$
|
9,373
|
|
|
$
|
(14,277
|
)
|
|
$
|
|
|
|
$
|
36,055
|
|
James E. Tyner
|
|
$
|
99,591
|
|
|
$
|
9,546
|
|
|
$
|
(105,606
|
)
|
|
$
|
|
|
|
$
|
170,843
|
|
|
|
|
(1) |
|
Executive contributions during 2008 are included in the
executives salary and bonus amounts, as applicable, as
reported in the Summary Compensation Table. |
|
(2) |
|
Registrant contributions during 2008 are included in all other
compensation in the Summary Compensation Table. |
|
(3) |
|
All amounts were previously reported as compensation in the
Summary Compensation Tables for previous years. |
Each of our named executive officers is permitted to participate
in our Executive Deferred Compensation Plan. An executive
permitted to participate in this plan may defer a portion of his
compensation, up to a maximum of 50% of his annual salary and
100% of his annual cash bonus, into his plan account. We make an
annual matching contribution to each participating
executives plan account, with the Company matching 100% of
the first 3% of the executives salary that is deferred,
and 50% of the next 2% of the executives salary that is
deferred, up to a plan-year maximum of $9,200. We may also make
discretionary contributions into an executives plan
account from time to time as we deem appropriate. Subject to
certain exceptions, our matching and discretionary contributions
vest in one-fourth increments determined by the executives
years of service, with vesting beginning after two years of
service, and full vesting occurring after five years of service.
Each executive is always fully vested in his own contributions
to his plan account. Earnings on an executives plan
account for
93
any given year are dependent upon the investment options chosen
by the executive for such plan account. Generally, participants
under this plan may elect when and how distributions of vested
amounts in a plan account will be made, including whether such
distributions are in annual installments or a lump sum. However,
certain key employees, including our named executive officers,
may not receive distributions before a date six months after the
date their employment with us is terminated for any reason other
than death or disability.
Potential
Payments upon Termination or
Change-in-Control
Each of our named executive officers is party to an employment
agreement as described above. Pursuant to these agreements,
these officers are entitled to certain severance benefits. In
addition, the grant agreements relating to our executives
stock option and restricted stock awards provide for accelerated
vesting under certain circumstances. The tables below quantify
amounts that would have been paid assuming the following events
took place on December 31, 2008:
Potential
Post-employment Payments as of December 31,
2008 Kenneth V. Huseman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIC with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Termination
|
|
|
Change in
|
|
|
for Good
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
by Company
|
|
|
by Executive
|
|
|
Control
|
|
|
Reason or
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
Termination
|
|
|
Except for
|
|
|
for Good
|
|
|
without
|
|
|
without
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Retirement(1)
|
|
|
for Cause(2)
|
|
|
Cause
|
|
|
Reason(3)
|
|
|
Termination(4)
|
|
|
Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance(5)
|
|
$
|
|
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
2,640,000
|
|
|
$
|
2,640,000
|
|
|
$
|
|
|
|
$
|
2,850,000
|
|
|
$
|
|
|
|
$
|
|
|
Bonus(6)
|
|
$
|
|
|
|
$
|
330,000
|
|
|
$
|
|
|
|
$
|
330,000
|
|
|
$
|
330,000
|
|
|
$
|
|
|
|
$
|
330,000
|
|
|
$
|
330,000
|
|
|
$
|
330,000
|
|
Long-term Incentive(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration of Unvested Stock Options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
303,000
|
|
|
$
|
|
|
|
$
|
|
|
Acceleration of Unvested Restricted Stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
880,200
|
|
|
$
|
|
|
|
$
|
1,092,100
|
|
|
$
|
1,092,100
|
|
|
$
|
945,400
|
|
|
$
|
945,400
|
|
Benefits & Perquisites(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer Contributions to Executive Deferred Compensation Plan
|
|
$
|
|
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
COBRA Continuation
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
21,062
|
|
|
$
|
21,062
|
|
|
|
N/A
|
|
|
$
|
21,062
|
|
|
$
|
|
|
|
$
|
|
|
280G Tax
Gross-up
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
330,000
|
|
|
$
|
|
|
|
$
|
3,871,262
|
|
|
$
|
2,991,062
|
|
|
$
|
1,092,100
|
|
|
$
|
4,596,162
|
|
|
$
|
1,275,400
|
|
|
$
|
1,275,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential
Post-employment Payments as of December 31,
2008 Alan Krenek
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIC with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Termination
|
|
|
Change in
|
|
|
for Good
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
by Company
|
|
|
by Executive
|
|
|
Control
|
|
|
Reason or
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
for
|
|
|
Except for
|
|
|
for Good
|
|
|
without
|
|
|
without
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Retirement(1)
|
|
|
Cause(2)
|
|
|
Cause
|
|
|
Reason(3)
|
|
|
Termination(4)
|
|
|
Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance(5)
|
|
$
|
|
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
675,000
|
|
|
$
|
675,000
|
|
|
$
|
|
|
|
$
|
1,080,000
|
|
|
$
|
|
|
|
$
|
|
|
Bonus(6)
|
|
$
|
|
|
|
$
|
150,000
|
|
|
$
|
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
$
|
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Long-term Incentive(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration of Unvested Stock Options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
75,750
|
|
|
$
|
|
|
|
$
|
|
|
Acceleration of Unvested Restricted Stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
449,880
|
|
|
$
|
|
|
|
$
|
658,520
|
|
|
$
|
658,520
|
|
|
$
|
580,280
|
|
|
$
|
580,280
|
|
Benefits & Perquisites(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer Contributions to Executive Deferred Compensation Plan
|
|
$
|
|
|
|
$
|
10,071
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,071
|
|
|
$
|
10,071
|
|
|
$
|
10,071
|
|
COBRA Continuation
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
21,062
|
|
|
$
|
21,062
|
|
|
|
N/A
|
|
|
$
|
21,062
|
|
|
$
|
|
|
|
$
|
|
|
280G Tax
Gross-up
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
160,071
|
|
|
$
|
|
|
|
$
|
1,295,942
|
|
|
$
|
846,062
|
|
|
$
|
658,520
|
|
|
$
|
1,995,403
|
|
|
$
|
740,351
|
|
|
$
|
740,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
Potential
Post-employment Payments as of December 31,
2008 Charles W. Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIC with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Termination
|
|
|
Change in
|
|
|
for Good
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
by Company
|
|
|
by Executive
|
|
|
Control
|
|
|
Reason or
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
for
|
|
|
Except for
|
|
|
for Good
|
|
|
without
|
|
|
without
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Retirement(1)
|
|
|
Cause(2)
|
|
|
Cause
|
|
|
Reason(3)
|
|
|
Termination(4)
|
|
|
Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance(5)
|
|
$
|
|
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
562,500
|
|
|
$
|
562,500
|
|
|
$
|
|
|
|
$
|
900,000
|
|
|
$
|
|
|
|
$
|
|
|
Bonus(6)
|
|
$
|
|
|
|
$
|
125,000
|
|
|
$
|
|
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
$
|
|
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
Long-term Incentive(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration of Unvested Stock Options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
106,050
|
|
|
$
|
|
|
|
$
|
|
|
Acceleration of Unvested Restricted Stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
358,600
|
|
|
$
|
|
|
|
$
|
502,040
|
|
|
$
|
502,040
|
|
|
$
|
436,840
|
|
|
$
|
436,840
|
|
Benefits & Perquisites(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer Contributions to Executive Deferred Compensation Plan
|
|
$
|
|
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
COBRA Continuation
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
15,096
|
|
|
$
|
15,096
|
|
|
|
N/A
|
|
|
$
|
15,096
|
|
|
$
|
|
|
|
$
|
|
|
280G Tax
Gross-up
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
125,000
|
|
|
$
|
|
|
|
$
|
1,061,196
|
|
|
$
|
702,596
|
|
|
$
|
502,040
|
|
|
$
|
1,648,186
|
|
|
$
|
561,840
|
|
|
$
|
561,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential
Post-employment Payments as of December 31,
2008 T.M. Roe Patterson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIC with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Termination
|
|
|
Change in
|
|
|
for Good
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
by Company
|
|
|
by Executive
|
|
|
Control
|
|
|
Reason or
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
for
|
|
|
Except for
|
|
|
for Good
|
|
|
without
|
|
|
without
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Retirement(1)
|
|
|
Cause(2)
|
|
|
Cause
|
|
|
Reason(3)
|
|
|
Termination(4)
|
|
|
Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance(5)
|
|
$
|
|
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
618,750
|
|
|
$
|
618,750
|
|
|
$
|
|
|
|
$
|
830,000
|
|
|
$
|
|
|
|
$
|
|
|
Bonus(6)
|
|
$
|
|
|
|
$
|
137,500
|
|
|
$
|
|
|
|
$
|
137,500
|
|
|
$
|
137,500
|
|
|
$
|
|
|
|
$
|
137,500
|
|
|
$
|
137,500
|
|
|
$
|
137,500
|
|
Long-term Incentive(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration of Unvested Stock Options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Acceleration of Unvested Restricted Stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
319,480
|
|
|
$
|
|
|
|
$
|
449,880
|
|
|
$
|
449,880
|
|
|
$
|
397,720
|
|
|
$
|
397,720
|
|
Benefits & Perquisites(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer Contributions to Executive Deferred Compensation Plan
|
|
$
|
|
|
|
$
|
9,570
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,570
|
|
|
$
|
9,570
|
|
|
$
|
9,570
|
|
COBRA Continuation
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
21,062
|
|
|
$
|
21,062
|
|
|
|
N/A
|
|
|
$
|
21,062
|
|
|
$
|
|
|
|
$
|
|
|
280G Tax
Gross-up
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
|
N/A
|
|
|
$
|
395,583
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
147,070
|
|
|
$
|
|
|
|
$
|
1,096,792
|
|
|
$
|
777,312
|
|
|
$
|
449,880
|
|
|
$
|
1,843,595
|
|
|
$
|
544,790
|
|
|
$
|
544,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential
Post-employment Payments as of December 31,
2008 James E. Tyner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIC with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Termination
|
|
|
Change in
|
|
|
for Good
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
by Company
|
|
|
by Executive
|
|
|
Control
|
|
|
Reason or
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
for
|
|
|
Except for
|
|
|
for Good
|
|
|
without
|
|
|
Without
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Retirement(1)
|
|
|
Cause(2)
|
|
|
Cause
|
|
|
Reason(3)
|
|
|
Termination(4)
|
|
|
Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance(5)
|
|
$
|
|
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
199,500
|
|
|
$
|
199,500
|
|
|
$
|
|
|
|
$
|
330,000
|
|
|
$
|
|
|
|
$
|
|
|
Bonus(6)
|
|
$
|
|
|
|
$
|
76,000
|
|
|
$
|
|
|
|
$
|
76,000
|
|
|
$
|
76,000
|
|
|
$
|
|
|
|
$
|
76,000
|
|
|
$
|
76,000
|
|
|
$
|
76,000
|
|
Long-term Incentive(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration of Unvested Stock Options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,300
|
|
|
$
|
|
|
|
$
|
|
|
Acceleration of Unvested Restricted Stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
143,440
|
|
|
$
|
|
|
|
$
|
221,680
|
|
|
$
|
221,680
|
|
|
$
|
195,600
|
|
|
$
|
195,600
|
|
Benefits & Perquisites(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer Contributions to Executive Deferred Compensation Plan
|
|
$
|
|
|
|
$
|
5,337
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,337
|
|
|
$
|
5,337
|
|
|
$
|
5,337
|
|
COBRA Continuation
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
15,096
|
|
|
$
|
15,096
|
|
|
|
N/A
|
|
|
$
|
15,096
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
81,337
|
|
|
$
|
|
|
|
$
|
434,036
|
|
|
$
|
290,596
|
|
|
$
|
221,680
|
|
|
$
|
678,413
|
|
|
$
|
276,937
|
|
|
$
|
276,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
(1) |
|
Retirement. Retirement is defined
for purposes of Mr. Husemans employment agreement as
his voluntary termination of his employment after attaining
age 60 and accruing five years of service with us, and for
purposes of each other executives employment agreement, as
such executives voluntary termination of his employment
after attaining age 65 and accruing ten years of service
with us. For purposes of the acceleration of unvested stock
options, Retirement means the voluntary termination
of his employment by an executive after he has attained the age
of 65. |
|
(2) |
|
Cause. Under each executives employment
agreement, the definition of Cause includes, among
other things, conviction of the executive of a crime involving
moral turpitude or a felony, commission by the executive of
fraud upon, or misappropriation of funds of, the Company,
knowing engagement by the executive in any activity in direct
competition with the Company, and a material breach by the
executive of such employment agreement. For purposes of the
acceleration of unvested stock options, Cause has
the same meaning as it has for purposes of the 2003 Incentive
Plan. For purposes of the acceleration of unvested restricted
stock, Cause has the same meaning as it has for
purposes of the executives employment agreement. |
|
(3) |
|
Good Reason. Under each executives
employment agreement, the definition of Good Reason
includes, among other things, a reduction in the
executives base salary or bonus opportunity, a relocation
of more than fifty miles of the executives principal
office, a substantial and adverse change in the executives
duties, control, authority, status or position, the failure of
the Company to continue in effect any pension plan, life
insurance plan,
health-and-accident
plan, retirement plan, disability plan, stock option plan,
deferred compensation plan or executive incentive compensation
plan under which the executive was receiving material benefits,
or the Companys material reduction of the executives
benefits under any such plan, and any material breach by the
Company of any other material provision of such employment
agreement. Prior to terminating his employment for Good Reason,
the executive must comply with the notice provisions of his
employment agreement. For purposes of the acceleration of
unvested stock options, Good Reason has the same
meaning as it has for purposes of the 2003 Incentive Plan,
except that any reduction in the executives salary, bonus
opportunity or benefit must follow a change in control. For
purposes of the acceleration of unvested restricted stock,
Good Reason has the same meaning as it has for
purposes of the executives employment agreement. |
|
(4) |
|
Change in Control. Under each executives
employment agreement, the definition of Change in
Control (or CIC) includes, subject to certain
exceptions, (i) acquisition by any individual, entity or
group of beneficial ownership of 50% or more of either the then
outstanding shares of common stock of the Company or the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors, (ii) approval by the shareholders of the Company
of a merger, unless immediately following such merger,
substantially all of the holders of the Companys
securities immediately prior to merger beneficially own more
than 50% of the common stock of the corporation resulting from
such merger, and (iii) the sale or other disposition of all
or substantially all of the assets of the Company. For purposes
of the acceleration of unvested stock options, Change in
Control has the same meaning as it has for purposes of the
2003 Incentive Plan. For purposes of the acceleration of
unvested restricted stock, Change in Control has the
same meaning as it has for purposes of the executives
employment agreement. For purposes of the executive deferred
compensation plan, Change in Control means, subject
to certain exceptions, (i) the acquisition by any person
other than DLJ Merchant Banking and its affiliates of 40% or
more of the combined voting power of the Companys
securities, (ii) the directors serving on the
Companys Board of Directors at the time the plan was
adopted ceasing to constitute a majority of the Companys
Board of Directors, or (iii) the liquidation or dissolution
of, or the sale of substantially all of the assets of, the
Company. |
|
(5) |
|
Severance. |
|
|
|
Termination except for Cause or termination of his own
employment for Good Reason or Retirement |
|
|
Each executive would be entitled to a lump sum severance payment
equal to a multiple of the sum of his base salary plus his
current annual incentive target bonus for the full year in which
the termination of employment occurred. For Mr. Huseman,
the multiple is three, for Messrs. Krenek, Swift and
Patterson, the multiple is 1.50, and for Mr. Tyner, the
multiple is 0.75. During 2008, the annual incentive target |
96
|
|
|
|
|
bonus for our named executive officers utilized was 60% for
Mr. Huseman, 50% for Messrs. Krenek, Swift and
Patterson and 40% for Mr. Tyner, in each case of their
annual salary as of the end of the fiscal year. We paid annual
incentive bonuses to our named executive officers of between
approximately 30% and 60% of their annual salaries as of the end
of the fiscal year. |
|
|
|
Termination except for Cause, or termination of his own
employment for Good Reason or Retirement, within the six months
preceding or the twelve months following a Change in Control |
|
|
Each executive would be entitled to a lump sum severance payment
equal to a multiple of the sum of his base salary plus the
higher of (i) his current annual incentive target bonus for
the full year in which the termination of employment occurred or
(ii) the highest annual incentive bonus received by him for
any of the last three fiscal years. For Mr. Huseman, the
multiple is three, for Messrs. Krenek, Swift and Patterson,
the multiple is two, and for Mr. Tyner, the multiple is one. |
|
(6) |
|
Bonus. In addition to severance payments, the
named executive officers are entitled to a pro rata portion of
their estimated bonus upon certain events of termination. The
above tables reflect the annual incentive target bonus for the
named executive officers for 2008. |
|
(7) |
|
Long-Term Incentive. |
|
|
|
Stock Options |
|
|
In the event of a termination of the executive by the Company
for Cause or voluntary termination by the executive (other than
for Retirement), all vested and unvested stock options expire on
the termination date. In the event of Retirement, all unvested
stock options expire on the termination date and all vested
options expire six months after the termination date. In the
event of death or disability, all unvested stock options expire
on the termination date and all vested options expire one year
after the termination date. In the event of any other
involuntary or voluntary termination, all unvested stock options
expire on the termination date and all vested options expire
90 days after the termination date. If the executives
employment is terminated by the Company other than for Cause or
terminated by the executive for Good Reason, in either case
within two years after a Change in Control, all unvested stock
options will immediately vest pursuant to the terms of the grant
agreement and the 2003 Incentive Plan. |
|
|
|
Restricted Stock |
|
|
All unvested shares of restricted stock will be forfeited by the
executive if the executives employment is terminated by
the Company for Cause or by the executive other than for Good
Reason or as a result of a Change in Control. For awards granted
after March 1, 2005, if the executives employment is
terminated by the Company other than for Cause or terminated by
the executive for Good Reason, in either case within two years
after a Change in Control, all unvested shares of restricted
stock will immediately vest pursuant to the terms of the grant
agreement. For awards on or prior to March 1, 2005, in the
event of a Change in Control, all unvested shares of restricted
stock will immediately vest pursuant to the 2003 Incentive Plan. |
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(8) |
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Other Benefits and Perquisites. |
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Employer Contributions to Executive Deferred Compensation
Plan |
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Each executive will become fully vested in all unvested matching
and discretionary contributions made by the Company into his
plan account upon (i) obtaining the age of 65,
(ii) his death or disability or (iii) a termination
for any reason whatsoever within 24 months following a
Change in Control. Otherwise, each executive will forfeit any
unvested portion of his plan account upon a termination for any
reason. Additionally, certain key employees, including the named
executive officers, may not receive distributions before a date
six months after the date they separate service from the Company
for any reason other than death or disability. |
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COBRA Continuation |
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In addition to the above cash benefits paid pursuant to each
executives employment agreement, the Company will continue
to provide the executive and his dependents with health benefits
for up to 18 months. |
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280G Tax
Gross-up |
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The employment agreements for Messrs. Huseman, Krenek,
Swift and Patterson provide for gross up payments to the extent
Section 280G of the Internal Revenue Code would apply to
any payments as excess parachute payments. The
employment agreement for Mr. Tyner does not contain this
provision. |
97
Any benefits payable as described above are payable in a cash
lump sum not later than 60 calendar days following the
termination date. The employment agreements of the named
executive officers also contain certain non-competition and
non-solicitation provisions. For additional information
regarding these employment agreements, see Executive
Compensation and Corporate Governance Matters
Employment Agreements.
Director
Compensation
The following table sets forth information concerning the 2008
compensation of each of our directors other than Kenneth V.
Huseman, who is a named executive officer and receives no
compensation for serving as a director:
Director
Compensation 2008
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Change in
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Pension Value
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Fees
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and
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Earned or
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Non-Equity
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Nonqualified
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Paid in
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Stock
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Option
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Incentive Plan
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Deferred
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All Other
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Cash
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Awards
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Awards
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Compensation
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Compensation
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Compensation
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Total
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Name
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($)
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($)
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($)
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($)
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Earnings
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($)
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($)
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(a)
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(b)
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(c)(1)
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(d)(2)
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(e)
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(f)
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(g)
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(h)
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Steven A. Webster
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$
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8,000
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$
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114,639
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$
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44,337
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$
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$
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$
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$
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166,976
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H.H. Wommack, III(3)
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$
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59,000
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$
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29,959
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$
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44,337
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$
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$
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$
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$
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133,296
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Sylvester P. Johnson, IV
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$
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67,000
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$
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29,959
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$
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44,337
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$
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$
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$
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$
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141,296
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William E. Chiles
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$
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77,000
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$
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29,959
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$
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44,337
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$
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$
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$
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$
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151,296
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Robert F. Fulton
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$
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49,000
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$
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29,959
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$
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44,337
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$
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$
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$
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$
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123,296
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James S. DAgostino, Jr.
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$
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69,000
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$
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29,959
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$
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44,337
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$
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$
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$
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$
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143,296
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Thomas P. Moore, Jr.
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$
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82,000
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$
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29,959
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$
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75,012
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$
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$
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$
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$
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186,971
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(1) |
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The grant date fair value of stock awards granted in 2008 were
as follows: Steven A. Webster: $169,360; all other directors:
$84,680 each. Each of our directors had the following aggregate
number of restricted stock awards outstanding at
December 31, 2008: Steven A. Webster: 16,000; H. H.
Wommack, III: 8,000; Sylvester P. Johnson, IV: 8,000;
William E. Chiles: 8,000; Robert F. Fulton: 8,000; James S.
DAgostino, Jr.: 8,000; and Thomas P. Moore, Jr.: 8,000. |
|
(2) |
|
Each of our directors had the following aggregate number of
option awards outstanding at December 31, 2008: Steven A.
Webster: 97,500; H. H. Wommack, III: 97,500; Sylvester P.
Johnson, IV: 97,500; William E. Chiles: 17,500; Robert
F. Fulton: 97,500; James S. DAgostino, Jr.: 77,500; and
Thomas P. Moore, Jr.: 42,500. |
|
(3) |
|
Effective June 3, 2009, Mr. Wommack resigned from the
board of directors. |
For additional information regarding fees earned for services as
a director in 2008, including annual retainer fees, committee
and chairmanship fees, and meeting fees, see Board of
Directors Compensation. For additional
information regarding fees earned for services as a director
effective beginning in 2007, see Compensation Discussion
and Analysis Board Process Compensation
of Directors.
Board of
Directors
Compensation
Directors who are our employees do not receive a retainer or
fees for service on the Board or any committees. We pay
non-employee members of the Board for their service as
directors. For 2008, directors who were not employees received
an annual fee of $35,000. In addition, the chairman of each
committee received the following annual fees: Audit
Committee $15,000; Compensation
Committee $10,000; and Nominating and Corporate
Governance Committee $10,000. Directors who were not
employees received a fee of $2,000 for each Board meeting
attended whether in person or telephonically. For committee
meetings, directors who were not employees received a fee of
$2,000 for each committee meeting attended whether in
98
person or telephonically. In addition, each non-employee
director has received, upon election to the Board, a stock
option to purchase 37,500 shares of our common stock at the
market price on the date of grant, and the option vests ratably
over three years.
In 2008, based in part on a review and recommendations by Pearl
Meyer & Partners, our independent compensation
consultants, and our Compensation Committee, and consistent with
compensation for 2007, each non-employee director received an
annual grant of 4,000 shares of restricted stock that vest
ratably over four years. Our Chairman was also granted
additional shares of restricted stock in 2007 and in 2008 that
vested upon issuance as consideration for services in his
capacity as Chairman and in lieu of his annual director fees.
For additional information regarding fees earned for services as
a director effective in 2007 and 2008, see Compensation
Discussion and Analysis Board Process
Compensation of Directors. Directors are reimbursed for
reasonable
out-of-pocket
expenses incurred in attending meetings of the Board or
committees and for other reasonable expenses related to the
performance of their duties as directors.
Independence
Our Board of Directors currently consists of eight members,
including five members determined by our Board to be
independent Messrs. DAgostino, Chiles,
Garza, Johnson, and Moore.
For 2008, the Board determined that
Messrs. DAgostino, Chiles, Johnson, Moore and Wommack
were independent as that term is defined by rules of the New
York Stock Exchange and, in the case of the Audit Committee,
rules of the Securities and Exchange Commission. In determining
that each of these directors was independent, the Board
considered that the Company and its subsidiaries in the ordinary
course of business sell products and services to other
companies, including those at which certain directors serve (or
recently served) as executive officers or directors. In
particular, Carrizo Oil & Gas, Inc., a company for
which Mr. Johnson serves as President and Chief Executive
Officer and a director, used the services of the Company, but
such services represented less than 2% of Carrizos
revenues in 2007 and 2008. Affiliates of Mr. Wommack also
used services of the Company, but such services also represented
less than 2% of such affiliates revenues. In each case,
the transactions and contributions did not automatically
disqualify the directors from being considered independent under
the NYSE rules. The Board also determined that these
transactions were not otherwise material to the Company or to
the other company involved in the transactions and that none of
our directors had a material interest in the transactions with
these companies. Based upon its review, the Board of Directors
affirmatively determined that each of these directors was
independent during 2008 and that none of these independent
directors had a material relationship with the Company.
Effective June 3, 2009, Mr. Wommack resigned from the
Board.
Compensation
Committee Interlocks and Insider Participation
Messrs. Chiles (Chairman), DAgostino and Wommack
served as the members of our Compensation Committee during 2008.
None of our executive officers serves as a member of the board
of directors or compensation committee of any entity that has
one or more of its executive officers serving as a member of our
Board of Directors or Compensation Committee. Effective
June 3, 2009, Mr. Wommack resigned from the Board.
99
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Related Persons. Basic had
receivables from employees of approximately $138,000 and
$148,000 as of June 30, 2009 and December 31, 2008,
respectively. During 2006, Basic entered into a lease agreement
with Darle Vuelta Cattle Co., LLC, an affiliate of the Chief
Executive Officer, for approximately $69,000. The term of the
lease is five years and will continue on a
year-to-year
basis unless terminated by either party.
Review, Approval or Ratification of Transactions with Related
Persons. Pursuant to the charter of the Audit
Committee, the Audit Committee is responsible for establishing
procedures for the approval of all related party transactions
between the Company and any officer or director that would
potentially require disclosure. The Board of Directors has
adopted a written policy regarding related party transactions
that is to be administered by the Audit Committee. The policy
applies generally to transactions, arrangements or relationships
in which the Company was, is or will be a participant, in which
the amount involved exceeds $60,000 and in which any related
person had, has or will have a direct or indirect material
interest. Related persons include, among others, directors and
officers of the Company, beneficial owners of 5% or more of the
Companys voting securities, immediate family members of
the foregoing persons, and any entity in which the foregoing
persons are employed, are a principal or in which such person
has more than a 10% beneficial ownership interest. The
Companys Chief Financial Officer is responsible for
submitting related person transactions to the Audit Committee
for approval by the committee at regularly scheduled meetings,
or, if such approval is not practicable, to the Chairman of the
Audit Committee for approval between such meetings. When
considering related person transactions, the Audit Committee, or
where submitted to the Chairman, the Chairman, will consider all
of the relevant facts available, including, but not limited to:
the benefits of the transaction to the Company; the impact on a
directors independence in the event the related person is
a director; the availability of other sources for comparable
products or services; the terms of the transaction; and the
terms of comparable transactions available to unrelated third
parties or to employees of the Company generally. The Company is
not aware of any transaction that was required to be reported in
its filings with the SEC where such policies and procedures
either did not require review or were not followed.
100
DESCRIPTION
OF OTHER INDEBTEDNESS
Credit
Facility
On July 31, 2009, in connection with the closing of $225.0
principal amount of our 11.625% Senior Secured Notes due
2014, we repaid all of the borrowings under and terminated our
revolving credit facility, and we are unable to borrow any
amounts under it. The indenture governing our Senior Secured
Notes limits the amount that we could borrow under a future
secured credit facility to the difference between
(i) $240 million and (ii) the sum of
(a) $212.9 million (the principal amount of the Senior
Secured Notes, net of offering discount) and (b) our
outstanding collateralized letters of credit, subject to
possible upward adjustment of the amount in clause (i)
based on our consolidated tangible assets.
7.125% Senior
Notes Due 2016
Our $225 million aggregate principal amount of
7.125% Senior Notes due April 15, 2016 were issued
pursuant to an indenture, dated as of April 12, 2006, by
and among us, the guarantor parties thereto and The Bank of New
York Trust Company, N.A., as trustee. The Senior Notes are
jointly and severally guaranteed by each of our subsidiaries,
other than Basic Energy Services International, LLC and ESA de
Mexico, S.A. de C.V., two immaterial subsidiaries that have no
indebtedness and have not guaranteed other debt.
Interest on the Senior Notes accrues at a rate of 7.125% per
year and is payable in cash semi-annually in arrears on April 15
and October 15 of each year. The Senior Notes mature on
April 15, 2016. The Senior Notes and the guarantees are
unsecured and rank equally with all of our and the
guarantors existing and future unsecured and
unsubordinated obligations. The Senior Notes and the guarantees
rank senior in right of payment to any of our and the
guarantors existing and future obligations that are, by
their terms, expressly subordinated in right of payment to the
Senior Notes and the guarantees. The Senior Notes and the
guarantees are effectively subordinated to our and the
guarantors secured obligations, including the Senior
Secured Notes and any future secured credit facility, to the
extent of the value of the assets securing such obligations.
The indenture contains covenants that limit the ability of us
and certain of our subsidiaries to:
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incur additional indebtedness;
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pay dividends or repurchase or redeem capital stock;
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make certain investments;
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incur liens;
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enter into certain types of transactions with affiliates;
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limit dividends or other payments by restricted
subsidiaries; and
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sell assets or consolidate or merge with or into other companies.
|
These limitations are subject to a number of important
qualifications and exceptions.
Upon an Event of Default (as defined in the indenture), the
trustee or the holders of at least 25% in aggregate principal
amount of the Senior Notes then outstanding may declare all of
the amounts outstanding under the Senior Notes to be due and
payable immediately.
We may, at our option, redeem all or part of the Senior Notes,
at any time on or after April 15, 2011, at a redemption
price equal to 100% of the principal amount thereof, plus a
premium declining ratably to par and accrued and unpaid
interest, if any, to the date of redemption.
If we experience certain kinds of changes of control, holders of
the Senior Notes will be entitled to require us to purchase all
or a portion of the Senior Notes at 101% of their principal
amount, plus accrued and unpaid interest.
Other
Debt
At the closing of our Senior Secured Notes offering, we pledged
cash collateral with respect to the approximately
$16.2 million of letters of credit that were outstanding
under our revolving credit facility.
We have a variety of other capital leases and notes payable
outstanding that is generally customary in our business. None of
these debt instruments are material individually or in the
aggregate. As of June 30, 2009, we had total capital leases
of approximately $75.3 million.
101
THE
EXCHANGE OFFER
Purpose
and Effect of the Exchange Offer
On July 31, 2009, we sold $225.0 million in aggregate
principal amount of the old notes in a private placement. The
old notes were sold to the initial purchasers who in turn resold
the notes to a limited number of qualified institutional buyers
pursuant to Rule 144A of the Securities Act.
In connection with the sale of the old notes, we entered into a
registration rights agreement with the initial purchasers of the
old notes, pursuant to which we agreed to file and to use our
reasonable best efforts to cause to be declared effective by the
SEC a registration statement with respect to the exchange of the
old notes for the new notes. We are making the exchange offer to
fulfill our contractual obligations under that agreement. A copy
of the registration rights agreement has been filed as an
exhibit to the registration statement of which this prospectus
is a part.
Pursuant to the exchange offer, we will issue the new notes in
exchange for old notes. The terms of the new notes are identical
in all material respects to those of the old notes, except that
the new notes (1) have been registered under the Securities
Act and therefore will not be subject to certain restrictions on
transfer applicable to the old notes and (2) will not have
registration rights or provide for any liquidated damages
related to the obligation to register. Please read
Description of the New Notes for more information on
the terms of the new notes.
We are not making the exchange offer to, and will not accept
tenders for exchange from, holders of old notes in any
jurisdiction in which an exchange offer or the acceptance
thereof would not be in compliance with the securities or blue
sky laws of such jurisdiction. Unless the context requires
otherwise, the term holder with respect to the
exchange offer means any person in whose name the old notes are
registered on our books or any other person who has obtained a
properly completed bond power from the registered holder, or any
person whose old notes are held of record by The Depository
Trust Company, referred to as DTC, who desires to deliver
such old notes by book-entry transfer at DTC.
We make no recommendation to the holders of old notes as to
whether to tender or refrain from tendering all or any portion
of their old notes pursuant to the exchange offer. In addition,
no one has been authorized to make any such recommendation.
Holders of old notes must make their own decision whether to
tender pursuant to the exchange offer and, if so, the aggregate
amount of old notes to tender after reading this prospectus and
the letter of transmittal and consulting with their advisors, if
any, based on their own financial position and requirements.
In order to participate in the exchange offer, you must
represent to us, among other things, that:
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you are acquiring the new notes in the exchange offer in the
ordinary course of your business;
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you do not have and to your knowledge, no one receiving new
notes from you has, any arrangement or understanding with any
person to participate in the distribution of the new notes;
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you are not one of our or our subsidiary guarantors
affiliates, as defined in Rule 405 of the Securities
Act;
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if you are not a broker-dealer, you are not engaged in, and do
not intend to engage in, a distribution of the new
notes; and
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if you are a broker-dealer that will receive new notes for your
own account in exchange for old notes acquired as a result of
market-making or other trading activities, you will deliver a
prospectus in connection with any resale of the new notes.
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Please read Plan of Distribution.
102
Terms of
Exchange
Upon the terms and conditions described in this prospectus and
in the accompanying letter of transmittal, which together
constitute the exchange offer, we will accept for exchange old
notes that are properly tendered at or before the expiration
time and not withdrawn as permitted below. As of the date of
this prospectus, $225.0 million aggregate principal amount
of 11.625% Senior Secured Notes due 2014 are outstanding.
This prospectus, together with the letter of transmittal, is
first being sent on or about the date on the cover page of the
prospectus to all holders of old notes known to us. Old notes
tendered in the exchange offer must be in denominations of
principal amount of $2,000 and any integral multiple of $1,000
in excess of $2,000.
Our acceptance of the tender of old notes by a tendering holder
will form a binding agreement between the tendering holder and
us upon the terms and subject to the conditions provided in this
prospectus and in the accompanying letter of transmittal.
The form and terms of the new notes being issued in the exchange
offer are the same as the form and terms of the old notes except
that:
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the new notes being issued in the exchange offer will have been
registered under the Securities Act;
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the new notes being issued in the exchange offer will not bear
the restrictive legends restricting their transfer under the
Securities Act;
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the new notes being issued in the exchange offer will not
contain the registration rights contained in the old
notes; and
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the new notes being issued in the exchange offer will not
contain the liquidated damages provisions relating to the old
notes.
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Expiration,
Extension and Amendment
The expiration time of the exchange offer is 5:00 P.M., New
York City time,
on ,
2009. However, we may, in our sole discretion, extend the period
of time for which the exchange offer is open and set a later
expiration date for the offer. The term expiration
time as used herein means the latest time and date at
which the exchange offer expires, after any extension by us (if
applicable). If we decide to extend the exchange offer period,
we will then delay acceptance of any old notes by giving oral or
written notice of an extension to the holders of old notes as
described below. During any extension period, all old notes
previously tendered will remain subject to the exchange offer
and may be accepted for exchange by us. Any old notes not
accepted for exchange will be returned to the tendering holder
after the expiration or termination of the exchange offer.
Our obligation to accept old notes for exchange in the exchange
offer is subject to the conditions described below under
Conditions to the Exchange Offer. We may
decide to waive any of the conditions in our discretion.
Furthermore, we reserve the right to amend or terminate the
exchange offer, and not to accept for exchange any old notes not
previously accepted for exchange, upon the occurrence of any of
the conditions of the exchange offer specified below under the
same heading. We will give oral or written notice of any
extension, amendment, non-acceptance or termination to the
holders of the old notes as promptly as practicable. If we
materially change the terms of the exchange offer, we will
resolicit tenders of the old notes, file a post-effective
amendment to the prospectus and provide notice to you. If the
change is made less than five business days before the
expiration of the exchange offer, we will extend the offer so
that the holders have at least five business days to tender or
withdraw. We will notify you of any extension by means of a
press release or other public announcement no later than
9:00 A.M., New York City time, on the first business day
after the previously scheduled expiration time.
103
Procedures
for Tendering
Valid
Tender
Except as described below, a tendering holder must, prior to the
expiration time, transmit to The Bank of New York Mellon
Trust Company, N.A., the exchange agent, at the address
listed below under the caption Exchange
Agent:
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a properly completed and duly executed letter of transmittal,
including all other documents required by the letter of
transmittal; or
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if old notes are tendered in accordance with the book-entry
procedures listed below, an agents message transmitted
through DTCs Automated Tender Offer Program, referred to
as ATOP.
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In addition, you must:
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deliver certificates, if any, for the old notes to the exchange
agent at or before the expiration time; or
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deliver a timely confirmation of the book-entry transfer of the
old notes into the exchange agents account at DTC, the
book-entry transfer facility, along with the letter of
transmittal or an agents message; or
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comply with the guaranteed delivery procedures described below.
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The term agents message means a message,
transmitted by DTC to, and received by, the exchange agent and
forming a part of a book-entry confirmation, that states that
DTC has received an express acknowledgment that the tendering
holder agrees to be bound by the letter of transmittal and that
we may enforce the letter of transmittal against such holder.
If the letter of transmittal is signed by a person other than
the registered holder of old notes, the letter of transmittal
must be accompanied by a written instrument of transfer or
exchange in satisfactory form duly executed by the registered
holder with the signature guaranteed by an eligible institution.
The old notes must be endorsed or accompanied by appropriate
powers of attorney. In either case, the old notes must be signed
exactly as the name of any registered holder appears on the old
notes.
If the letter of transmittal or any old notes or powers of
attorney are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, these persons
should so indicate when signing. Unless waived by us, proper
evidence satisfactory to us of their authority to so act must be
submitted.
By tendering, each holder will represent to us that, among other
things, the person is not our affiliate or an affiliate of any
of our subsidiary guarantors, the new notes are being acquired
in the ordinary course of business of the person receiving the
new notes, whether or not that person is the holder, and neither
the holder nor the other person has any arrangement or
understanding with any person to participate in the distribution
of the new notes. Each broker-dealer must represent that it is
not engaged in, and does not intend to engage in, a distribution
of the new notes, and each broker-dealer that receives new notes
for its own account in exchange for old notes, where such old
notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with
any resale of such new notes. Please read Plan of
Distribution.
The method of delivery of old notes, letters of transmittal and
all other required documents is at your election and risk, and
the delivery will be deemed made only upon actual receipt or
confirmation by the exchange agent. If the delivery is by mail,
we recommend that you use registered mail, properly insured,
with return receipt requested. In all cases, you should allow
sufficient time to assure timely delivery. Holders tendering
through DTCs ATOP system should allow sufficient time for
completion of the ATOP procedures during the normal business
hours of DTC on such dates.
No old notes, agents messages, letters of transmittal or
other required documents should be sent to us. Delivery of all
old notes, agents messages, letters of transmittal and
other documents must be made to the
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exchange agent. Holders may also request their respective
brokers, dealers, commercial banks, trust companies or nominees
to effect such tender for such holders.
If you are a beneficial owner whose old notes are registered in
the name of a broker, dealer, commercial bank, trust company or
other nominee, and wish to tender, you should promptly instruct
the registered holder to tender on your behalf. Any registered
holder that is a participant in DTCs ATOP system may make
book-entry delivery of the old notes by causing DTC to transfer
the old notes into the exchange agents account. The tender
by a holder of old notes, including pursuant to the delivery of
an agents message through DTCs ATOP system, will
constitute an agreement between such holder and us in accordance
with the terms and subject to the conditions set forth herein
and in the letter of transmittal.
All questions as to the validity, form, eligibility, time of
receipt and withdrawal of the tendered old notes will be
determined by us in our sole discretion, which determination
will be final and binding. We reserve the absolute right to
reject any and all old notes not validly tendered or any old
notes which, if accepted, would, in the opinion of our counsel,
be unlawful. We also reserve the absolute right to waive any
irregularities or conditions of tender as to particular old
notes. Our interpretation of the terms and conditions of this
exchange offer, including the instructions in the letter of
transmittal, will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders
of old notes must be cured within such time as we shall
determine. Although we intend to notify you of defects or
irregularities with respect to tenders of old notes, none of us,
the exchange agent, or any other person shall be under any duty
to give notification of defects or irregularities with respect
to tenders of old notes, nor shall any of them incur any
liability for failure to give such notification. Tenders of old
notes will not be deemed to have been made until such
irregularities have been cured or waived. Any old notes received
by the exchange agent that are not validly tendered and as to
which the defects or irregularities have not been cured or
waived will be returned without cost to such holder by the
exchange agent, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration
date of the exchange offer.
Although we have no present plan to acquire any old notes that
are not tendered in the exchange offer or to file a registration
statement to permit resales of any old notes that are not
tendered in the exchange offer, we reserve the right, in our
sole discretion, to purchase or make offers for any old notes
after the expiration date of the exchange offer, from time to
time, through open market or privately negotiated transactions,
one or more additional exchange or tender offers, or otherwise,
as permitted by law, the indenture and our other debt
agreements. Following consummation of this exchange offer, the
terms of any such purchases or offers could differ materially
from the terms of this exchange offer.
Signature
Guarantees
Signatures on a letter of transmittal or a notice of withdrawal
must be guaranteed, unless the old notes surrendered for
exchange are tendered:
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by a registered holder of the old notes who has not completed
the box entitled Special Issuance Instructions or
Special Delivery Instructions on the letter of
transmittal, or
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for the account of an eligible institution.
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If signatures on a letter of transmittal or a notice of
withdrawal are required to be guaranteed, the guarantees must be
by an eligible institution. An eligible
institution is an eligible guarantor
institution meeting the requirements of the registrar for
the notes within the meaning of
Rule 17Ad-15
under the Exchange Act.
Book-entry
Transfer
The exchange agent will make a request to establish an account
for the old notes at DTC for purposes of the exchange offer. Any
financial institution that is a participant in DTCs system
may make book-entry delivery of old notes by causing DTC to
transfer those old notes into the exchange agents account
at DTC in accordance with DTCs procedure for transfer. The
participant should transmit its acceptance to DTC at or prior to
the expiration time or comply with the guaranteed delivery
procedures described below. DTC will
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verify this acceptance, execute a book-entry transfer of the
tendered old notes into the exchange agents account at DTC
and then send to the exchange agent confirmation of this
book-entry transfer. The confirmation of this book-entry
transfer will include an agents message confirming that
DTC has received an express acknowledgment from this participant
that this participant has received and agrees to be bound by the
letter of transmittal and that we may enforce the letter of
transmittal against this participant.
Delivery of new notes issued in the exchange offer may be
effected through book-entry transfer at DTC. However, the letter
of transmittal or facsimile of it or an agents message,
with any required signature guarantees and any other required
documents, must:
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be transmitted to and received by the exchange agent at the
address listed under Exchange Agent at
or prior to the expiration time; or
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comply with the guaranteed delivery procedures described below.
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Delivery of documents to DTC in accordance with DTCs
procedures does not constitute delivery to the exchange agent.
Guaranteed
Delivery
If a registered holder of old notes desires to tender the old
notes, and the old notes are not immediately available, or time
will not permit the holders old notes or other required
documents to reach the exchange agent before the expiration
time, or the procedures for book-entry transfer described above
cannot be completed on a timely basis, a tender may nonetheless
be made if:
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the tender is made through an eligible institution;
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prior to the expiration time, the exchange agent receives by
facsimile transmission, mail or hand delivery from such eligible
institution a properly and validly completed and duly executed
notice of guaranteed delivery, substantially in the form
provided by us:
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stating the name and address of the holder of old notes and the
amount of old notes tendered,
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stating that the tender is being made, and
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3.
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guaranteeing that within three New York Stock Exchange trading
days after the expiration time, the certificates for all
physically tendered old notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, and a properly
completed and duly executed letter of transmittal, or an
agents message, and any other documents required by the
letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
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the certificates for all physically tendered old notes, in
proper form for transfer, or a book-entry confirmation, as the
case may be, and a properly completed and duly executed letter
of transmittal, or an agents message, and all other
documents required by the letter of transmittal, are received by
the exchange agent within three New York Stock Exchange trading
days after the date of execution of the notice of guaranteed
delivery.
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Determination
of Validity
We will determine in our sole discretion all questions as to the
validity, form and eligibility of old notes tendered for
exchange. This discretion extends to the determination of all
questions concerning the timing of receipts and acceptance of
tenders. These determinations will be final and binding. We
reserve the right to reject any particular old note not properly
tendered or of which our acceptance might, in our judgment or
our counsels judgment, be unlawful. We also reserve the
right to waive any defects or irregularities or conditions of
the exchange offer as to any particular old note either before
or after the expiration time, including the right to waive the
ineligibility of any tendering holder. Our interpretation of the
terms and conditions of the exchange offer as to any particular
old note either before or after the applicable expiration time,
including the letter of transmittal and the instructions to the
letter of transmittal, shall be final and binding on all
parties.
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Unless waived, any defects or irregularities in connection with
tenders of old notes must be cured within a reasonable period of
time.
Neither we, the exchange agent nor any other person will be
under any duty to give notification of any defect or
irregularity in any tender of old notes. Moreover, neither we,
the exchange agent nor any other person will incur any liability
for failing to give notifications of any defect or irregularity.
Acceptance
of Old Notes for Exchange; Issuance of New Notes
Upon the terms and subject to the conditions of the exchange
offer, we will accept, promptly after the expiration time, all
old notes properly tendered. We will issue the new notes
promptly after acceptance of the old notes. For purposes of an
exchange offer, we will be deemed to have accepted properly
tendered old notes for exchange when, as and if we have given
oral or written notice to the exchange agent, with prompt
written confirmation of any oral notice.
For each old note accepted for exchange, the holder will receive
a new note registered under the Securities Act having a
principal amount equal to that of the surrendered old note.
Under the registration rights agreement, we may be required to
make additional payments in the form of liquidated damages to
the holders of the old notes under circumstances relating to the
timing of the exchange offer.
In all cases, issuance of new notes for old notes will be made
only after timely receipt by the exchange agent of:
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a certificate for the old notes, or a timely book-entry
confirmation of the old notes, into the exchange agents
account at the book-entry transfer facility;
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a properly completed and duly executed letter of transmittal or
an agents message; and
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all other required documents.
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Unaccepted or non-exchanged old notes will be returned without
expense to the tendering holder of the old notes. In the case of
old notes tendered by book-entry transfer in accordance with the
book-entry procedures described above, the non-exchanged old
notes will be credited to an account maintained with DTC as
promptly as practicable after the expiration or termination of
the exchange offer. For each old note accepted for exchange, the
holder of the old note will receive a new note having a
principal amount equal to that of the surrendered old note.
Interest
Payments on the New Notes
The new notes will bear interest from the most recent date to
which interest has been paid on the old notes for which they
were exchanged. Accordingly, registered holders of new notes on
the relevant record date for the first interest payment date
following the completion of the exchange offer will receive
interest accruing from the most recent date to which interest
has been paid on the old notes or, if no interest has been paid
on the old notes, from July 31, 2009. Old notes accepted
for exchange will cease to accrue interest from and after the
date of completion of the exchange offer and will be deemed to
have waived their rights to receive the accrued interest on the
old notes.
Withdrawal
Rights
Tender of old notes may be properly withdrawn at any time before
5:00 p.m., New York City time, on the expiration date of
the exchange offer.
For a withdrawal to be effective with respect to old notes, the
exchange agent must receive a written notice of withdrawal
before the expiration time delivered by hand, overnight by
courier or by mail, at the address indicated under
Exchange Agent or, in the case of
eligible institutions, at the facsimile number, or a properly
transmitted Request Message through DTCs ATOP
system. Any notice of withdrawal must:
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specify the name of the person, referred to as the depositor,
having tendered the old notes to be withdrawn;
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identify the old notes to be withdrawn, including certificate
numbers and principal amount of the old notes;
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contain a statement that the holder is withdrawing its election
to have the old notes exchanged;
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other than a notice transmitted through DTCs ATOP system,
be signed by the holder in the same manner as the original
signature on the letter of transmittal by which the old notes
were tendered, including any required signature guarantees, or
be accompanied by documents of transfer to have the trustee with
respect to the old notes register the transfer of the old notes
in the name of the person withdrawing the tender; and
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specify the name in which the old notes are registered, if
different from that of the depositor.
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If certificates for old notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of
these certificates the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn
and signed notice of withdrawal with signatures guaranteed by an
eligible institution, unless this holder is an eligible
institution. If old notes have been tendered in accordance with
the procedure for book-entry transfer described below, any
notice of withdrawal must specify the name and number of the
account at the book-entry transfer facility to be credited with
the withdrawn old notes.
Any old notes properly withdrawn will be deemed not to have been
validly tendered for exchange. New notes will not be issued in
exchange unless the old notes so withdrawn are validly
re-tendered.
Properly withdrawn old notes may be re-tendered by following the
procedures described under Procedures
for Tendering above at any time at or before the
expiration time.
We will determine all questions as to the validity, form and
eligibility, including time of receipt, of notices of withdrawal.
Conditions
to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, or
any extension of the exchange offer, we will not be required to
accept for exchange, or to exchange, any old notes for any new
notes, and, as described below, may terminate the exchange
offer, whether or not any old notes have been accepted for
exchange, or may waive any conditions to or amend the exchange
offer, if any of the following conditions has occurred or exists:
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there shall occur a change in the current interpretation by the
staff of the SEC which permits the new notes issued pursuant to
the exchange offer in exchange for old notes to be offered for
resale, resold and otherwise transferred by the holders (other
than broker-dealers and any holder which is an affiliate)
without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such new notes
are acquired in the ordinary course of such holders
business and such holders have no arrangement or understanding
with any person to participate in the distribution of the new
notes;
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any action or proceeding shall have been instituted or
threatened in any court or by or before any governmental agency
or body seeking to enjoin, make illegal or delay completion of
the exchange offer or otherwise relating to the exchange offer;
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any law, statute, rule or regulation shall have been adopted or
enacted which, in our judgment, would reasonably be expected to
impair our ability to proceed with such exchange offer;
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a banking moratorium shall have been declared by United States
federal or New York State authorities;
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trading on the New York Stock Exchange or generally in the
United States
over-the-counter
market shall have been suspended, or a limitation on prices for
securities imposed, by order of the SEC or any other
governmental authority;
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an attack on the United States, an outbreak or escalation of
hostilities or acts of terrorism involving the United States, or
any declaration by the United States of a national emergency or
war shall have occurred;
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a stop order shall have been issued by the SEC or any state
securities authority suspending the effectiveness of the
registration statement of which this prospectus is a part or
proceedings shall have been initiated or, to our knowledge,
threatened for that purpose or any governmental approval has not
been obtained, which approval we shall, in our sole discretion,
deem necessary for the consummation of the exchange
offer; or
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any change, or any development involving a prospective change,
in our business or financial affairs or any of our subsidiaries
has occurred which is or may be adverse to us or we shall have
become aware of facts that have or may have an adverse impact on
the value of the old notes or the new notes, which in our sole
judgment in any case makes it inadvisable to proceed with the
exchange offer, with the acceptance of old notes for exchange or
with the exchange of old notes for new notes.
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If we determine in our sole discretion that any of the foregoing
events or conditions has occurred or exists, we may, subject to
applicable law, terminate the exchange offer, whether or not any
old notes have been accepted for exchange, or may waive any such
condition or otherwise amend the terms of the exchange offer in
any respect. Please read Expiration, Extension
and Amendment above.
If any of the above events occur, we may:
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terminate the exchange offer and promptly return all tendered
old notes to tendering holders;
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complete
and/or
extend the exchange offer and, subject to your withdrawal
rights, retain all tendered old notes until the extended
exchange offer expires;
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amend the terms of the exchange offer; or
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waive any unsatisfied condition and, subject to any requirement
to extend the period of time during which the exchange offer is
open, complete the exchange offer.
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We may assert these conditions with respect to the exchange
offer regardless of the circumstances giving rise to them. All
conditions to the exchange offer, other than those dependent
upon receipt of necessary government approvals, must be
satisfied or waived by us before the expiration of the exchange
offer. We may waive any condition in whole or in part at any
time in our reasonable discretion. Our failure to exercise our
rights under any of the above circumstances does not represent a
waiver of these rights. Each right is an ongoing right that may
be asserted at any time. Any determination by us concerning the
conditions described above will be final and binding upon all
parties.
If a waiver constitutes a material change to the exchange offer,
we will promptly disclose the waiver by means of a prospectus
supplement that we will distribute to the registered holders of
the old notes, and we will extend the exchange offer for a
period of five to ten business days, as required by applicable
law, depending upon the significance of the waiver and the
manner of disclosure to the registered holders, if the exchange
offer would otherwise expire during the five to ten business day
period.
Resales
of New Notes
Based on interpretations by the staff of the SEC, as described
in no-action letters issued to third parties that are not
related to us, we believe that new notes issued in the exchange
offer in exchange for old notes may be offered for resale,
resold or otherwise transferred by holders of the new notes
without compliance with the registration and prospectus delivery
provisions of the Securities Act, if:
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the new notes are acquired in the ordinary course of the
holders business;
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the holders have no arrangement or understanding with any person
to participate in the distribution of the new notes;
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the holders are not affiliates of ours or of any of
our subsidiary guarantors within the meaning of Rule 405
under the Securities Act; and
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the holders are not broker-dealers who purchased old notes
directly from us for resale pursuant to Rule 144A or any
other available exemption under the Securities Act.
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However, the SEC has not considered the exchange offer described
in this prospectus in the context of a no-action letter. The
staff of the SEC may not make a similar determination with
respect to the exchange offer as in the other circumstances.
Each holder who wishes to exchange old notes for new notes will
be required to represent that it meets the requirements above.
Any holder who is an affiliate of ours or any of our subsidiary
guarantors or who intends to participate in the exchange offer
for the purpose of distributing new notes or any broker-dealer
who purchased old notes directly from us for resale pursuant to
Rule 144A or any other available exemption under the
Securities Act:
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cannot rely on the applicable interpretations of the staff of
the SEC mentioned above;
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will not be permitted or entitled to tender the old notes in the
exchange offer; and
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must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction.
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Each broker-dealer that receives new notes for its own account
in exchange for old notes must acknowledge that the old notes
were acquired by it as a result of market-making activities or
other trading activities and agree that it will deliver a
prospectus that meets the requirements of the Securities Act in
connection with any resale of the new notes. The letter of
transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act. Please read Plan of Distribution. A
broker-dealer may use this prospectus, as it may be amended or
supplemented from time to time, in connection with the resales
of new notes received in exchange for old notes that the
broker-dealer acquired as a result of market-making or other
trading activities. Any holder that is a broker-dealer
participating in the exchange offer must notify the exchange
agent at the telephone number set forth in the enclosed letter
of transmittal and must comply with the procedures for
broker-dealers participating in the exchange offer. We have not
entered into any arrangement or understanding with any person to
distribute the new notes to be received in the exchange offer.
In addition, to comply with state securities laws, the new notes
may not be offered or sold in any state unless they have been
registered or qualified for sale in such state or an exemption
from registration or qualification, with which there has been
compliance, is available. The offer and sale of the new notes to
qualified institutional buyers, as defined under
Rule 144A of the Securities Act, is generally exempt from
registration or qualification under the state securities laws.
We currently do not intend to register or qualify the sale of
new notes in any state where an exemption from registration or
qualification is required and not available.
Exchange
Agent
The Bank of New York Mellon Trust Company, N.A. has been
appointed as the exchange agent for the exchange offer. All
executed letters of transmittal and any other required documents
should be directed to the exchange agent at the address or
facsimile number set forth below. Questions and requests for
assistance,
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requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed
delivery should be directed to the exchange agent addressed as
follows:
THE BANK OF
NEW YORK MELLON TRUST COMPANY, N.A.
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By Facsimile
(for Eligible Institutions):
(212) 298-1915
Attention:
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By Mail/Overnight Delivery/Hand:
The Bank of New York Mellon
Corporate Trust Operations
Reorganization Unit
101 Barclay Street - 7 East
New York, NY 10286
Attention:
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Confirm By
Telephone:
(212) 815-XXXX
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DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL
VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE
A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
Fees and
Expenses
The expenses of soliciting tenders pursuant to this exchange
offer will be paid by us. We have agreed to pay the exchange
agent reasonable and customary fees for its services and will
reimburse it for its reasonable
out-of-pocket
expenses in connection with the exchange offer. We will also pay
brokerage houses and other custodians, nominees and fiduciaries
the reasonable
out-of-pocket
expenses incurred by them in forwarding copies of this
prospectus and related documents to the beneficial owners of old
notes, and in handling or tendering for their customers. We will
not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer.
Holders who tender their old notes for exchange will not be
obligated to pay any transfer taxes on the exchange. If,
however, new notes are to be delivered to, or are to be issued
in the name of, any person other than the registered holder of
the old notes tendered, or if a transfer tax is imposed for any
reason other than the exchange of old notes in connection with
the exchange offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
Transfer
Taxes
We will pay all transfer taxes, if any, applicable to the
exchange of old notes under the exchange offer. The tendering
holder, however, will be required to pay any transfer taxes,
whether imposed on the registered holder or any other person, if
a transfer tax is imposed for any reason other than the exchange
of old notes under the exchange offer.
Consequences
of Failure to Exchange Outstanding Securities
Holders who desire to tender their old notes in exchange for new
notes registered under the Securities Act should allow
sufficient time to ensure timely delivery. Neither the exchange
agent nor us is under any duty to give notification of defects
or irregularities with respect to the tenders of old notes for
exchange.
Old notes that are not tendered or are tendered but not accepted
will, following the completion of the exchange offer, continue
to be subject to the provisions in the indenture regarding the
transfer and exchange of the old notes and the existing
restrictions on transfer set forth in the legend on the old
notes set forth in the indenture for the notes. Except in
limited circumstances with respect to specific types of holders
of old notes, we will have no further obligation to provide for
the registration under the Securities Act of such old notes. In
general, old notes, unless registered under the Securities Act,
may not be offered or sold except pursuant to an exemption from,
or in a transaction not subject to, the Securities Act and
applicable state securities laws.
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We do not currently anticipate that we will take any action to
register the old notes under the Securities Act or under any
state securities laws. Upon completion of the exchange offer,
holders of the old notes will not be entitled to any further
registration rights under the registration rights agreement,
except under limited circumstances.
Holders of the new notes issued in the exchange offer, any old
notes which remain outstanding after completion of the exchange
offer and the previously issued notes will vote together as a
single class for purposes of determining whether holders of the
requisite percentage of the class have taken certain actions or
exercised certain rights under the indenture.
Accounting
Treatment
We will record the new notes at the same carrying value as the
old notes, as reflected in our accounting records on the date of
the exchange. Accordingly, we will not recognize any gain or
loss for accounting purposes. The expenses of the exchange offer
will be amortized over the term of the new notes.
Other
Participation in the exchange offer is voluntary, and you should
consider carefully whether to accept. You are urged to consult
your financial and tax advisors in making your own decision on
what action to take.
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DESCRIPTION
OF THE NEW NOTES
As used below in this Description of the New Notes
section, the Issuer means Basic Energy Services,
Inc., a Delaware corporation, and its successors, but not any of
its subsidiaries. The Issuer issued the old notes under an
Indenture, dated as of July 31, 2009 (the
Indenture), among the Issuer, the Guarantors and The
Bank of New York Mellon Trust Company, N.A., as trustee
(the Trustee). The Issuer will issue the new notes
under the same Indenture, and the new notes will represent the
same debt as the old notes for which they are exchanged.
References to the Notes in this section are to the
new notes. The terms of the Notes will include those set forth
in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. You may obtain a copy
of the Indenture from the Issuer at its address set forth
elsewhere in this prospectus.
The following is a summary of the material terms and provisions
of the Notes and the Security Documents described herein. The
following summary does not purport to be a complete description
of the Notes and the Security Documents and is subject to the
detailed provisions of, and qualified in its entirety by
reference to, the Indenture. You can find definitions of certain
terms used in this description under the heading
Certain Definitions.
Principal,
Maturity and Interest
The Notes will mature on August 1, 2014. The Notes will
bear interest at the rate of 11.625% per year, payable in cash
semi-annually in arrears on February 1 and August 1 of each
year, commencing on February 1, 2010, to Holders of record
at the close of business on the January 15 or July 15, as
the case may be, immediately preceding the related interest
payment date. Interest on the Notes will accrue from and
including the most recent date to which interest has been paid
or, if no interest has been paid, from and including the date of
issuance. Interest on the Notes will be computed on the basis of
a 360-day
year of twelve
30-day
months.
If an interest payment date falls on a day that is not a
Business Day, the interest payment to be made on such interest
payment date will be made on the next succeeding Business Day
with the same force and effect as if made on such interest
payment date, and no additional interest will accrue solely as a
result of such delayed payment. Interest on overdue principal
and interest and Liquidated Damages, if any, will accrue at the
applicable interest rate on the Notes.
The Issuer will pay Liquidated Damages to Holders of the Notes
if it fails to complete this exchange offer by April 27,
2010 or if certain other conditions contained in the
Registration Rights Agreement are not satisfied. Any Liquidated
Damages due will be paid on the same dates as interest on the
Notes. All references in the Indenture, in any context, to any
interest or other amount payable on or with respect to the Notes
shall be deemed to include any Liquidated Damages pursuant to
the Registration Rights Agreement.
The Notes will be issued in registered form, without coupons,
and in denominations of $2,000 and integral multiples of $1,000
in excess of $2,000.
The aggregate principal amount of Notes being issued in this
exchange offer is $225.0 million. Subject to compliance
with the covenant described under Certain
Covenants Limitations on Additional
Indebtedness, the Issuer may issue Additional Notes having
identical terms and conditions to the Notes being issued in this
exchange offer, except for issue date, issue price and first
interest payment date, provided that the aggregate
principal amount (net of OID) any such Additional Notes shall
not exceed $12,102,750.
Methods
of Receiving Payments on the Notes
If a Holder of Notes in certificated form has given wire
transfer instructions to the Issuer at least ten Business Days
prior to the applicable payment date, the Issuer will make all
payments on such Holders Notes by wire transfer of
immediately available funds to the account specified in those
instructions. Otherwise, payments on the Notes will be made at
the office or agency of the paying agent (the Paying
Agent) and registrar (the
Registrar) for the Notes within the City and
State of New York unless the Issuer elects to make interest
payments by check mailed to the Holders at their addresses set
forth in the register of Holders.
113
Ranking
The Notes will be senior obligations of the Issuer, secured by a
first priority Lien on the Collateral described herein (subject
only to Permitted Collateral Liens). The Notes will rank senior
in right of payment to all future obligations of the Issuer that
are, by their terms, expressly subordinated in right of payment
to the Notes and pari passu in right of payment with all
existing and future obligations of the Issuer that are not so
subordinated. Each Note Guarantee (as defined below) will be a
senior obligation of the applicable Guarantor, secured by a Lien
on Collateral owned by such Guarantor, and will rank senior in
right of payment to all future obligations of such Guarantor
that are, by their terms, expressly subordinated in right of
payment to such Note Guarantee and pari passu in right of
payment with all existing and future obligations of such
Guarantor that are not so subordinated.
The Notes and each Note Guarantee will be effectively
subordinated to Indebtedness of the Issuer and any applicable
Guarantor that is secured by assets other than Collateral, to
the extent of the value of the assets securing such Indebtedness.
The Notes will be effectively subordinated to all existing and
future obligations, including Indebtedness, of any Subsidiaries
of the Issuer that do not guarantee the Notes, including any
Unrestricted Subsidiaries. Claims of creditors of these
Subsidiaries, including trade creditors, will generally have
priority as to the assets of these Subsidiaries over the claims
of the Issuer and the holders of the Issuers Indebtedness,
including the Notes. As of June 30, 2009, the Issuers
non-guarantor subsidiaries did not have any outstanding
indebtedness.
Although the Indenture contains limitations on the amount of
additional secured Indebtedness that the Issuer and the
Restricted Subsidiaries may incur, under certain circumstances,
the amount of this Indebtedness could be substantial. See
Certain Covenants Limitations on
Additional Indebtedness and Limitations
on Liens.
Note
Guarantees
Payment of the principal of, premium, if any, and interest on
the Notes, when and as the same become due and payable, will be
fully and unconditionally guaranteed, jointly and severally, on
a senior secured basis (the Note Guarantees)
by the Guarantors. Initially, all of the Issuers current
Subsidiaries will be Guarantors, other than two immaterial
subsidiaries that have no indebtedness and have not guaranteed
other debt of the Issuer. In the future, in the circumstances
described under Certain Covenants
Additional Note Guarantees, the Issuer will cause certain
additional Restricted Subsidiaries to enter into a supplemental
indenture pursuant to which each such Restricted Subsidiary will
guarantee the Issuers obligations under the Notes jointly
and severally with any other Guarantors. However, under the
circumstances described below under the subheading
Certain Covenants Limitation on
Designation of Unrestricted Subsidiaries, the Issuer will
be permitted to designate any of its Subsidiaries (other than
those that own or hold Collateral) as Unrestricted
Subsidiaries. The effect of designating a Subsidiary as an
Unrestricted Subsidiary will be that:
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an Unrestricted Subsidiary will not be subject to many of the
restrictive covenants in the Indenture;
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an Unrestricted Subsidiary will not guarantee the Notes;
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a Subsidiary that has previously been a Guarantor and that is
designated an Unrestricted Subsidiary will be released from its
Note Guarantee and its obligations under the Indenture and the
Registration Rights Agreement; and
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the assets, income, cash flow and other financial results of an
Unrestricted Subsidiary will not be consolidated with those of
the Issuer for purposes of calculating compliance with the
restrictive covenants contained in the Indenture.
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The obligations of each Guarantor under its Note Guarantee will
be limited to the maximum amount as will, after giving effect to
all other contingent and fixed liabilities of such Guarantor
(including, without limitation, any guarantees under any Credit
Facility) and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect
of the obligations of such other Guarantor under its Note
Guarantee or pursuant to its contribution obligations under the
Indenture, result in the
114
obligations of such Guarantor under its Note Guarantee not
constituting a fraudulent conveyance or fraudulent transfer
under federal or state law. Nonetheless, in the event of the
bankruptcy or financial difficulty of a Guarantor, such
Guarantors obligations under its Note Guarantee may be
subject to review and avoidance under state and federal
fraudulent transfer laws. Among other things, such obligations
may be avoided if a court concludes that such obligations were
incurred for less than a reasonably equivalent value or fair
consideration at a time when the Guarantor was insolvent, was
rendered insolvent, or was left with inadequate capital to
conduct its business. A court would likely conclude that a
Guarantor did not receive reasonably equivalent value or fair
consideration to the extent that the aggregate amount of its
liability on its Note Guarantee exceeds the economic benefits it
receives from the issuance of the Note Guarantee. See Risk
Factors Risks Relating to the Exchange Offer
and the New Notes A court could cancel the new notes
or the guarantees of the initial or future guarantors and the
security interests in the collateral under fraudulent conveyance
laws or certain other circumstances.
Each Guarantor that makes a payment for distribution under its
Note Guarantee will be entitled to a contribution from each
other Guarantor in a pro rata amount based on the adjusted net
assets of each Guarantor.
A Subsidiary Guarantor will be released from its obligations
under its Note Guarantee and its obligations under the Indenture
and the Registration Rights Agreement:
(1) in the event of a sale or other disposition of all or
substantially all of the assets of such Subsidiary Guarantor, by
way of merger, consolidation or otherwise, or a sale or other
disposition of all of the Equity Interests of such Subsidiary
Guarantor then held by the Issuer and the Restricted
Subsidiaries; or
(2) if such Subsidiary Guarantor is designated as an
Unrestricted Subsidiary or otherwise ceases to be a Restricted
Subsidiary, in each case in accordance with the provisions of
the Indenture, upon effectiveness of such designation or when it
first ceases to be a Restricted Subsidiary, respectively.
Security
The obligations under the Notes and the Note Guarantees will be
secured pursuant to the Security Documents by first priority
Liens (subject to Permitted Collateral Liens) granted to the
Trustee for the benefit of the Holders of the Notes, in all of
the following property (collectively, the
Collateral):
(1) subject to limited exceptions, on all of the current
and future personal property of the Issuer and the Guarantors,
excluding cash and cash equivalents, accounts receivable,
inventory, maritime assets (including existing inland barge
rigs), titled vehicles and the stock or other equity interests
of the Issuers subsidiaries;
(2) any assets substituted for such Collateral as provided
for in the Security Documents; and
(3) any proceeds of the foregoing.
Subject to the covenant described under
Certain Covenants Limitations on
Liens, the Indenture permits the Issuer to encumber any of
its assets or those of the Guarantors not constituting
Collateral in order to secure other Indebtedness.
Unless an Event of Default under the Indenture shall have
occurred and be continuing, the Issuer and the relevant
Guarantors have the right to remain in possession and retain
exclusive control of the Collateral (other than Collateral
deposited with the Trustee in the Asset Sale Proceeds Account
described below under Certain
Covenants Limitations on Asset Sales and Collateral
Dispositions and other than as set forth in the Security
Documents), to freely operate the Collateral and to collect,
invest and dispose of any income thereon or therefrom. Upon an
Event of Default, these rights will cease and the Trustee will
be entitled to foreclose upon and sell the Collateral or any
part thereof as provided in the Security Documents.
There can be no assurance that the Trustee will be able to sell
the Collateral without substantial delays or that the proceeds
obtained will be sufficient to pay all amounts owed to the
Trustee, Holders of Notes and
115
holders of Permitted Collateral Liens, if any. The Collateral
release provisions of the Indenture and the Security Documents
permit the release of Collateral without substitution of
collateral of equal value under certain circumstances.
Subject to the provisions of the Indenture and the Security
Documents, the Trustee in its sole discretion and without the
consent of the Holders of the Notes, on behalf of such Holders,
may take all actions it deems necessary or appropriate in order
to:
(a) enforce any of the terms of the Security
Documents; and
(b) collect and receive any and all amounts payable in
respect of the obligations of the Issuer or any Guarantor under
the Notes, the Indenture and the Security Documents.
The Security Documents provide that the Collateral will be
released:
(1) upon payment in full of all outstanding Notes and all
other amounts due under the Indenture;
(2) upon satisfaction and discharge of the Indenture as set
forth under the caption Satisfaction and
Discharge;
(3) upon a Legal Defeasance or Covenant Defeasance as set
forth under the caption Legal Defeasance and
Covenant Defeasance;
(4) as to any Collateral that constitutes all or
substantially all of the Collateral, with the consent of the
Holders of 100% in principal amount of the Notes;
(5) as to any Collateral (i) that is sold or otherwise
disposed of by the Issuer or any Guarantor (other than to the
Issuer or a Guarantor) in compliance with the Indenture, subject
to the limitations set forth under the caption
Certain Covenants Limitations on
Asset Sales and Collateral Dispositions, (ii) that
constitutes a portion of the Asset Sale Proceeds Account that is
to be applied or distributed as described under the caption
Certain Covenants Limitations on
Asset Sales and Collateral Dispositions, or
(iii) that constitutes Excess Collateral Proceeds which
have been offered to, but not accepted by, the Holders of Notes
and are released as set forth in the covenant described below
under the caption Certain
Covenants Limitations on Asset Sales and Collateral
Dispositions; or
(6) in connection with a substitution of Collateral of
equal or greater value and utility (assuming the substituted
Collateral is in the condition required by the Indenture and the
Security Documents) in accordance with the Security Documents.
The Security Documents provide that the Issuer and the
Guarantors party thereto will, and will cause each of their
Subsidiaries to, do or cause to be done all acts and things
which may be required, or which the Trustee from time to time
may reasonably request, to assure and confirm that the Trustee
holds, for the benefit of the Holders of Notes, valid,
enforceable and perfected first priority Liens (subject to
Permitted Collateral Liens) upon the Collateral as contemplated
by the Indenture and Security Documents.
Optional
Redemption
General
At any time or from time to time on or after February 1,
2012, the Issuer, at its option, may redeem the Notes, in whole
or in part, at the redemption prices (expressed as percentages
of principal amount) set forth below, together with accrued and
unpaid interest and Liquidated Damages thereon, if any, to the
redemption date, if redeemed during the
12-month
period beginning February 1, of the years indicated:
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Optional
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Redemption
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Year
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Price
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2012
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105.813
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%
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2013
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102.906
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%
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2014 and thereafter
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100.000
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%
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116
Redemption
with Proceeds from Equity Offerings
At any time or from time to time prior to February 1, 2012,
the Issuer, at its option, may on any one or more occasions
redeem Notes issued under the Indenture with the net cash
proceeds of one or more Qualified Equity Offerings at a
redemption price equal to 111.625% of the principal amount of
the Notes to be redeemed, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of redemption,
provided that:
(1) at least 65% of the aggregate principal amount of Notes
issued under the Indenture remains outstanding immediately after
giving effect to any such redemption; and
(2) the redemption occurs not more than 90 days after
the date of the closing of any such Qualified Equity Offering.
Redemption
at Applicable Premium
The Notes may also be redeemed, in whole or in part, at any time
prior to February 1, 2012 at the option of the Issuer upon
not less than 30 nor more than 60 days prior notice
mailed by first-class mail to each Holder of Notes at its
registered address, at a redemption price equal to 100% of the
principal amount of the Notes redeemed plus the Applicable
Premium as of, and accrued and unpaid interest and Liquidated
Damages, if any, to, the applicable redemption date (subject to
the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date).
Applicable Premium means, with respect to any
Note on any applicable redemption date, the greater of:
(1) 1.0% of the principal amount of such Note; and
(2) the excess, if any, of:
(a) the present value at such redemption date of
(i) the redemption price of such Note at February 1,
2012 (such redemption price being set forth in the table
appearing above under the caption Optional
Redemption General) plus (ii) all
required interest payments (excluding accrued and unpaid
interest to such redemption date) due on such Note through
February 1, 2012, computed using a discount rate equal to
the Treasury Rate as of such redemption date plus 50 basis
points; over
(b) the principal amount of such Note.
Treasury Rate means, as of any redemption
date, the weekly average yield to maturity at the time of
computation of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal
Reserve Statistical Release H.15 (519) which has become
publicly available at least two Business Days prior to the
redemption date (or, if such Statistical Release is no longer
published, any publicly available source of similar market
data)) equal to the period from the redemption date to
February 1, 2012; provided, however, that if the
period from the redemption date to February 1, 2012 is not
equal to the constant maturity of a United States Treasury
security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to
the nearest one-twelfth of a year) between the weekly average
yields of the United States Treasury securities that have a
constant maturity closest to and greater than the period from
the redemption date to February 1, 2012 and the United
States Treasury securities that have a constant maturity closest
to and less than the period from the redemption date to
February 1, 2012 for which such yields are given, except
that if the period from the redemption date to February 1,
2012 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
The Issuer may acquire Notes by means other than a redemption,
whether pursuant to an issuer tender offer, open market purchase
or otherwise, so long as the acquisition does not otherwise
violate the terms of the Indenture.
117
Selection
and Notice of Redemption
In the event that less than all of the Notes are to be redeemed
at any time pursuant to an optional redemption, the Trustee will
select the Notes for redemption in compliance with the
requirements of the principal national securities exchange, if
any, on which the Notes are listed or, if the Notes are not then
listed on a national security exchange, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that no Notes of a
principal amount of $2,000 or less shall be redeemed in part. In
addition, if a partial redemption is made pursuant to the
provisions described under Optional
Redemption Redemption with Proceeds from Equity
Offerings, selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis
or on as nearly a pro rata basis as is practicable (subject to
the procedures of The Depository Trust Company
(DTC)), unless that method is otherwise prohibited.
Notice of redemption will be mailed by first-class mail at least
30, but not more than 60, days before the date of redemption to
each Holder of Notes to be redeemed at its registered address,
except that redemption notices may be mailed more than
60 days prior to a redemption date if the notice is issued
in connection with a satisfaction and discharge of the
Indenture. If any Note is to be redeemed in part only, the
notice of redemption that relates to that Note will state the
portion of the principal amount of the Note to be redeemed. A
new Note in a principal amount equal to the unredeemed portion
of the Note will be issued in the name of the Holder of the Note
upon cancellation of the original Note. On and after the
applicable date of redemption, interest will cease to accrue on
Notes or portions thereof called for redemption so long as the
Issuer has deposited with the paying agent for the Notes funds
in satisfaction of the applicable redemption price (including
accrued and unpaid interest on the Notes to be redeemed)
pursuant to the Indenture.
Change of
Control
Upon the occurrence of any Change of Control, unless the Issuer
has previously or concurrently exercised its right to redeem all
of the Notes as described under Optional
Redemption, each Holder will have the right to require
that the Issuer purchase all or any portion (equal to $2,000 or
an integral multiple of $1,000 in excess thereof) of that
Holders Notes for a cash price (the Change of
Control Purchase Price) equal to 101% of the
principal amount of the Notes to be purchased, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the
date of purchase.
Within 30 days following any Change of Control, the Issuer
will mail, or caused to be mailed, to the Holders, with a copy
to the Trustee, a notice:
(1) describing the transaction or transactions that
constitute the Change of Control;
(2) offering to purchase, pursuant to the procedures
required by the Indenture and described in the notice (a
Change of Control Offer), on a date specified
in the notice (which shall be a Business Day not earlier than
30 days, nor later than 60 days, from the date the
notice is mailed) and for the Change of Control Purchase Price,
all Notes properly tendered by such Holder pursuant to such
Change of Control Offer; and
(3) describing the procedures, as determined by the Issuer,
that Holders must follow to accept the Change of Control Offer.
A Change of Control Offer will be required to remain open for at
least 20 Business Days or for such longer period as is required
by law. The Issuer will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the
date of purchase.
If a Change of Control Offer is made, there can be no assurance
that the Issuer will have available funds sufficient to pay for
all or any of the Notes that might be delivered by Holders
seeking to accept the Change of Control Offer. In addition, the
Issuer cannot assure you that in the event of a Change of
Control the Issuer will be able to obtain the consents necessary
to consummate a Change of Control Offer from the lenders under
agreements governing outstanding Indebtedness which may prohibit
the offer.
118
The provisions described above that require the Issuer to make a
Change of Control Offer following a Change of Control will be
applicable regardless of whether any other provisions of the
Indenture are applicable to the transaction giving rise to the
Change of Control. Except as described above with respect to a
Change of Control, the Indenture does not contain provisions
that permit the Holders of the Notes to require that the Issuer
purchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Issuers obligation to make a Change of Control Offer
will be satisfied if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance
with the requirements set forth in the Indenture applicable to a
Change of Control Offer made by the Issuer and purchases all
Notes properly tendered and not withdrawn under such Change of
Control Offer.
With respect to any disposition of properties or assets, the
phrase all or substantially all as used in the
Indenture (including as set forth under the definition of
Change of Control and Certain
Covenants Limitations on Mergers, Consolidations,
Etc. below) varies according to the facts and
circumstances of the subject transaction, has no clearly
established meaning under New York law (which governs the
Indenture) and is subject to judicial interpretation.
Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction
would involve a disposition of all or substantially
all of the properties or assets of the Issuer, and
therefore it may be unclear as to whether a Change of Control
has occurred and whether the Holders have the right to require
the Issuer to purchase Notes.
The Issuer will comply with applicable tender offer rules,
including the requirements of
Rule 14e-1
under the Exchange Act and any other applicable laws and
regulations, in connection with the purchase of Notes pursuant
to a Change of Control Offer. To the extent that the provisions
of any securities laws or regulations conflict with the
Change of Control provisions of the Indenture, the
Issuer will comply with the applicable securities laws and
regulations and will not be deemed to have breached its
obligations under the Change of Control provisions
of the Indenture by virtue of this compliance.
The provisions under the Indenture relating to the Issuers
obligation to make a Change of Control Offer may be waived,
modified or terminated prior to the occurrence of the triggering
Change of Control with the written consent of the Holders of a
majority in principal amount of the Notes then outstanding.
Notwithstanding anything to the contrary herein, a Change of
Control Offer may be made in advance of a Change of Control,
conditional upon such Change of Control, if a definitive
agreement is in place for the Change of Control at the time of
making of the Change of Control Offer.
Certain
Covenants
Limitations
on Additional Indebtedness
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, incur any Indebtedness;
provided that the Issuer or any Guarantor may incur
additional Indebtedness and any Restricted Subsidiary may incur
Acquired Indebtedness, in each case, if, after giving effect
thereto, the Consolidated Interest Coverage Ratio would be at
least 2.00 to 1.00 (the Coverage Ratio
Exception); provided, however, that Acquired
Indebtedness shall not exceed an aggregate principal amount of
$20.0 million at any time outstanding.
Notwithstanding the above, each of the following shall be
permitted (the Permitted Indebtedness):
(1) Indebtedness of the Issuer and any Guarantor under the
Credit Facilities in an aggregate amount at any time outstanding
not to exceed $100.0 million;
(2) Indebtedness under (a) the old Notes and the old
Note Guarantees issued on the Issue Date and (b) the Notes
and the Note Guarantees in respect thereof to be issued pursuant
to the Registration Rights Agreement;
(3) Indebtedness of the Issuer and the Restricted
Subsidiaries to the extent outstanding on the Issue Date after
giving effect to the intended use of proceeds of the old Notes
(other than Indebtedness referred to in clause (1), (2) or
(5));
119
(4) Indebtedness under Hedging Obligations entered into for
bona fide hedging purposes of the Issuer or any Restricted
Subsidiary not for the purpose of speculation; provided
that in the case of Hedging Obligations relating to interest
rates, (a) such Hedging Obligations relate to payment
obligations on Indebtedness otherwise permitted to be incurred
by this covenant, and (b) the notional principal amount of
such Hedging Obligations at the time incurred does not exceed
the principal amount of the Indebtedness to which such Hedging
Obligations relate;
(5) Indebtedness of the Issuer owed to a Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary owed to
the Issuer or any other Restricted Subsidiary; provided,
however, that upon any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or such Indebtedness being owed to
any Person other than the Issuer or a Restricted Subsidiary, the
Issuer or such Restricted Subsidiary, as applicable, shall be
deemed to have incurred Indebtedness not permitted by this
clause (5);
(6) Indebtedness in respect of (a) self-insurance
obligations or completion, bid, performance, appeal or surety
bonds issued for the account of the Issuer or any Restricted
Subsidiary in the ordinary course of business, including
guarantees or obligations of the Issuer or any Restricted
Subsidiary with respect to letters of credit supporting such
self-insurance, completion, bid, performance, appeal or surety
obligations (in each case other than for an obligation for money
borrowed) or (b) obligations represented by letters of
credit for the account of the Issuer or any Restricted
Subsidiary, as the case may be, in order to provide security for
workers compensation claims;
(7) Purchase Money Indebtedness incurred by the Issuer or
any Restricted Subsidiary after the Issue Date, and Refinancing
Indebtedness thereof, in an aggregate principal amount not to
exceed at any time outstanding the greater of
(a) $50.0 million or (b) 15.0% of the
Issuers Consolidated Tangible Assets;
(8) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar
instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, however, that such
Indebtedness is extinguished within five Business Days of
incurrence;
(9) Indebtedness arising in connection with endorsement of
instruments for deposit in the ordinary course of business;
(10) Refinancing Indebtedness with respect to Indebtedness
incurred pursuant to the Coverage Ratio Exception or
clause (2) or (3) above or this clause (10);
(11) indemnification, adjustment of purchase price,
earn-out or similar obligations (including without limitation
any Earn Out Obligations), in each case, incurred or assumed in
connection with the acquisition or disposition of any business
or assets of the Issuer or any Restricted Subsidiary or Equity
Interests of a Restricted Subsidiary, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion
of such business, assets or Equity Interests for the purpose of
financing or in contemplation of any such acquisition;
provided that (a) any amount of such obligations
included on the face of the balance sheet of the Issuer or any
Restricted Subsidiary shall not be permitted under this
clause (11) and (b) in the case of a disposition, the
maximum aggregate liability in respect of all such obligations
outstanding under this clause (11) shall at no time exceed
the gross proceeds actually received by the Issuer and the
Restricted Subsidiaries in connection with such disposition;
(12) Contingent Obligations of the Issuer and the
Guarantors in respect of Indebtedness otherwise permitted under
this covenant;
(13) Indebtedness of Foreign Restricted Subsidiaries in an
aggregate amount outstanding at any one time not to exceed 10%
of such Foreign Restricted Subsidiaries Consolidated
Tangible Assets; and
(14) additional Indebtedness of the Issuer or any
Restricted Subsidiary in an aggregate principal amount not to
exceed $40.0 million at any time outstanding.
For purposes of determining compliance with this covenant, in
the event that an item of Indebtedness meets the criteria of
more than one of the categories of Permitted Indebtedness
described in clauses (1)
120
through (14) above or is entitled to be incurred pursuant
to the Coverage Ratio Exception, the Issuer shall, in its sole
discretion, classify such item of Indebtedness and may divide
and classify such Indebtedness in more than one of the types of
Indebtedness described, except that Indebtedness incurred under
the Credit Facilities on the Issue Date shall be deemed to have
been incurred under clause (1) above, and may later
reclassify any item of Indebtedness described in
clauses (1) through (14) above (provided that at the
time of reclassification it meets the criteria in such category
or categories). In addition, for purposes of determining any
particular amount of Indebtedness under this covenant,
guarantees, Liens or letter of credit obligations supporting
Indebtedness otherwise included in the determination of such
particular amount shall not be included so long as incurred by a
Person that could have incurred such Indebtedness.
Limitations
on Layering Indebtedness
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, incur any Indebtedness
that is or purports to be by its terms (or by the terms of any
agreement governing such Indebtedness) subordinated to any other
Indebtedness of the Issuer or of such Restricted Subsidiary, as
the case may be, unless such Indebtedness is also by its terms
(or by the terms of any agreement governing such Indebtedness)
made expressly subordinate to the Notes or the Note Guarantee of
such Restricted Subsidiary, to the same extent and in the same
manner as such Indebtedness is subordinated to such other
Indebtedness of the Issuer or such Restricted Subsidiary, as the
case may be.
For purposes of the foregoing, no Indebtedness will be deemed to
be subordinated in right of payment to any other Indebtedness of
the Issuer or any Restricted Subsidiary solely by virtue of
being unsecured or secured by a Permitted Lien or by virtue of
the fact that the holders of such Indebtedness have entered into
intercreditor agreements or other arrangements giving one or
more of such holders priority over the other holders in the
collateral held by them.
Limitations
on Restricted Payments
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, make any Restricted
Payment if at the time of such Restricted Payment:
(1) a Default shall have occurred and be continuing or
shall occur as a consequence thereof;
(2) (a) the Issuer is not able to incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the Coverage Ratio Exception or (b) the
Consolidated Leverage Ratio exceeds 3.00 to 1.00; or
(3) the amount of such Restricted Payment, when added to
the aggregate amount of all other Restricted Payments made after
the Issue Date (other than Restricted Payments made pursuant to
clauses (2), (3), (4) or (5) of the next paragraph),
exceeds the sum (the Restricted Payments
Basket) of (without duplication):
(a) 50% of Consolidated Net Income for the period (taken as
one accounting period) commencing on the first day of the fiscal
quarter in which the Issue Date occurs to and including the last
day of the fiscal quarter ended immediately prior to the date of
such calculation for which consolidated financial statements are
available (or, if such Consolidated Net Income shall be a
deficit, minus 100% of such deficit), plus
(b) 100% of (A) (i) the aggregate net cash proceeds
and (ii) the Fair Market Value of (x) marketable
securities (other than marketable securities of the Issuer),
(y) Equity Interests of a Person (other than the Issuer or
an Affiliate of the Issuer) engaged in a Permitted Business and
(z) other assets used in any Permitted Business, in the
case of clauses (i) and (ii), received by the Issuer since
the Issue Date as a contribution to its common equity capital or
from the issue or sale of Qualified Equity Interests of the
Issuer or from the issue or sale of convertible or exchangeable
Disqualified Equity Interests or convertible or exchangeable
debt securities of the Issuer that have been converted into or
exchanged for such Qualified Equity Interests (other than Equity
Interests or debt securities sold to a Subsidiary of the
Issuer), and (B) the aggregate net cash proceeds, if any,
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received by the Issuer or any of its Restricted Subsidiaries
upon any conversion or exchange described in clause (A)
above, plus
(c) 100% of (A) the aggregate amount by which
Indebtedness (other than any Subordinated Indebtedness) of the
Issuer or any Restricted Subsidiary is reduced on the
Issuers consolidated balance sheet upon the conversion or
exchange after the Issue Date of any such Indebtedness into or
for Qualified Equity Interests of the Issuer and (B) the
aggregate net cash proceeds, if any, received by the Issuer or
any of its Restricted Subsidiaries upon any conversion or
exchange described in clause (A) above, plus
(d) in the case of the disposition or repayment of or
return on any Investment that was treated as a Restricted
Payment made after the Issue Date, an amount (to the extent not
included in the computation of Consolidated Net Income) equal to
the lesser of (i) 100% of the aggregate amount received by
the Issuer or any Restricted Subsidiary in cash or other
property (valued at the Fair Market Value thereof) as the return
of capital with respect to such Investment and (ii) the
amount of such Investment that was treated as a Restricted
Payment, in either case, less the cost of the disposition of
such Investment and net of taxes, plus
(e) upon a Redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the lesser of (i) the Fair Market
Value of the Issuers proportionate interest in such
Subsidiary immediately following such Redesignation, and
(ii) the aggregate amount of the Issuers Investments
in such Subsidiary to the extent such Investments reduced the
Restricted Payments Basket and were not previously repaid or
otherwise reduced.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph will not prohibit:
(1) the payment of (a) any dividend or redemption
payment or the making of any distribution within 60 days
after the date of declaration thereof if, on the date of
declaration, the dividend, redemption or distribution payment,
as the case may be, would have complied with the provisions of
the Indenture or (b) any dividend or similar distribution
by a Restricted Subsidiary of the Issuer to the holders of its
Equity Interests on a pro rata basis;
(2) the redemption or acquisition of any Equity Interests
of the Issuer or any Restricted Subsidiary in exchange for, or
out of the proceeds of the substantially concurrent issuance and
sale of, Qualified Equity Interests;
(3) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value of Subordinated
Indebtedness of the Issuer or any Restricted Subsidiary
(a) in exchange for, or out of the proceeds of the
substantially concurrent issuance and sale of, Qualified Equity
Interests, (b) in exchange for, or out of the proceeds of
the substantially concurrent incurrence of, Refinancing
Indebtedness permitted to be incurred under the
Limitations on Additional Indebtedness covenant and
the other terms of the Indenture or (c) upon a Change of
Control or in connection with an Asset Sale to the extent
required by the agreement governing such Subordinated
Indebtedness but only if the Issuer shall have complied with the
covenants described under Change of
Control and Limitations on Asset Sales
and Collateral Dispositions and purchased all Notes
validly tendered pursuant to the relevant offer prior to
redeeming such Subordinated Indebtedness;
(4) the redemption, repurchase or other acquisition or
retirement for value of Equity Interests of the Issuer held by
officers, directors or employees or former officers, directors
or employees (or their transferees, estates or beneficiaries
under their estates), either (x) upon any such
individuals death, disability, retirement, severance or
termination of employment or service or (y) pursuant to any
equity subscription agreement, stock option agreement,
stockholders agreement or similar agreement;
provided, in any case, that the aggregate cash
consideration paid for all such redemptions, repurchases or
other acquisitions or retirements shall not exceed
(A) $5.0 million during any calendar year (with unused
amounts in any calendar year being carried forward to the next
succeeding calendar year) plus (B) the amount of any net
cash proceeds received by or contributed to the Issuer from the
issuance and sale after
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the Issue Date of Qualified Equity Interests of the Issuer to
its officers, directors or employees that have not been applied
to the payment of Restricted Payments pursuant to this clause
(4), plus (C) the net cash proceeds of any
key-man life insurance policies that have not been
applied to the payment of Restricted Payments pursuant to this
clause (4);
(5) (a) repurchases, redemptions or other acquisitions
or retirements for value of Equity Interests deemed to occur
upon the exercise of stock options, warrants, rights to acquire
Equity Interests or other convertible securities to the extent
such Equity Interests represent a portion of the exercise or
exchange price thereof and (b) any repurchases, redemptions
or other acquisitions or retirements for value of Equity
Interests made in lieu of withholding taxes in connection with
any exercise or exchange of stock options, warrants or other
similar rights;
(6) dividends on Preferred Stock or Disqualified Equity
Interests issued in compliance with the covenant
Limitations on Additional Indebtedness
to the extent such dividends are included in the definition of
Consolidated Interest Expense;
(7) the payment of cash in lieu of fractional Equity
Interests;
(8) payments or distributions to dissenting stockholders
pursuant to applicable law in connection with a merger,
consolidation or transfer of assets that complies with the
provisions described under the caption
Covenants Limitations on Mergers,
Consolidations, Etc.; or
(9) payment of other Restricted Payments from time to time
in an aggregate amount not to exceed $10.0 million in any
fiscal year or $25.0 million in aggregate amount since the
Issue Date;
provided that (a) in the case of any Restricted
Payment pursuant to clauses (3), (4) or (9) above, no
Default shall have occurred and be continuing or occur as a
consequence thereof and (b) no issuance and sale of
Qualified Equity Interests used to make a payment pursuant to
clauses (2), (3) or (4)(B) above shall increase the
Restricted Payments Basket.
Limitations
on Dividend and Other Restrictions Affecting Restricted
Subsidiaries
The Issuer will not, and will not permit any Restricted
Subsidiary to create or otherwise cause or permit to exist or
become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in
respect of its Equity Interests;
(b) make loans or advances, or pay any Indebtedness or
other obligation owed, to the Issuer or any other Restricted
Subsidiary; or
(c) transfer any of its assets to the Issuer or any other
Restricted Subsidiary; except for:
(1) encumbrances or restrictions existing under or by
reason of applicable law, regulation or order;
(2) encumbrances or restrictions existing under the
Indenture, the Security Documents, the Notes and the Note
Guarantees;
(3) non-assignment provisions of any contract or any lease
entered into in the ordinary course of business;
(4) encumbrances or restrictions existing under agreements
existing on the date of the Indenture as in effect on that date;
(5) restrictions relating to any Lien permitted under the
Indenture imposed by the holder of such Lien;
(6) restrictions imposed under any agreement to sell Equity
Interests or assets, as permitted under the Indenture, to any
Person pending the closing of such sale;
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(7) any instrument governing Acquired Indebtedness or
Equity Interests of a Person acquired by the Issuer or any of
its Restricted Subsidiaries, which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any
Person, other than the Person or the properties or assets of the
Person so acquired;
(8) any other agreement governing Indebtedness entered into
after the Issue Date that contains encumbrances and restrictions
that are not materially more restrictive with respect to any
Restricted Subsidiary than those in effect on the Issue Date
with respect to that Restricted Subsidiary pursuant to
agreements in effect on the Issue Date;
(9) customary provisions in partnership agreements, limited
liability company organizational governance documents, joint
venture agreements and other similar agreements entered into in
the ordinary course of business that restrict the transfer of
ownership interests in such partnership, limited liability
company, joint venture or similar Person;
(10) Purchase Money Indebtedness incurred in compliance
with the covenant described under Limitations
on Additional Indebtedness that imposes restrictions of
the nature described in clause (c) above on the assets
acquired;
(11) restrictions on cash or other deposits or net worth
imposed by customers, suppliers or landlords under contracts
entered into in the ordinary course of business;
(12) Indebtedness incurred or Equity Interests issued by
any Restricted Subsidiary, provided that the restrictions
contained in the agreements or instruments governing such
Indebtedness or Equity Interests (a) either (i) apply
only in the event of a payment default or a default with respect
to a financial covenant in such agreement or instrument or
(ii) will not materially affect the Issuers ability
to pay all principal, interest and premium and Liquidated
Damages, if any, on the Notes, as determined in good faith by
the Chief Executive Officer and the Chief Financial Officer of
the Issuer, whose determination shall be conclusive; and
(b) are not materially more disadvantageous to the Holders
of the Notes than is customary in comparable financings (as
determined by the Chief Financial Officer of the Issuer, whose
determination shall be conclusive); and
(13) any encumbrances or restrictions imposed by any
amendments or refinancings of the contracts, instruments or
obligations referred to in clauses (1) through
(12) above; provided that such amendments or
refinancings are, in the good faith judgment of the
Issuers Board of Directors, no more materially restrictive
with respect to such encumbrances and restrictions than those
prior to such amendment or refinancing.
Limitations
on Transactions with Affiliates
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, in one transaction or a
series of related transactions, sell, lease, transfer or
otherwise dispose of any of its assets to, or purchase any
assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (an Affiliate
Transaction), unless:
(1) such Affiliate Transaction is on terms that are no less
favorable to the Issuer or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable
transaction at such time on an arms-length basis by the
Issuer or that Restricted Subsidiary from a Person that is not
an Affiliate of the Issuer or that Restricted
Subsidiary; and
(2) the Issuer delivers to the Trustee:
(a) with respect to any Affiliate Transaction involving
aggregate value in excess of $5.0 million, an
Officers Certificate certifying that such Affiliate
Transaction complies with clause (1) above and a
Secretarys Certificate which sets forth and authenticates
a resolution that has been adopted by the Independent Directors
approving such Affiliate Transaction; and
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(b) with respect to any Affiliate Transaction involving
aggregate value of $25.0 million or more, the certificates
described in the preceding clause (a) and a written opinion
as to the fairness of such Affiliate Transaction to the Issuer
or such Restricted Subsidiary from a financial point of view
issued by an Independent Financial Advisor to the Board of
Directors of the Issuer.
The foregoing restrictions shall not apply to:
(1) transactions exclusively between or among (a) the
Issuer and one or more Restricted Subsidiaries or
(b) Restricted Subsidiaries;
(2) reasonable director, officer and employee compensation
(including bonuses) and other benefits (including pursuant to
any employment agreement or any retirement, health, stock option
or other benefit plan) and indemnification arrangements, in each
case, as determined in good faith by the Issuers Board of
Directors or senior management;
(3) the entering into of a tax sharing agreement, or
payments pursuant thereto, between the Issuer
and/or one
or more Subsidiaries, on the one hand, and any other Person with
which the Issuer or such Subsidiaries are required or permitted
to file a consolidated tax return or with which the Issuer or
such Subsidiaries are part of a consolidated group for tax
purposes to be used by such Person to pay taxes, and which
payments by the Issuer and the Restricted Subsidiaries are not
in excess of the tax liabilities that would have been payable by
them on a stand-alone basis;
(4) scheduled payments of Earn Out Obligations of
$5.0 million in any fiscal year of the Issuer;
(5) any Permitted Investments;
(6) any Restricted Payments which are made in accordance
with the covenant described under Limitations
on Restricted Payments;
(7) (x) any agreement in effect on the Issue Date, as
in effect on the Issue Date or as thereafter amended or replaced
in any manner that, taken as a whole, is not more
disadvantageous to the Holders or the Issuer in any material
respect than such agreement as it was in effect on the Issue
Date or (y) any transaction pursuant to any agreement
referred to in the immediately preceding clause (x);
(8) any transaction with a Person (other than an
Unrestricted Subsidiary of the Issuer) which would constitute an
Affiliate of the Issuer solely because the Issuer or a
Restricted Subsidiary owns an equity interest in or otherwise
controls such Person; and
(9) (a) any transaction with an Affiliate where the
only consideration paid by the Issuer or any Restricted
Subsidiary is Qualified Equity Interests or (b) the
issuance or sale of any Qualified Equity Interests.
Limitations
on Liens
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, incur or permit to exist
any Lien of any nature whatsoever securing Indebtedness or trade
payables (i) on any Collateral, except pursuant to a
Security Document and except for Permitted Collateral Liens or
(ii) on any of their respective assets or properties
(including Equity Interests of a Restricted Subsidiary) that are
not Collateral, except for Permitted Liens.
Limitations
on Asset Sales and Collateral Dispositions
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset Sale
(including a Collateral Disposition that is also an Asset Sale)
unless:
(1) the Issuer or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to
the Fair Market Value of the assets included in such Asset
Sale; and
(2) at least 75% of the total consideration in such Asset
Sale consists of cash or Cash Equivalents.
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The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Collateral
Disposition, whether or not constituting an Asset Sale, unless
the Trustee has or is immediately granted a perfected
first-priority security interest (subject only to Permitted
Collateral Liens) in all assets or property received by the
Issuer or any Restricted Subsidiary as consideration therefor
(excluding any cash or Cash Equivalents) as additional
Collateral under the Security Documents to secure the Note
Obligations, and, in the case of cash or Cash Equivalents
constituting Net Available Proceeds, such cash or Cash
Equivalents must be deposited into a segregated account under
the sole control of the Trustee that includes only proceeds from
the Collateral Disposition and interest earned thereon (an
Asset Sale Proceeds Account), which proceeds
shall be subject to release from the Asset Sale Proceeds Account
for the uses described below in this covenant with respect to
Collateral Dispositions, as provided for in the Security
Documents.
Except with respect to a Collateral Disposition, for purposes of
clause (2), the following shall be deemed to be cash:
(a) the amount (without duplication) of any Indebtedness
(other than Subordinated Indebtedness) of the Issuer or such
Restricted Subsidiary that is expressly assumed by the
transferee of any such assets pursuant to (i) a written
novation agreement that releases the Issuer or such Restricted
Subsidiary from further liability therefor or (ii) an
assignment agreement that includes, in lieu of such a release,
the agreement of the transferee or its parent company to
indemnify and hold harmless the Issuer or such Restricted
Subsidiary from and against any loss, liability or cost in
respect of such assumed liability;
(b) the amount of any obligations received from such
transferee that are within 30 days after such Asset Sale
converted by the Issuer or such Restricted Subsidiary into cash
(to the extent of the cash actually so received); and
(c) the Fair Market Value of (i) any assets (other
than securities) received by the Issuer or any Restricted
Subsidiary to be used by it in a Permitted Business,
(ii) Equity Interests in a Person that is a Restricted
Subsidiary or in a Person engaged in a Permitted Business that
shall become a Restricted Subsidiary immediately upon the
acquisition of such Person by the Issuer or (iii) a
combination of (i) and (ii).
If at any time any non-cash consideration received by the Issuer
or any Restricted Subsidiary, as the case may be, in connection
with any Asset Sale is repaid or converted into or sold or
otherwise disposed of for cash (other than interest received
with respect to any such non-cash consideration), then the date
of such repayment, conversion or disposition shall be deemed to
constitute the date of an Asset Sale hereunder and the Net
Available Proceeds thereof shall be applied in accordance with
this covenant.
Any Asset Sale pursuant to a condemnation, appropriation or
other similar taking, including by deed in lieu of condemnation,
or pursuant to the foreclosure or other enforcement of a
Permitted Lien or exercise by the related lienholder of rights
with respect thereto, including by deed or assignment in lieu of
foreclosure, shall not be required to satisfy the conditions set
forth in clauses (1) and (2) of the first paragraph of
this covenant.
Notwithstanding the foregoing, except with respect to a
Collateral Disposition, the 75% limitation referred to above
shall be deemed satisfied with respect to any Asset Sale in
which the cash or Cash Equivalents portion of the consideration
received therefrom, determined in accordance with the foregoing
provision on an after-tax basis, is equal to or greater than
what the after-tax proceeds would have been had such Asset Sale
complied with the aforementioned 75% limitation.
If the Issuer or a Restricted Subsidiary consummates a
Collateral Disposition, then the Issuer or the Restricted
Subsidiary shall, no later than 330 days following the
consummation thereof, use the Net Available Proceeds thereof
(i) to acquire additional assets of a type constituting
Collateral, provided that the Trustee has or is
immediately granted a perfected first-priority security interest
(subject only to Permitted Collateral Liens) in such additional
assets, or (ii) to repurchase or redeem Notes. The amount
of Net Available Proceeds from a Collateral Disposition that are
not so applied shall constitute Excess Collateral
Proceeds. On the 331st day following such a
Collateral Disposition, if there are Excess Collateral Proceeds,
or earlier if the Issuer so determines, the Issuer must make an
offer to purchase from all Holders of Notes, on a pro rata
basis, an aggregate principal amount of Notes equal to the
amount of such Excess Collateral Proceeds (a Collateral
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Proceeds Offer), in accordance with the procedures
set forth in the Indenture, at an offer price payable in cash in
an amount equal to 100% of the principal amount of the Notes
tendered pursuant to a Collateral Proceeds Offer, plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to
the date such Collateral Proceeds Offer is consummated. If the
aggregate amount of Notes validly tendered and not withdrawn by
Holders thereof exceeds the amount of Excess Collateral
Proceeds, Notes will be purchased from tendering Holders on a
pro rata basis. Upon completion of such Collateral Proceeds
Offer, and purchase of Notes tendered thereunder as required,
the amount of Excess Collateral Proceeds with respect to which
such Collateral Proceeds Offer was made shall be deemed to be
zero. To the extent that the Excess Collateral Proceeds exceeds
the aggregate principal amount of Notes tendered for purchase
pursuant to the relevant Collateral Proceeds Offer, the Issuer
may use such excess funds for any purposes not otherwise
prohibited by the provisions of the Indenture.
If the Issuer or any Restricted Subsidiary engages in an Asset
Sale other than a Collateral Disposition, the Issuer or such
Restricted Subsidiary shall, no later than 365 days
following the consummation thereof, apply all or any of the Net
Available Proceeds therefrom to:
(1) satisfy all mandatory repayment obligations under any
Credit Facility arising by reason of such Asset Sale, and in the
case of any such repayment under any revolving credit facility,
effect a permanent reduction in the availability under such
revolving credit facility;
(2) repay any Indebtedness which was secured by the assets
sold in such Asset Sale;
(3) (A) make any capital expenditure or otherwise
invest all or any part of the Net Available Proceeds thereof in
the purchase of assets (other than securities) to be used by the
Issuer or any Restricted Subsidiary in the Permitted Business,
(B) acquire Qualified Equity Interests in a Person that is
a Restricted Subsidiary or in a Person engaged in a Permitted
Business that shall become a Restricted Subsidiary immediately
upon the consummation of such acquisition or (C) a
combination of (A) and (B); and/or
(4) make a Net Proceeds Offer (and purchase or redeem Pari
Passu Indebtedness) in accordance with the procedures described
below and in the Indenture.
The amount of Net Available Proceeds of an Asset Sale other than
a Collateral Disposition not applied or invested as provided in
the preceding paragraph will constitute Excess
Proceeds.
When the aggregate amount of Excess Proceeds equals or exceeds
$15.0 million, the Issuer will be required to make an offer
to purchase from all Holders and, if applicable, purchase or
redeem (or make an offer to do so) any Pari Passu Indebtedness
of the Issuer the provisions of which require the Issuer to
purchase or redeem such Indebtedness with the proceeds from any
Asset Sales (or offer to do so), in an aggregate principal
amount of Notes and such Pari Passu Indebtedness equal to the
amount of such Excess Proceeds as follows:
(1) the Issuer will (a) make an offer to purchase (a
Net Proceeds Offer) to all Holders in
accordance with the procedures set forth in the Indenture, and
(b) purchase or redeem (or make an offer to do so) any such
other Pari Passu Indebtedness, pro rata in proportion to the
respective principal amounts of the Notes and such other
Indebtedness required to be purchased or redeemed, the maximum
principal amount of Notes and Pari Passu Indebtedness that may
be purchased or redeemed out of the amount (the Payment
Amount) of such Excess Proceeds;
(2) the offer price for the Notes will be payable in cash
in an amount equal to 100% of the principal amount of the Notes
tendered pursuant to a Net Proceeds Offer, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the
date such Net Proceeds Offer is consummated (the
Offered Price), in accordance with the
procedures set forth in the Indenture, and the purchase or
redemption price for such Pari Passu Indebtedness (the
Pari Passu Indebtedness Price) shall be as
set forth in the related documentation governing such
Indebtedness;
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(3) if the aggregate Offered Price of Notes validly
tendered and not withdrawn by Holders thereof exceeds the pro
rata portion of the Payment Amount allocable to the Notes, Notes
to be purchased will be selected on a pro rata basis; and
(4) upon completion of such Net Proceeds Offer in
accordance with the foregoing provisions, the amount of Excess
Proceeds with respect to which such Net Proceeds Offer was made
shall be deemed to be zero.
To the extent that the sum of the aggregate Offered Price of
Notes tendered pursuant to a Net Proceeds Offer and the
aggregate Pari Passu Indebtedness Price paid to the holders of
such Pari Passu Indebtedness is less than the Payment Amount
relating thereto (such shortfall constituting a Net
Proceeds Deficiency), the Issuer may use the Net
Proceeds Deficiency, or a portion thereof, for any purposes not
otherwise prohibited by the provisions of the Indenture.
Notwithstanding the foregoing, the sale, conveyance or other
disposition of all or substantially all of the assets of the
Issuer and its Restricted Subsidiaries, taken as a whole, will
be governed by the provisions of the Indenture described under
the caption Change of Control
and/or the
provisions described under the caption Certain
Covenants Limitations on Mergers, Consolidations,
Etc. and not by the provisions of the Asset Sale covenant.
The Issuer will comply with applicable tender offer rules,
including the requirements of
Rule 14e-1
under the Exchange Act and any other applicable laws and
regulations in connection with the purchase of Notes pursuant to
a Collateral Proceeds Offer or a Net Proceeds Offer. To the
extent that the provisions of any securities laws or regulations
conflict with the Limitations on Asset Sales and
Collateral Dispositions provisions of the Indenture, the
Issuer shall comply with the applicable securities laws and
regulations and will not be deemed to have breached its
obligations under the Limitations on Asset Sales and
Collateral Dispositions provisions of the Indenture by
virtue of this compliance.
Limitations
on Designation of Unrestricted Subsidiaries
The Issuer may designate any Subsidiary (including any newly
formed or newly acquired Subsidiary) of the Issuer as an
Unrestricted Subsidiary under the Indenture (a
Designation) only if:
(1) no Default shall have occurred and be continuing at the
time of or after giving effect to such Designation; and
(2) the Issuer would be permitted to make, at the time of
such Designation, (a) a Permitted Investment or (b) an
Investment pursuant to the first paragraph of
Limitations on Restricted Payments
above, in either case, in an amount (the Designation
Amount) equal to the Fair Market Value of the
Issuers proportionate interest in such Subsidiary on such
date.
No Subsidiary shall be Designated as an Unrestricted
Subsidiary unless such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Issuer or any Restricted Subsidiary
unless the terms of the agreement, contract, arrangement or
understanding are no less favorable to the Issuer or the
Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates;
(3) is a Person with respect to which neither the Issuer
nor any Restricted Subsidiary has any direct or indirect
obligation (a) to subscribe for additional Equity Interests
or (b) to maintain or preserve the Persons financial
condition or to cause the Person to achieve any specified levels
of operating results;
(4) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Issuer or
any Restricted Subsidiary, except for any guarantee given solely
to support the pledge by the Issuer or any Restricted Subsidiary
of the Equity Interests of such Unrestricted Subsidiary, which
guarantee is not recourse to the Issuer or any Restricted
Subsidiary; and
(5) does not own or hold any Collateral.
128
If, at any time, any Unrestricted Subsidiary fails to meet the
preceding requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes
of the Indenture and any Indebtedness of the Subsidiary and any
Liens on assets of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary at such time and, if the
Indebtedness is not permitted to be incurred under the covenant
described under Limitations on Additional
Indebtedness or the Lien is not permitted under the
covenant described under Limitations on
Liens, the Issuer shall be in default of the applicable
covenant.
The Issuer may redesignate an Unrestricted Subsidiary as a
Restricted Subsidiary (a Redesignation) only
if:
(1) no Default shall have occurred and be continuing at the
time of and after giving effect to such Redesignation; and
(2) all Liens, Indebtedness and Investments of such
Unrestricted Subsidiary outstanding immediately following such
Redesignation would, if incurred or made at such time, have been
permitted to be incurred or made for all purposes of the
Indenture.
All Designations and Redesignations must be evidenced by
resolutions of the Board of Directors of the Issuer, delivered
to the Trustee certifying compliance with the foregoing
provisions.
Limitations
on Mergers, Consolidations, Etc.
The Issuer will not, directly or indirectly, in a single
transaction or a series of related transactions, consolidate or
merge with or into another Person, or sell, lease, transfer,
convey or otherwise dispose of or assign all or substantially
all of the assets of the Issuer or the Issuer and the Restricted
Subsidiaries (taken as a whole) unless:
(1) either:
(a) the Issuer will be the surviving or continuing
Person; or
(b) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger or to which such sale,
lease, transfer, conveyance or other disposition or assignment
shall be made (collectively, the Successor)
is a corporation, limited liability company or limited
partnership organized and existing under the laws of any State
of the United States of America or the District of Columbia, and
the Successor expressly assumes, by agreements in form and
substance reasonably satisfactory to the Trustee, all of the
obligations of the Issuer under the Notes, the Indenture, the
Security Documents and the Registration Rights Agreement;
(2) immediately after giving effect to such transaction and
the assumption of the obligations as set forth in clause (1)(b)
above and the incurrence of any Indebtedness to be incurred in
connection therewith, and the use of any net proceeds therefrom
on a pro forma basis, no Default shall have occurred and be
continuing; and
(3) immediately after giving effect to such transaction and
the assumption of the obligations as set forth in clause (1)(b)
above and the incurrence of any Indebtedness to be incurred in
connection therewith, and the use of any net proceeds therefrom
on a pro forma basis, the Issuer or the Successor, as the case
may be, could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the Coverage Ratio Exception.
For purposes of this covenant, any Indebtedness of the Successor
which was not Indebtedness of the Issuer immediately prior to
the transaction shall be deemed to have been incurred in
connection with such transaction.
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Except as provided in the fifth paragraph under the caption
Note Guarantees, no Guarantor may
consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person) another Person, unless:
(1) either:
(a) such Guarantor will be the surviving or continuing
Person; or
(b) the Person (if other than such Guarantor) formed by or
surviving any such consolidation or merger is another Guarantor
or assumes, by agreements in form and substance reasonably
satisfactory to the Trustee, all of the obligations of such
Guarantor under the Note Guarantee of such Guarantor, the
Indenture, the Security Documents to which such Guarantor is a
party and the Registration Rights Agreement; and
(2) immediately after giving effect to such transaction, no
Default shall have occurred and be continuing.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series
of transactions) of all or substantially all of the properties
or assets of one or more Restricted Subsidiaries, the Equity
Interests of which constitute all or substantially all of the
properties and assets of the Issuer, will be deemed to be the
transfer of all or substantially all of the properties and
assets of the Issuer.
Upon any consolidation, combination or merger of the Issuer or a
Guarantor, or any transfer of all or substantially all of the
assets of the Issuer in accordance with the foregoing, in which
the Issuer or such Guarantor is not the continuing obligor under
the Notes or its Note Guarantee, the surviving entity formed by
such consolidation or into which the Issuer or such Guarantor is
merged or the Person to which the sale, conveyance, lease,
transfer, disposition or assignment is made will succeed to, and
be substituted for, and may exercise every right and power of,
the Issuer or such Guarantor under the Indenture, the Notes and
the Note Guarantees with the same effect as if such surviving
entity had been named therein as the Issuer or such Guarantor
and, except in the case of a lease, the Issuer or such
Guarantor, as the case may be, will be released from the
obligation to pay the principal of and interest on the Notes or
in respect of its Note Guarantee, as the case may be, and all of
the Issuers or such Guarantors other obligations and
covenants under the Notes, the Indenture and its Note Guarantee,
if applicable.
Notwithstanding the foregoing, (i) any Restricted
Subsidiary may consolidate with, merge with or into or convey,
transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to the
Issuer or another Restricted Subsidiary and (ii) this
covenant will not apply to a merger of the Issuer with an
Affiliate of the Issuer solely for the purpose of reorganizing
the Issuer in another jurisdiction.
Additional
Note Guarantees
If, after the Issue Date, (a) the Issuer or any Restricted
Subsidiary shall acquire or create another Domestic Restricted
Subsidiary, or (b) any Unrestricted Subsidiary is
Redesignated a Domestic Restricted Subsidiary, and (in each such
case) such Domestic Restricted Subsidiary guarantees any
Indebtedness under any Credit Facility, then the Issuer shall
cause such Domestic Restricted Subsidiary to:
(1) execute and deliver to the Trustee (a) a
supplemental indenture in form and substance satisfactory to the
Trustee pursuant to which such Domestic Restricted Subsidiary
shall unconditionally guarantee all of the Issuers
obligations under the Notes and the Indenture and (b) a
notation of guarantee in respect of its Note Guarantee; and
(2) deliver to the Trustee one or more opinions of counsel
that such supplemental indenture (a) has been duly
authorized, executed and delivered by such Domestic Restricted
Subsidiary and (b) constitutes a valid and legally binding
obligation of such Domestic Restricted Subsidiary in accordance
with its terms;
provided, however, that a Domestic Restricted Subsidiary
that owns net assets that have an aggregate fair market value
(as determined in good faith by the Board of Directors of the
Issuer) of less than 5% of the Consolidated Tangible Assets of
the Issuer as of the end of the previous fiscal quarter, need
not become a Guarantor.
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Notwithstanding the foregoing, if, as of the end of any fiscal
quarter, the Domestic Restricted Subsidiaries that are not
required to be Guarantors pursuant to the preceding paragraph
collectively own net assets that have an aggregate fair market
value (as determined in good faith by the Board of Directors of
the Issuer) equal to or greater than 5% of the Issuers
Consolidated Tangible Assets, then the Issuer will cause one or
more of such non-Guarantor Domestic Restricted Subsidiaries
promptly to become a Guarantor or Guarantors such that after
giving effect thereto, the total net assets owned by all such
remaining non-Guarantor Domestic Restricted Subsidiaries will
have an aggregate fair market value (as determined in good faith
by the Board of Directors of the Issuer) of less than 5% of the
Consolidated Tangible Assets of the Issuer. Any such Domestic
Restricted Subsidiary so designated must become a Guarantor and
execute a supplemental indenture and deliver an opinion of
counsel to the Trustee within 15 Business Days of the date on
which it was designated. In addition to the foregoing, the
Issuer shall cause any Restricted Subsidiary that owns or holds
Collateral and is not already a Guarantor to become a Guarantor
by executing a supplemental indenture in the manner contemplated
by the Indenture.
Conduct
of Business
The Issuer will engage, and will cause its Restricted
Subsidiaries to engage, only in businesses that, when considered
together as a single enterprise, are primarily the Permitted
Business.
Maintenance
of Equipment Collateral; Insurance
The Issuer will, and will cause its Restricted Subsidiaries to,
maintain all equipment constituting Collateral in good condition
and repair, reasonable wear and tear excepted, and shall as
quickly as commercially practicable make or cause to be made all
repairs, replacements and other improvements that are necessary
or appropriate in the conduct of the Issuers ordinary
course of business. Specifically in connection with the
foregoing, the Issuer will not, and will cause its Restricted
Subsidiaries not to, remove or separate any part, accessory or
accession that is part of or affixed to an item of Collateral
(whether a part of or affixed to such Collateral on the Issue
Date or thereafter becoming a part thereof or affixed thereto)
unless such part, accessory or accession is damaged, worn-out or
obsolete (in which case the same shall promptly be replaced by a
working part, accessory or accession of the same function) or
unless separated and remains Collateral affixed to other
Collateral, or such part, accessory or accession is sold or
otherwise disposed of in accordance with the Indenture.
The Issuer will, and will cause its Restricted Subsidiaries to,
maintain adequate insurance or otherwise insure against hazards
as is usually done by corporations operating assets of a similar
nature in the same or similar localities.
Reports
Whether or not required by the SEC, so long as any Notes are
outstanding, the Issuer will furnish to the Holders of Notes, or
file electronically with the SEC through the SECs
Electronic Data Gathering, Analysis and Retrieval System (or any
successor system), within the time periods applicable to the
Issuer under Section 13(a) or 15(d) of the Exchange Act:
(1) all quarterly and annual financial information that
would be required to be contained in a filing with the SEC on
Forms 10-Q
and 10-K if
the Issuer were required to file these Forms, including a
Managements Discussion and Analysis of Financial
Condition and Results of Operations and, with respect to
the annual information only, a report on the annual financial
statements by the Issuers certified independent
accountants; and
(2) all current reports that would be required to be filed
with the SEC on
Form 8-K
if the Issuer were required to file these reports.
In addition, whether or not required by the SEC, the Issuer will
file a copy of all of the information and reports referred to in
clauses (1) and (2) above with the SEC for public
availability within the time periods specified in the SECs
rules and regulations (unless the SEC will not accept the
filing) and make the information available to securities
analysts and prospective investors upon request. The Issuer and
the
131
Guarantors have agreed that, for so long as any Notes remain
outstanding, the Issuer will furnish to the Holders and to
securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act.
Notwithstanding anything to the contrary, the Issuer will be
deemed to have complied with its obligations in the preceding
two paragraphs following the filing of the Exchange Offer
Registration Statement and prior to the effectiveness thereof if
the Exchange Offer Registration Statement includes the
information specified in clause (1) above at the times it
would otherwise be required to file such Forms.
Events of
Default
Each of the following is an Event of Default:
(1) failure to pay interest on, or Liquidated Damages with
respect to, any of the Notes when the same becomes due and
payable and the continuance of any such failure for 30 days;
(2) failure to pay the principal on any of the Notes when
it becomes due and payable, whether at stated maturity, upon
redemption, upon purchase, upon acceleration or otherwise;
(3) failure by the Issuer to comply with any of its
agreements or covenants described above under
Certain Covenants Limitations on
Mergers, Consolidations, Etc., or in respect of its
obligations to make a Change of Control Offer as described under
Change of Control;
(4) failure by the Issuer or any Guarantor to comply with
any other agreement or covenant in the Indenture or any Security
Document and continuance of this failure for 60 days after
notice of the failure has been given to the Issuer by the
Trustee or by the Holders of at least 25% of the aggregate
principal amount of the Notes then outstanding;
(5) default under any mortgage, indenture or other
instrument or agreement under which there may be issued or by
which there may be secured or evidenced Indebtedness for
borrowed money by the Issuer or any Restricted Subsidiary,
whether such Indebtedness now exists or is incurred after the
Issue Date, which default:
(a) is caused by a failure to pay at final maturity
principal on such Indebtedness within the applicable express
grace period and any extensions thereof, or
(b) results in the acceleration of such Indebtedness prior
to its express final maturity (which acceleration is not
rescinded, annulled or otherwise cured within 30 days of
receipt by the Issuer or such Restricted Subsidiary of notice of
any such acceleration),
and, in each case, the principal amount of such Indebtedness,
together with the principal amount of any other Indebtedness
with respect to which an event described in clause (a) or
(b) has occurred and is continuing, aggregates
$20.0 million or more;
(6) one or more judgments (to the extent not covered by
insurance) for the payment of money in an aggregate amount in
excess of $20.0 million shall be rendered against the
Issuer, any of its Restricted Subsidiaries or any combination
thereof and the same shall remain undischarged for a period of
60 consecutive days during which execution shall not be
effectively stayed;
(7) certain events of bankruptcy affecting the Issuer or
any of its Significant Subsidiaries;
(8) any Note Guarantee of any Significant Subsidiary ceases
to be in full force and effect (other than in accordance with
the terms of such Note Guarantee and the Indenture) or is
declared null and void and unenforceable or found to be invalid
or any Guarantor denies its liability under its Note Guarantee
(other than by reason of release of a Guarantor from its Note
Guarantee in accordance with the terms of the Indenture and the
Note Guarantee); or
(9) any Security Document or any Lien purported to be
created or granted thereby on any one or more items of
Collateral is held in any judicial proceeding to be
unenforceable or invalid, in whole or part, or ceases for any
reason (other than pursuant to a release that is delivered or
becomes effective as set forth in the Indenture or any Security
Documents) to be fully enforceable and perfected.
132
If an Event of Default (other than an Event of Default specified
in clause (7) above with respect to the Issuer), shall have
occurred and be continuing under the Indenture, the Trustee, by
written notice to the Issuer, or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding by
written notice to the Issuer and the Trustee, may declare (an
acceleration declaration) all amounts owing
under the Notes to be due and payable. Upon such declaration of
acceleration, the aggregate principal of and accrued and unpaid
interest on the outstanding Notes shall become due and payable
immediately; provided, however, that after such
acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal
amount of such outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events
of Default, other than the nonpayment of accelerated principal
and interest, have been cured or waived as provided in the
Indenture. If an Event of Default specified in clause (7)
with respect to the Issuer occurs, all outstanding Notes shall
become due and payable without any further action or notice to
the extent permitted by applicable law.
Holders of the Notes may not enforce the Indenture, the Security
Documents or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any Default or
Event of Default (except an Event of Default relating to the
payment of principal or interest or Liquidated Damages) if it
determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the
Notes then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Notes waive any existing Default or
Event of Default and its consequences under the Indenture except
a continuing Default or Event of Default in the payment of
interest or Liquidated Damages on, or the principal of, the
Notes. The Holders of a majority in principal amount of the then
outstanding Notes will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy
available to the Trustee. However, the Trustee may refuse to
follow any direction that conflicts with law or the Indenture,
that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to
the rights of Holders of Notes not joining in the giving of such
direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders
of Notes. A Holder may not pursue any remedy with respect to the
Indenture or the Notes unless:
(1) the Holder gives the Trustee written notice of a
continuing Event of Default;
(2) the Holder or Holders of at least 25% in aggregate
principal amount of outstanding Notes make a written request to
the Trustee to pursue the remedy;
(3) such Holder or Holders offer the Trustee indemnity
satisfactory to the Trustee against any costs, liability or
expense;
(4) the Trustee does not comply with the request within
60 days after receipt of the request and the offer of
indemnity; and
(5) during such
60-day
period, the Holders of a majority in aggregate principal amount
of the outstanding Notes do not give the Trustee a direction
that is inconsistent with the request.
However, such limitations do not apply to the right of any
Holder of a Note to receive payment of the principal of, premium
or Liquidated Damages, if any, or interest on, such Note or to
bring suit for the enforcement of any such payment, on or after
the due date expressed in the Notes, which right will not be
impaired or affected without the consent of the Holder.
The Holders of a majority in aggregate principal amount of the
Notes then outstanding by written notice to the Trustee may, on
behalf of the Holders of all of the Notes, rescind an
acceleration or waive any existing Default or Event of Default
and its consequences under the Indenture except a continuing
Default or Event of Default in the payment of interest or
premium or Liquidated Damages on, or the principal of, the Notes.
The Issuer is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture and, upon any
Officer of the Issuer becoming aware of any Default, a statement
specifying such Default and what action the Issuer is taking or
proposes to take with respect thereto.
133
Legal
Defeasance and Covenant Defeasance
The Issuer may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes and
all obligations of any Guarantors discharged with respect to
their Note Guarantees (Legal Defeasance).
Legal Defeasance means that the Issuer and the Guarantors shall
be deemed to have paid and discharged the entire obligations
represented by the Notes and the Note Guarantees, and the
Indenture shall cease to be of further effect as to all
outstanding Notes and Note Guarantees, except as to:
(1) rights of Holders of outstanding Notes to receive
payments in respect of the principal of and interest and
Liquidated Damages, if any, on such Notes when such payments are
due from the trust funds referred to below,
(2) the Issuers obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes, and the maintenance
of an office or agency for payment and money for security
payments held in trust,
(3) the rights, powers, trust, duties, and immunities of
the Trustee, and the Issuers obligation in connection
therewith, and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Issuer may, at its option and at any time,
elect to have its obligations and the obligations of the
Guarantors released with respect to the provisions of the
Indenture described above under Change of
Control and under Covenants (other
than the covenant described under
Covenants Limitations on Mergers,
Consolidations, Etc., except to the extent described
below) and the limitation imposed by clause (3) under
Covenants Limitations on Mergers,
Consolidations, Etc. (such release and termination being
referred to as Covenant Defeasance), and
thereafter any omission to comply with such obligations or
provisions will not constitute a Default or Event of Default.
Covenant Defeasance will not be effective until such time as
bankruptcy, receivership, rehabilitation and insolvency events
no longer apply. In the event Covenant Defeasance occurs in
accordance with the Indenture, the Events of Default described
under clauses (3) through (6) and (8) and
(9) under the caption Events of
Default and the Event of Default described under
clause (7) under the caption Events of
Default (but only with respect to Significant Subsidiaries
of the Issuer), in each case, will no longer constitute an Event
of Default. The Issuer may exercise its Legal Defeasance option
regardless of whether it previously exercised Covenant
Defeasance.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(1) the Issuer must irrevocably deposit with the Trustee,
as trust funds, in trust solely for the benefit of the Holders,
U.S. legal tender, U.S. Government Obligations or a
combination thereof, in such amounts as will be sufficient
(without consideration of any reinvestment of interest) in the
opinion of a nationally recognized investment bank, appraisal
firm or firm of independent public accountants selected by the
Issuer, to pay the principal of and interest and Liquidated
Damages, if any, on the outstanding Notes on the stated date for
payment thereof or on the applicable redemption date, as the
case may be,
(2) in the case of Legal Defeasance, the Issuer shall have
delivered to the Trustee an opinion of counsel in the United
States confirming that:
(a) the Issuer has received from, or there has been
published by the Internal Revenue Service, a ruling, or
(b) since the date of the Indenture, there has been a
change in the applicable U.S. federal income tax law,
in either case to the effect that, and based thereon this
opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of the Legal
Defeasance and will be subject to U.S. federal income tax
on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not
occurred,
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(3) in the case of Covenant Defeasance, the Issuer shall
have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming
that the Holders will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such
Covenant Defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the
same times as would have been the case if the Covenant
Defeasance had not occurred,
(4) no Default shall have occurred and be continuing on the
date of such deposit (other than a Default resulting from the
borrowing of funds to be applied to such deposit and the grant
of any Lien securing such borrowings),
(5) the Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a Default
under the Indenture or a default under any other material
agreement or instrument to which the Issuer or any of its
Subsidiaries is a party or by which the Issuer or any of its
Subsidiaries is bound (other than any such Default or default
resulting solely from the borrowing of funds to be applied to
such deposit and the grant of any Lien securing such borrowings),
(6) the Issuer shall have delivered to the Trustee an
Officers Certificate stating that the deposit was not made
by it with the intent of preferring the Holders over any other
of its creditors or with the intent of defeating, hindering,
delaying or defrauding any other of its creditors or
others, and
(7) the Issuer shall have delivered to the Trustee an
Officers Certificate and an opinion of counsel, each
stating that the conditions precedent provided for in, in the
case of the Officers Certificate, clauses (1) through
(6) and, in the case of the opinion of counsel,
clauses (2) and/or (3) and (5) of this paragraph
have been complied with.
If the funds deposited with the Trustee to effect Covenant
Defeasance are insufficient to pay the principal of and interest
on the Notes when due, then the Issuers obligations and
the obligations of Guarantors under the Indenture will be
revived and no such defeasance will be deemed to have occurred.
Satisfaction
and Discharge
The Indenture will be discharged and will cease to be of further
effect (except as to rights of registration of transfer or
exchange of Notes which shall survive until all Notes have been
canceled) as to all outstanding Notes when:
(1) (a) all the Notes that have been authenticated and
delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has been
deposited in trust or segregated and held in trust by the Issuer
and thereafter repaid to the Issuer or discharged from this
trust) have been delivered to the Trustee for
cancellation, or
(b) all Notes not delivered to the Trustee for cancellation
otherwise (i) have become due and payable, (ii) will
become due and payable, or may be called for redemption, within
one year or (iii) have been called for redemption pursuant
to the provisions described under Optional
Redemption, and, in any case, the Issuer has irrevocably
deposited or caused to be deposited with the Trustee as trust
funds, in trust solely for the benefit of the Holders,
U.S. legal tender, U.S. Government Obligations or a
combination thereof, in such amounts as will be sufficient
(without consideration of any reinvestment of interest) to pay
and discharge the entire Indebtedness (including all principal
and accrued interest and Liquidated Damages, if any) on the
Notes not theretofore delivered to the Trustee for cancellation,
(2) the Issuer has paid all other sums payable by it under
the Indenture, and
(3) the Issuer has delivered irrevocable instructions to
the Trustee to apply the deposited money toward the payment of
the Notes at maturity or on the date of redemption, as the case
may be.
In addition, the Issuer must deliver an Officers
Certificate and an opinion of counsel stating that all
conditions precedent to satisfaction and discharge have been
complied with.
135
Transfer
and Exchange
A Holder will be able to register the transfer of or exchange
Notes only in accordance with the provisions of the Indenture.
The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to
pay any taxes and fees required by law or permitted by the
Indenture. Without the prior consent of the Issuer, the
Registrar is not required (1) to register the transfer of
or exchange any Note selected for redemption, (2) to
register the transfer of or exchange any Note for a period of
15 days before a selection of Notes to be redeemed or
(3) to register the transfer or exchange of a Note between
a record date and the next succeeding interest payment date.
The Notes will be issued in registered form and the registered
Holder will be treated as the owner of such Note for all
purposes.
Amendment,
Supplement and Waiver
Except as otherwise provided in the next three succeeding
paragraphs, the Indenture, the Security Documents or the Notes
may be amended with the consent (which may include consents
obtained in connection with a tender offer or exchange offer for
Notes) of the Holders of at least a majority in principal amount
of the Notes then outstanding, and any existing Default under,
or compliance with any provision of, the Indenture may be waived
(other than any continuing Default in the payment of the
principal or interest on the Notes) with the consent (which may
include consents obtained in connection with a tender offer or
exchange offer for Notes) of the Holders of a majority in
principal amount of the Notes then outstanding.
Without the consent of each Holder affected, an amendment or
waiver may not (with respect to any Notes held by a
non-consenting Holder):
(1) reduce, or change the maturity of, the principal of any
Note;
(2) reduce the rate of or extend the time for payment of
interest on any Note;
(3) reduce any premium payable upon optional redemption of
the Notes or change the date on which any Notes are subject to
optional redemption or waive any payment with respect to the
optional redemption of the Notes or modify any obligation of the
Issuer under the covenant described above under the caption
Change of Control;
(4) make any Note payable in money or currency other than
that stated in the Notes;
(5) modify or change any provision of the Indenture or the
related definitions to affect the ranking of the Notes or any
Note Guarantee in a manner that adversely affects the Holders;
(6) reduce the percentage of Holders necessary to consent
to an amendment or waiver to the Indenture or the Notes;
(7) waive a default in the payment of principal of or
premium or interest or Liquidated Damages, if any, on any Notes
(except a rescission of acceleration of the Notes by the Holders
thereof as provided in the Indenture and a waiver of the payment
default that resulted from such acceleration);
(8) impair the rights of Holders to receive payments of
principal of or interest or Liquidated Damages, if any, on the
Notes on or after the due date therefor or to institute suit for
the enforcement of any payment on the Notes;
(9) release any Guarantor that is a Significant Subsidiary
from any of its obligations under its Note Guarantee or the
Indenture, except as permitted by the Indenture;
(10) except as expressly provided in the Indenture or any
Security Document, release all or substantially all of the Liens
on the Collateral; or
(11) make any change in these amendment and waiver
provisions.
136
Notwithstanding the foregoing, the Issuer and the Trustee may
amend the Indenture, the Security Documents, the Note Guarantees
or the Notes without the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or
in place of certificated Notes;
(3) to provide for the assumption of the Issuers or a
Guarantors obligations to the Holders in the case of a
merger, consolidation or sale of all or substantially all of the
Issuers or such Guarantors assets in accordance with
Certain Covenants Limitations on
Mergers, Consolidations, Etc.;
(4) to add any Note Guarantee or to effect the release of
any Guarantor from any of its obligations under its Note
Guarantee or the Indenture (to the extent permitted by the
Indenture);
(5) to make any change that would provide any additional
rights or benefits to the Holders or does not materially
adversely affect the rights of any Holder;
(6) to effect or maintain the qualification of the
Indenture under the Trust Indenture Act;
(7) to add Collateral for or further secure the Notes or
any Note Guarantees or any other obligation under the Indenture;
(8) to evidence and provide for the acceptance of
appointment by a successor trustee;
(9) to conform the text of the Indenture or the Notes to
any provision of this Description of the Notes to the extent
that such provision in this Description of the Notes was
intended to be a verbatim recitation of a provision of the
Indenture, the Security Documents, the Note Guarantees or the
Notes;
(10) to provide for the issuance of Additional Notes in
accordance with the Indenture; or
(11) with respect to the Security Documents, to effect the
release of Collateral in accordance with the terms thereof and
the Indenture, or as otherwise provided therein or in the
Indenture.
The consent of the Holders of the Notes is not necessary under
the Indenture to approve the particular form of any proposed
amendment or waiver. It is sufficient if such consent approves
the substance of the proposed amendment or waiver.
After an amendment under the Indenture becomes effective, the
Issuer is required to mail to Holders of the Notes a notice
briefly describing such amendment. However, the failure to give
such notice to all Holders of the Notes, or any defect therein,
will not impair or affect the validity of the amendment.
No
Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator or stockholder of
the Issuer or any Guarantor will have any liability for any
obligations of the Issuer under the Notes, the Security
Documents or the Indenture or of any Guarantor under its Note
Guarantee or the Security Documents or for any claim based on,
in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases
all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Note Guarantees.
The waiver may not be effective to waive liabilities under the
federal securities laws. It is the view of the SEC that this
type of waiver is against public policy.
Concerning
the Trustee
The Bank of New York Mellon Trust Company, N.A. is the
Trustee under the Indenture and has been appointed by the Issuer
as Registrar and Paying Agent with regard to the Notes. The
Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Issuer, to obtain
payment of claims in certain cases, or to realize on certain
assets received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest
(as defined in the Indenture), it must eliminate such conflict
within 90 days, apply to the SEC for permission to continue
(if the Indenture has been qualified under the
Trust Indenture Act) or resign.
137
The Holders of a majority in principal amount of the then
outstanding Notes will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy
available to the Trustee, subject to certain exceptions. The
Indenture provides that, in case an Event of Default occurs and
is not cured, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent person in
similar circumstances in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the
request of any Holder, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to the Trustee.
Governing
Law
The Indenture is, and the Notes and the Note Guarantees will be,
governed by, and construed in accordance with, the laws of the
State of New York.
Certain
Definitions
Set forth below is a summary of certain of the defined terms
used in the Indenture. Reference is made to the Indenture for
the full definition of all such terms.
Acquired Indebtedness means (1) with
respect to any Person that becomes a Restricted Subsidiary after
the Issue Date, Indebtedness of such Person and its Subsidiaries
(including, for the avoidance of doubt, Indebtedness incurred in
the ordinary course of such Persons business to acquire
assets used or useful in its business) existing at the time such
Person becomes a Restricted Subsidiary that was not incurred in
connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary and (2) with respect to the Issuer or
any Restricted Subsidiary, any Indebtedness of a Person
(including, for the avoidance of doubt, Indebtedness incurred in
the ordinary course of such Persons business to acquire
assets used or useful in its business), other than the Issuer or
a Restricted Subsidiary, existing at the time such Person is
merged with or into the Issuer or a Restricted Subsidiary, or
Indebtedness expressly assumed by the Issuer or any Restricted
Subsidiary in connection with the acquisition of an asset or
assets from another Person, which Indebtedness was not, in any
case, incurred by such other Person in connection with, or in
contemplation of, such merger or acquisition.
Affiliate of any Person means any other
Person which directly or indirectly controls or is controlled
by, or is under direct or indirect common control with, the
referent Person. For purposes of the covenant described under
Certain Covenants Limitations on
Transactions with Affiliates, Affiliates shall be deemed
to include, with respect to any Person, any other Person
(1) which beneficially owns or holds, directly or
indirectly, 10% or more of any class of the Voting Stock of the
referent Person, (2) of which 10% or more of the Voting
Stock is beneficially owned or held, directly or indirectly, by
the referenced Person or (3) with respect to an individual,
any immediate family member of such Person. For purposes of this
definition, control of a Person shall mean the power
to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
amend means to amend, supplement, restate,
amend and restate or otherwise modify, including successively,
and amendment shall have a correlative meaning.
asset means any asset or property.
Asset Acquisition means
(1) an Investment by the Issuer or any Restricted
Subsidiary of the Issuer in any other Person if, as a result of
such Investment, such Person shall become a Restricted
Subsidiary of the Issuer, or shall be merged with or into the
Issuer or any Restricted Subsidiary of the Issuer, or
(2) the acquisition by the Issuer or any Restricted
Subsidiary of the Issuer of all or substantially all of the
assets of any other Person (other than a Restricted Subsidiary
of the Issuer) or any division or line of business of any such
other Person (other than in the ordinary course of business).
Asset Sale means any sale, issuance,
conveyance, transfer, lease, assignment or other disposition by
the Issuer or any Restricted Subsidiary to any Person other than
the Issuer or any Restricted Subsidiary (including by means of a
sale and leaseback transaction or a merger or consolidation)
(collectively, for purposes of this
138
definition, a transfer), in one transaction or a
series of related transactions, of any assets of the Issuer or
any of its Restricted Subsidiaries other than in the ordinary
course of business. For purposes of this definition, the term
Asset Sale shall not include:
(1) transfers of cash or Cash Equivalents;
(2) transfers of assets (including Equity Interests) that
are governed by, and made in accordance with, the covenants
described under Change of Control or
Certain Covenants Limitations on
Mergers, Consolidations, Etc.;
(3) Permitted Investments and Restricted Payments permitted
under the covenant described under Certain
Covenants Limitations on Restricted Payments;
(4) the creation of or realization on any Lien permitted
under the Indenture or the Security Documents and any
disposition of assets resulting from the enforcement or
foreclosure of any such Lien;
(5) transfers of damaged, worn-out or obsolete equipment or
assets that, in the Issuers reasonable judgment, are no
longer used or useful in the business of the Issuer or its
Restricted Subsidiaries;
(6) sales or grants of licenses or sublicenses to use the
patents, trade secrets, know-how and other intellectual
property, and licenses, leases or subleases of other assets, of
the Issuer or any Restricted Subsidiary to the extent not
materially interfering with the business of Issuer and the
Restricted Subsidiaries;
(7) any sale, lease, conveyance or other disposition of any
assets or any sale or issuance of Equity Interests in each case,
made pursuant to a Permitted Joint Venture Investment;
(8) the trade or exchange by the Issuer or any Restricted
Subsidiary of any asset for any other asset or assets;
provided, that the Fair Market Value of the asset or
assets received by the Issuer or any Restricted Subsidiary in
such trade or exchange (including any such cash or Cash
Equivalents) is at least equal to the Fair Market Value (as
determined in good faith by the Board of Directors or an
executive officer of the Issuer or of such Restricted Subsidiary
with responsibility for such transaction, which determination
shall be conclusive evidence of compliance with this provision)
of the asset or assets disposed of by the Issuer or any
Restricted Subsidiary pursuant to such trade or exchange; and,
provided, further, that if any cash or Cash
Equivalents are used in such trade or exchange to achieve an
exchange of equivalent value, that the amount of such cash
and/or Cash
Equivalents shall be deemed proceeds of an Asset
Sale, subject to the following clause (9); and
(9) any transfer or series of related transfers that, but
for this clause, would be Asset Sales, if after giving effect to
such transfers, the aggregate Fair Market Value of the assets
transferred in such transaction or any such series of related
transactions does not exceed $3.0 million per occurrence or
$10.0 million in any fiscal year.
Board of Directors means, with respect to any
Person, (i) in the case of any corporation, the board of
directors of such Person, (ii) in the case of any
partnership, the Board of Directors of the general partner of
such Person and (iii) in any other case, the functional
equivalent of the foregoing or, in each case, other than for
purposes of the definition of Change of Control, any
duly authorized committee of such body.
Business Day means a day other than a
Saturday, Sunday or other day on which banking institutions in
New York are authorized or required by law to close.
Capitalized Lease means a lease required to
be capitalized for financial reporting purposes in accordance
with GAAP.
Capitalized Lease Obligations of any Person
means the obligations of such Person to pay rent or other
amounts under a Capitalized Lease, and the amount of such
obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
139
Cash Equivalents means:
(1) marketable obligations issued or directly and fully
guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith
and credit of the United States of America is pledged in support
thereof), maturing within 360 days of the date of
acquisition thereof;
(2) demand and time deposits and certificates of deposit of
any Lender or any commercial bank having, or which is the
principal banking subsidiary of a bank holding company organized
under the laws of the United States, any state thereof or the
District of Columbia having, capital and surplus aggregating in
excess of $300.0 million and a rating of A (or
such other similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) maturing
within 360 days of the date of acquisition by such person;
(3) commercial paper issued by any person incorporated in
the United States rated at least
A-1 or the
equivalent thereof by S&P or at least
P-1 or the
equivalent thereof by Moodys or an equivalent rating by a
nationally recognized rating agency if both S&P and
Moodys cease publishing ratings of commercial paper
issuers generally, and in each case maturing not more than one
year after the date of acquisition by such person;
(4) repurchase obligations with a term of not more than
30 days for underlying securities of the types described in
clause (1) above entered into with any bank meeting the
qualifications specified in clause (2) above;
(5) securities issued and fully guaranteed by any state,
commonwealth or territory of the United States of America, or by
any political subdivision or taxing authority thereof, rated at
least A by Moodys or S&P and having
maturities of not more than one year from the date of
acquisition;
(6) investments in money market or other mutual funds
substantially all of whose assets comprise securities of the
types described in clauses (1) through
(5) above; and
(7) demand deposit accounts maintained in the ordinary
course of business.
Change of Control means the occurrence of any
of the following events:
(1) the direct or indirect sale, transfer, conveyance or
other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of
all or substantially all of the properties or assets of the
Issuer and its Restricted Subsidiaries, taken as a whole, to any
person (as that term is used in
Section 13(d)(3) of the Exchange Act) other than a
Permitted Holder;
(2) any person or group (as such
terms are used in Sections 13(d) and 14(d) of the Exchange
Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in
Rules 13d-3
and 13d-5
under the Exchange Act, except that for purposes of this clause
that person or group shall be deemed to have beneficial
ownership of all securities that any such person or group
has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or
indirectly, of Voting Stock representing 50% or more of the
voting power of the total outstanding Voting Stock of the
Issuer; provided, however, that such event shall not be
deemed to be a Change of Control so long as the Permitted
Holders own Voting Stock representing in the aggregate a greater
percentage of the total voting power of the Voting Stock of the
Issuer than such other person or group;
(3) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of
Directors (together with any new directors whose election to
such Board of Directors or whose nomination for election by the
stockholders of the Issuer was approved by a vote of
662/3%
of the directors of the Issuer then still in office who were
either directors at the beginning of such period or whose
election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of
Directors of the Issuer; and
(4) the adoption by the stockholders of the Issuer of a
Plan of Liquidation.
140
For purposes of this definition, a Person shall not be deemed to
have beneficial ownership of securities subject to a stock
purchase agreement, merger agreement or similar agreement until
the consummation of the transactions contemplated by such
agreement.
Collateral Disposition means any sale,
transfer or other disposition to the extent involving assets or
other rights or property that constitute Collateral under the
Security Documents. The sale or issuance of Equity Interests in
a Restricted Subsidiary that owns Collateral such that it
thereafter is no longer a Restricted Subsidiary shall be deemed
to be a Collateral Disposition of the Collateral owned by such
Restricted Subsidiary.
Consolidated Amortization Expense for any
period means the amortization expense of the Issuer and the
Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
Consolidated Cash Flow for any period means,
without duplication, the sum of the amounts for such period of
(1) Consolidated Net Income, plus
(2) in each case only to the extent (and in the same
proportion) deducted in determining Consolidated Net Income and
with respect to the portion of Consolidated Net Income
attributable to any Restricted Subsidiary only if a
corresponding amount would be permitted at the date of
determination to be distributed to the Issuer by such Restricted
Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted
Subsidiary or its stockholders,
(a) Consolidated Income Tax Expense,
(b) Consolidated Amortization Expense (but only to the
extent not included in Consolidated Interest Expense),
(c) Consolidated Depreciation Expense,
(d) Consolidated Interest Expense, and
(e) all other non-cash items reducing the Consolidated Net
Income (excluding any non-cash charge that results in an accrual
of a reserve for cash charges in any future period) for such
period, in each case determined on a consolidated basis in
accordance with GAAP, minus
(3) the aggregate amount of all non-cash items, determined
on a consolidated basis, to the extent such items increased
Consolidated Net Income for such period.
Consolidated Depreciation Expense for any
period means the depreciation expense of the Issuer and the
Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
Consolidated Income Tax Expense for any
period means the provision for taxes of the Issuer and the
Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
Consolidated Interest Coverage Ratio means
the ratio of Consolidated Cash Flow during the most recent four
consecutive full fiscal quarters for which financial statements
are available (the Four-Quarter Period)
ending on or prior to the date of the transaction giving rise to
the need to calculate the Consolidated Interest Coverage Ratio
(the Transaction Date) to Consolidated Interest
Expense for the Four-Quarter Period. For purposes of this
definition, Consolidated Cash Flow and Consolidated Interest
Expense shall be calculated after giving effect on a pro forma
basis for the period of such calculation to:
(1) the incurrence of any Indebtedness or the issuance of
any Preferred Stock of the Issuer or any Restricted Subsidiary
(and the application of the proceeds thereof) and any repayment,
repurchase or redemption of other Indebtedness or other
Preferred Stock (and the application of the proceeds therefrom)
(other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes
pursuant to any revolving credit arrangement) occurring during
the Four-Quarter Period or at any time subsequent to the last
day of the Four-Quarter Period and on or prior to the
Transaction
141
Date, as if such incurrence, repayment, repurchase, issuance or
redemption, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four-Quarter
Period; and
(2) any Asset Sale or Asset Acquisition (including, without
limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of the Issuer or any
Restricted Subsidiary (including any Person who becomes a
Restricted Subsidiary as a result of such Asset Acquisition)
incurring Acquired Indebtedness and also including any
Consolidated Cash Flow (including any pro forma expense and cost
reductions calculated in good faith on a reasonable basis by a
responsible financial or accounting Officer of the Issuer)
occurring during the Four-Quarter Period or at any time
subsequent to the last day of the Four-Quarter Period and on or
prior to the Transaction Date), as if such Asset Sale or Asset
Acquisition (including the incurrence of, or assumption or
liability for, any such Indebtedness or Acquired Indebtedness)
occurred on the first day of the Four-Quarter Period;
provided, that the Officer making the pro forma
calculation described above may in his discretion include any
pro forma changes to Consolidated Cash Flow, including any pro
forma reductions of expenses and costs, that have occurred or
are reasonably expected by such Officer to occur within one year
of closing of such Asset Sale or Asset Acquisition (regardless
of whether such expense or cost savings or any other operating
improvements could then be reflected properly in pro forma
financial statements prepared in accordance with
Regulation S-X
under the Securities Act or any other regulation or policy of
the SEC).
In calculating Consolidated Interest Expense for purposes of
determining the denominator (but not the numerator) of this
Consolidated Interest Coverage Ratio:
(1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date;
(2) if interest on any Indebtedness actually incurred on
the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date will be deemed
to have been in effect during the Four-Quarter Period; and
(3) notwithstanding clause (1) or (2) above,
interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to
Hedging Obligations, shall be deemed to accrue at the rate per
annum resulting after giving effect to the operation of these
agreements.
Consolidated Interest Expense for any period
means the sum, without duplication, of the total interest
expense of the Issuer and the Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with
GAAP and including, without duplication,
(1) imputed interest on Capitalized Lease Obligations,
(2) commissions, discounts and other fees and charges owed
with respect to letters of credit securing financial
obligations, bankers acceptance financing and receivables
financings,
(3) the net costs associated with Hedging Obligations
related to interest rates,
(4) amortization of debt issuance costs, debt discount or
premium and other financing fees and expenses,
(5) the interest portion of any deferred payment
obligations,
(6) all other non-cash interest expense,
(7) capitalized interest,
(8) all dividend payments on any series of Disqualified
Equity Interests of the Issuer or any of its Restricted
Subsidiaries or any Preferred Stock of any Restricted Subsidiary
(other than dividends on Equity Interests payable solely in
Qualified Equity Interests of the Issuer or to the Issuer or a
Restricted Subsidiary of the Issuer),
142
(9) all interest payable with respect to discontinued
operations, and
(10) all interest on any Indebtedness described in
clause (7) or (8) of the definition of Indebtedness.
Consolidated Leverage Ratio means, at the
time of determination, the ratio of the total Indebtedness of
the Issuer and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, to Consolidated Cash
Flow during the most recent four consecutive full fiscal
quarters for which financial statements are available ending on
or prior to the date of the event giving rise to the
determination (with Consolidated Cash Flow being calculated for
such purpose on a pro forma basis in the same manner as it would
be calculated for purposes of the definition of Consolidated
Interest Coverage Ratio).
Consolidated Net Income for any period means
the net income (or loss) of the Issuer and the Restricted
Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP; provided that there shall be
excluded from such net income (to the extent otherwise included
therein), without duplication:
(1) the net income (or loss) of any Person (other than a
Restricted Subsidiary) in which any Person other than the Issuer
and the Restricted Subsidiaries has an ownership interest,
except to the extent that cash in an amount equal to any such
income has actually been received by the Issuer or any of its
Restricted Subsidiaries during such period;
(2) except to the extent includible in the consolidated net
income of the Issuer pursuant to the foregoing clause (1), the
net income (or loss) of any Person that accrued prior to the
date that (a) such Person becomes a Restricted Subsidiary
or is merged into or consolidated with the Issuer or any
Restricted Subsidiary or (b) the assets of such Person are
acquired by the Issuer or any Restricted Subsidiary;
(3) the net income of any Restricted Subsidiary during such
period to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary
of that income is not permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that
Subsidiary during such period, except that the Issuers
equity in a net loss of any such Restricted Subsidiary for such
period shall be included in determining Consolidated Net Income;
(4) for the purposes of calculating the Restricted Payments
Basket only, in the case of a successor to the Issuer by
consolidation, merger or transfer of its assets, any income (or
loss) of the successor prior to such merger, consolidation or
transfer of assets;
(5) other than for purposes of calculating the Restricted
Payments Basket, any gain (or loss), together with any related
provisions for taxes on any such gain (or the tax effect of any
such loss), realized during such period by the Issuer or any
Restricted Subsidiary upon (a) the acquisition of any
securities, or the extinguishment of any Indebtedness, of the
Issuer or any Restricted Subsidiary or (b) any Asset Sale
by the Issuer or any Restricted Subsidiary;
(6) gains and losses due solely to fluctuations in currency
values and the related tax effects according to GAAP;
(7) unrealized gains and losses with respect to Hedging
Obligations;
(8) the cumulative effect of any change in accounting
principles; and
(9) other than for purposes of calculating the Restricted
Payments Basket, any extraordinary or nonrecurring gain (or
extraordinary or nonrecurring loss), together with any related
provision for taxes on any such extraordinary or nonrecurring
gain (or the tax effect of any such extraordinary or
nonrecurring loss), realized by the Issuer or any Restricted
Subsidiary during such period.
In addition, any return of capital with respect to an Investment
that increased the Restricted Payments Basket pursuant to clause
(3)(d) of the first paragraph under Certain
Covenants Limitations on Restricted Payments
or decreased the amount of Investments outstanding pursuant to
clause (16) of the
143
definition of Permitted Investments shall be
excluded from Consolidated Net Income for purposes of
calculating the Restricted Payments Basket.
For purposes of this definition of Consolidated Net
Income, nonrecurring means any gain or loss as
of any date that is not reasonably likely to recur within the
two years following such date; provided that if there was
a gain or loss similar to such gain or loss within the two years
preceding such date, such gain or loss shall not be deemed
nonrecurring.
Consolidated Tangible Assets means, with
respect to any Person as of any date, the amount which, in
accordance with GAAP, would be set forth under the caption
Total Assets (or any like caption) on a consolidated
balance sheet of such Person and its Restricted Subsidiaries,
less all goodwill, patents, tradenames, trademarks, copyrights,
franchises, experimental expenses, organization expenses and any
other amounts classified as intangible assets in accordance with
GAAP.
Contingent Obligation shall mean, as to any
person, any obligation, agreement, understanding or arrangement
of such person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations
(primary obligations) of any other person (the
primary obligor) in any manner, whether directly or
indirectly, including, without limitation, any obligation of
such person, whether or not contingent, (a) to purchase any
such primary obligation or any property constituting direct or
indirect security therefor; (b) to advance or supply funds
(i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net
worth or solvency of the primary obligor; (c) to purchase
property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary
obligation; (d) with respect to bankers acceptances
and letters of credit, until a reimbursement obligation arises
(which obligation shall constitute Indebtedness); or
(e) otherwise to assure or hold harmless the holder of such
primary obligation against loss in respect thereof; provided,
however, that the term Contingent Obligation
shall not include endorsements of instruments for deposit or
collection in the ordinary course of business or any product
warranties for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such
Contingent Obligation is made (or, if less, the maximum amount
of such primary obligation for which such person may be liable,
whether severally or jointly, pursuant to the terms of the
instrument evidencing such Contingent Obligation) or, if not
stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such person is required
to perform thereunder) as determined by such person in good
faith.
Coverage Ratio Exception has the meaning set
forth in the proviso in the first paragraph of the covenant
described under Certain Covenants
Limitations on Additional Indebtedness.
Credit Agreement means the Fourth Amended and
Restated Credit Agreement dated as of October 3, 2003 and
as amended and restated as of February 6, 2007 by and among
the Issuer, as Borrower, the subsidiary guarantors party
thereto, Bank of America, N.A. as syndication agent, Capital
One, National Association and BNP Paribas as co-documentation
agents, UBS AG, Stamford Branch, as issuing bank, administrative
agent and collateral agent and the other lenders named therein,
including any notes, guarantees, collateral and security
documents, instruments and agreements executed in connection
therewith (including Hedging Obligations related to the
Indebtedness incurred thereunder), and in each case as further
amended or refinanced from time to time.
Credit Facilities means one or more debt
facilities (which may be outstanding at the same time, but
excluding for purposes of clarification, the Indenture)
providing for revolving credit loans, term loans or letters of
credit and, in each case, as such agreements may be amended,
refinanced or otherwise restructured, in whole or in part from
time to time (including increasing the amount of available
borrowings thereunder or adding Subsidiaries of the Issuer as
additional borrowers or guarantors thereunder) with respect to
all or any portion of the Indebtedness under such agreement or
agreements or any successor or replacement agreement or
agreements and whether by the same or any other agent, lender or
group of lenders.
144
Default means (1) any Event of Default
or (2) any event, act or condition that, after notice or
the passage of time or both, would be an Event of Default.
Designation has the meaning given to this
term in the covenant described under Certain
Covenants Limitations on Designation of Unrestricted
Subsidiaries.
Designation Amount has the meaning given to
this term in the covenant described under
Certain Covenants Limitations on
Designation of Unrestricted Subsidiaries.
Disqualified Equity Interests of any Person
means any class of Equity Interests of such Person that, by its
terms, or by the terms of any related agreement or of any
security into which it is convertible, puttable or exchangeable
(in each case, at the option of the holder thereof), is, or upon
the happening of any event or the passage of time would be,
required to be redeemed by such Person, at the option of the
holder thereof, or matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, in whole or
in part, on or prior to the date which is 91 days after the
final maturity date of the Notes; provided, however, that
any class of Equity Interests of such Person that, by its terms,
authorizes such Person to satisfy in full its obligations with
respect to the payment of dividends or upon maturity, redemption
(pursuant to a sinking fund or otherwise) or repurchase thereof
or otherwise by the delivery of Equity Interests that are not
Disqualified Equity Interests, and that is not convertible,
puttable or exchangeable for Disqualified Equity Interests or
Indebtedness, will not be deemed to be Disqualified Equity
Interests so long as such Person satisfies its obligations with
respect thereto solely by the delivery of Equity Interests that
are not Disqualified Equity Interests; provided, further,
however, that any Equity Interests that would not constitute
Disqualified Equity Interests but for provisions thereof giving
holders thereof (or the holders of any security into or for
which such Equity Interests are convertible, exchangeable or
exercisable) the right to require the Issuer to repurchase or
redeem such Equity Interests upon the occurrence of a change in
control or an asset sale occurring prior to the 91st day
after the final maturity date of the Notes shall not constitute
Disqualified Equity Interests if the change of control or asset
sale provisions applicable to such Equity Interests are no more
favorable to such holders than the provisions described under
Change of Control and
Certain Covenants Limitations on
Asset Sales and Collateral Dispositions, respectively, and
such Equity Interests specifically provide that the Issuer will
not repurchase or redeem any such Equity Interests pursuant to
such provisions prior to the Issuers purchase of the new
notes and the old notes as required pursuant to the provisions
described under Change of Control and
Certain Covenants Limitations on
Asset Sales and Collateral Dispositions, respectively.
Domestic Restricted Subsidiary means
(i) each Restricted Subsidiary of the Issuer organized or
existing under the laws of the United States, any state thereof
or the District of Columbia and (ii) any other Restricted
Subsidiary that guarantees any Indebtedness under any Credit
Facility.
Earn Out Obligation means those contingent
obligations of the Issuer incurred in favor of a seller (or
other third party entitled thereto) under or with respect to any
Permitted Acquisition (as such term is defined in the Credit
Agreement as of the Issue Date).
Equity Interests of any Person means
(1) any and all shares or other equity interests (including
common stock, preferred stock, limited liability company
interests and partnership interests) in such Person and
(2) all rights to purchase, warrants or options (whether or
not currently exercisable), participations or other equivalents
of or interests in (however designated) such shares or other
interests in such Person, but excluding from all of the
foregoing any debt securities convertible into Equity Interests,
regardless of whether such debt securities include any right of
participation with Equity Interests.
Exchange Act means the U.S. Securities
Exchange Act of 1934, as amended.
Fair Market Value means, with respect to any
asset, the price (after taking into account any liabilities
relating to such assets) that would be negotiated in an
arms-length transaction for cash between a willing seller
and a willing and able buyer, neither of which is under any
compulsion to complete the transaction, as such price is
determined in good faith by the Board of Directors of the Issuer
or a duly authorized committee thereof, as evidenced by a
resolution of such Board of Directors or committee.
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Foreign Restricted Subsidiary means any
Restricted Subsidiary of the Issuer other than a Domestic
Restricted Subsidiary.
GAAP means generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements
of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a
significant segment of the accounting profession of the United
States, as in effect from time to time.
guarantee means a direct or indirect
guarantee by any Person of any Indebtedness of any other Person
and includes any obligation, direct or indirect, contingent or
otherwise, of such Person (1) to purchase or pay (or
advance or supply funds for the purchase or payment of)
Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services (unless such
purchase arrangements are on arms-length terms and are
entered into in the ordinary course of business), to
take-or-pay,
or to maintain financial statement conditions or otherwise); or
(2) entered into for purposes of assuring in any other
manner the obligee of such Indebtedness of the payment thereof
or to protect such obligee against loss in respect thereof (in
whole or in part); guarantee, when used as a verb,
and guaranteed have correlative meanings.
Guarantors means each Domestic Restricted
Subsidiary of the Issuer on the Issue Date other than Basic
Energy Services International, LLC, and each other Person that
is required to, or at the election of the Issuer does, become a
Guarantor by the terms of the Indenture after the Issue Date, in
each case, until such Person is released from its Note Guarantee
in accordance with the terms of the Indenture.
Hedging Obligations of any Person means the
obligations of such Person under swap, cap, collar, forward
purchase or similar agreements or arrangements dealing with
interest rates, currency exchange rates or commodity prices,
either generally or under specific contingencies.
Holder means any registered holder, from time
to time, of the new notes
and/or the
old notes.
incur means, with respect to any Indebtedness
or Obligation, incur, create, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or
otherwise, with respect to such Indebtedness or Obligation;
provided that (1) the Indebtedness of a Person
existing at the time such Person became a Restricted Subsidiary
of the Issuer shall be deemed to have been incurred by such
Restricted Subsidiary at the time it becomes a Restricted
Subsidiary of the Issuer and (2) neither the accrual of
interest nor the accretion of original issue discount or the
accretion or accumulation of dividends on any Equity Interests
shall be deemed to be an incurrence of Indebtedness.
Indebtedness of any Person at any date means,
without duplication:
(1) all liabilities, contingent or otherwise, of such
Person for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a
portion thereof);
(2) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(3) all reimbursement obligations of such Person in respect
of letters of credit, letters of guaranty, bankers
acceptances and similar credit transactions;
(4) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, except trade
payables and accrued expenses incurred by such Person in the
ordinary course of business in connection with obtaining goods,
materials or services;
(5) the maximum fixed redemption or repurchase price of all
Disqualified Equity Interests of such Person;
(6) all Capitalized Lease Obligations of such Person;
(7) all Indebtedness of others secured by a Lien on any
asset of such Person, whether or not such Indebtedness is
assumed by such Person;
146
(8) all Indebtedness of others guaranteed by such Person to
the extent of such guarantee; provided that Indebtedness
of the Issuer or its Subsidiaries that is guaranteed by the
Issuer or the Issuers Subsidiaries shall only be counted
once in the calculation of the amount of Indebtedness of the
Issuer and its Subsidiaries on a consolidated basis;
(9) to the extent not otherwise included in this
definition, Hedging Obligations of such Person;
(10) all obligations of such Person under conditional sale
or other title retention agreements relating to assets purchased
by such Person; and
(11) all Contingent Obligations (other than Earn Out
Obligations) of such person in respect of Indebtedness or
obligations of others of the kinds referred to in
clauses (1) through (10) above.
The amount of any Indebtedness which is incurred at a discount
to the principal amount at maturity thereof as of any date shall
be deemed to have been incurred at the accreted value thereof as
of such date. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all
unconditional obligations as described above, the maximum
liability of such Person for any such contingent obligations at
such date and, in the case of clause (7), the lesser of
(a) the Fair Market Value of any asset subject to a Lien
securing the Indebtedness of others on the date that the Lien
attaches and (b) the amount of the Indebtedness secured.
For purposes of clause (5), the maximum fixed redemption
or repurchase price of any Disqualified Equity Interests
that do not have a fixed redemption or repurchase price shall be
calculated in accordance with the terms of such Disqualified
Equity Interests as if such Disqualified Equity Interests were
redeemed or repurchased on any date on which an amount of
Indebtedness outstanding shall be required to be determined
pursuant to the Indenture.
Independent Director means a director of the
Issuer who
(1) is independent with respect to the transaction at issue;
(2) does not have any material financial interest in the
Issuer or any of its Affiliates (other than as a result of
holding securities of the Issuer); and
(3) has not and whose Affiliates or affiliated firm has
not, at any time during the twelve months prior to the taking of
any action hereunder, directly or indirectly, received, or
entered into any understanding or agreement to receive, any
compensation, payment or other benefit, of any type or form,
from the Issuer or any of its Affiliates, other than customary
directors fees for serving on the Board of Directors of
the Issuer or any Affiliate and reimbursement of
out-of-pocket
expenses for attendance at the Issuers or Affiliates
board and board committee meetings.
Independent Financial Advisor means an
accounting, appraisal or investment banking firm of nationally
recognized standing that is, in the reasonable judgment of the
Issuers Board of Directors, qualified to perform the task
for which it has been engaged and disinterested and independent
with respect to the Issuer and its Affiliates.
Intellectual Property means all patents,
patent applications, trademarks, trade names, service marks,
copyrights, technology, trade secrets, proprietary information,
domain names, know how and processes necessary for the conduct
of the Issuers or any Restricted Subsidiarys
business as currently conducted.
Investments of any Person means:
(1) all direct or indirect investments by such Person in
any other Person in the form of loans, advances or capital
contributions or other credit extensions constituting
Indebtedness of such other Person, and any guarantee of
Indebtedness of any other Person;
(2) all purchases (or other acquisitions for consideration)
by such Person of Indebtedness, Equity Interests or other
securities of any other Person (other than any such purchase
that constitutes a Restricted Payment of the type described in
clause (2) of the definition thereof);
147
(3) all other items that would be classified as investments
on a balance sheet of such Person prepared in accordance with
GAAP (including, if required by GAAP, purchases of assets
outside the ordinary course of business); and
(4) the Designation of any Subsidiary as an Unrestricted
Subsidiary.
Except as otherwise expressly specified in this definition, the
amount of any Investment (other than an Investment made in cash)
shall be the Fair Market Value thereof on the date such
Investment is made. The amount of Investment pursuant to
clause (4) shall be the Designation Amount determined in
accordance with the covenant described under
Certain Covenants Limitations on
Designation of Unrestricted Subsidiaries. If the Issuer or
any Restricted Subsidiary sells or otherwise disposes of any
Equity Interests of any Restricted Subsidiary, or any Restricted
Subsidiary issues any Equity Interests, in either case, such
that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary, the Issuer shall be deemed to
have made an Investment on the date of any such sale or other
disposition equal to the Fair Market Value of the Equity
Interests of and all other Investments in such Restricted
Subsidiary retained. Notwithstanding the foregoing, purchases or
redemptions of Equity Interests of the Issuer shall be deemed
not to be Investments.
Issue Date means the date of original
issuance of the old notes.
Lien means, with respect to any asset, any
mortgage, deed of trust, lien (statutory or other), pledge,
lease, easement, restriction, covenant, charge, security
interest or other encumbrance of any kind or nature in respect
of such asset, whether or not filed, recorded or otherwise
perfected under applicable law, including any conditional sale
or other title retention agreement.
Liquidated Damages has the meaning set forth
in the Registration Rights Agreement.
Moodys means Moodys Investors
Service, Inc., and its successors.
Net Available Proceeds means, with respect to
any Asset Sale or Collateral Disposition, the proceeds thereof
in the form of cash or Cash Equivalents received by the Issuer
or any of its Restricted Subsidiaries from such Asset Sale or
Collateral Disposition, net of
(1) brokerage commissions and other fees and expenses
(including fees, discounts and expenses of legal counsel,
accountants and investment banks, consultants and placement
agents) of such Asset Sale or Collateral Disposition;
(2) provisions for taxes payable as a result of such Asset
Sale or Collateral Disposition (after taking into account any
available tax credits or deductions and any tax sharing
arrangements);
(3) amounts required to be paid to any Person (other than
the Issuer or any Restricted Subsidiary and other than under a
Credit Facility) owning a beneficial interest in the assets
subject to the Asset Sale or Collateral Disposition or having a
Lien thereon;
(4) payments of unassumed liabilities (not constituting
Indebtedness) relating to the assets sold at the time of, or
within 30 days after the date of, such Asset Sale or
Collateral Disposition; and
(5) appropriate amounts to be provided by the Issuer or any
Restricted Subsidiary, as the case may be, as a reserve required
in accordance with GAAP against any adjustment in the sale price
of such asset or assets or liabilities associated with such
Asset Sale or Collateral Disposition and retained by the Issuer
or any Restricted Subsidiary, as the case may be, after such
Asset Sale or Collateral Disposition, including pensions and
other postemployment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale or Collateral
Disposition, all as reflected in an Officers Certificate
delivered to the Trustee; provided, however, that
any amounts remaining after adjustments, revaluations or
liquidations of such reserves shall constitute Net Available
Proceeds.
148
Non-Recourse Debt means Indebtedness of an
Unrestricted Subsidiary:
(1) as to which neither the Issuer nor any Restricted
Subsidiary (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly
liable as a guarantor or otherwise, or (c) constitutes the
lender; and
(2) no default with respect to which (including any rights
that the holders thereof may have to take enforcement action
against an Unrestricted Subsidiary) would permit upon notice,
lapse of time or both any holder of any other Indebtedness
(other than the Credit Agreement or the new notes and old notes)
of the Issuer or any Restricted Subsidiary to declare a default
on the other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
Obligation means any principal, interest,
penalties, fees, indemnification, reimbursements, costs,
expenses, damages and other liabilities payable under the
documentation governing any Indebtedness.
Officer means any of the following of the
Issuer: the Chairman of the Board of Directors, the Chief
Executive Officer, the Chief Financial Officer, the President,
any Vice President, the Treasurer or the Secretary.
Officers Certificate means a
certificate signed by two Officers.
Pari Passu Indebtedness means any
Indebtedness of the Issuer or any Guarantor that ranks pari
passu in right of payment with the Notes or the Note Guarantees,
as applicable.
Permitted Business means the businesses
engaged in by the Issuer and its Subsidiaries on the Issue Date
as described in this prospectus and businesses that are
reasonably related thereto or reasonable extensions thereof.
Permitted Collateral Liens means Liens
described in clauses (1), (2), (3), (5), (6) and
(12) of Permitted Liens.
Permitted Holder means Credit Suisse, a Swiss
Bank, Credit Suisse Group, Credit Suisse Holdings (USA), Inc.,
Credit Suisse (USA), Inc. and their respective Affiliates.
Permitted Investment means:
(1) (i) Investments by the Issuer or any Subsidiary
Guarantor in (a) any Subsidiary Guarantor or (b) any
Person that will become immediately after such Investment a
Subsidiary Guarantor or that will merge or consolidate into the
Issuer or any Subsidiary Guarantor and (ii) Investments by
any Restricted Subsidiary that is not a Subsidiary Guarantor in
any other Restricted Subsidiary;
(2) Investments in the Issuer by any Restricted Subsidiary;
(3) loans and advances to directors, employees and officers
of the Issuer and the Restricted Subsidiaries (i) in the
ordinary course of business (including payroll, travel and
entertainment related advances) (other than any loans or
advances to any director or executive officer (or equivalent
thereof) that would be in violation of Section 402 of the
Sarbanes Oxley Act) and (ii) to purchase Equity Interests
of the Issuer not in excess of $2.5 million at any one time
outstanding;
(4) Hedging Obligations entered into for bona fide hedging
purposes of the Issuer or any Restricted Subsidiary not for the
purpose of speculation;
(5) Investments in cash and Cash Equivalents;
(6) receivables owing to the Issuer or any Restricted
Subsidiary if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade
terms may include such concessionary trade terms as the Issuer
or any such Restricted Subsidiary deems reasonable under the
circumstances;
149
(7) Investments in securities of trade creditors or
customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers;
(8) Investments made by the Issuer or any Restricted
Subsidiary as a result of consideration received in connection
with an Asset Sale or Collateral Disposition made in compliance
with the covenant described under Certain
Covenants Limitations on Asset Sales and Collateral
Dispositions;
(9) lease, utility and other similar deposits in the
ordinary course of business;
(10) Investments made by the Issuer or a Restricted
Subsidiary for consideration consisting only of Qualified Equity
Interests of the Issuer or any of its Subsidiaries;
(11) stock, obligations or securities received in
settlement of debts created in the ordinary course of business
and owing to the Issuer or any Restricted Subsidiary or in
satisfaction of judgments;
(12) Permitted Joint Venture Investments made by the Issuer
or any of its Restricted Subsidiaries, in an aggregate amount
(measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this
clause (12) after the Issue Date, that does not exceed
$20.0 million;
(13) Investments existing on the Issue Date;
(14) repurchases of, or other Investments in, the new notes
or old notes;
(15) advances, deposits and prepayments for purchases of
any assets, including any Equity Interests; and
(16) other Investments in any Person having an aggregate
Fair Market Value (measured on the date each such Investment was
made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to
this clause (16) since the Issue Date, not to exceed the
greater of (a) $25.0 million or (b) 5.0% of the
Issuers Consolidated Tangible Assets.
In determining whether any Investment is a Permitted Investment,
the Issuer may allocate or reallocate all or any portion of an
Investment among the clauses of this definition and any of the
provisions of the covenant described under the caption
Covenants Limitations on
Restricted Payments.
Permitted Joint Venture Investment means,
with respect to an Investment by any specified Person, an
Investment by such specified Person in any other Person engaged
in a Permitted Business (a) over which the specified Person
is responsible (either directly or through a services agreement)
for
day-to-day
operations or otherwise has operational and managerial control
of such other Person, or veto power over significant management
decisions affecting such other Person and (b) of which at
least 30% of the outstanding Equity Interests of such other
Person is at the time owned directly or indirectly by the
specified Person.
Permitted Liens means the following types of
Liens:
(1) inchoate Liens for taxes, assessments or governmental
charges or levies which (a) are not yet due and payable or
delinquent or (b) are being contested in good faith by
appropriate proceedings and as to which the Issuer or the
Restricted Subsidiaries shall have set aside on its books such
reserves as may be required pursuant to GAAP;
(2) Liens in respect of property of the Issuer or any
Restricted Subsidiary imposed by law, which were not incurred or
created to secure Indebtedness for borrowed money, such as
carriers, warehousemens, materialmens,
landlords, workmens, suppliers,
repairmens and mechanics Liens and other similar
Liens arising in the ordinary course of business, and which do
not in the aggregate materially detract from the value of the
property of the Issuer or its Restricted Subsidiaries, taken as
a whole, and do not materially impair the use thereof in the
operation of the business of the Issuer and its Restricted
Subsidiaries, taken as a whole;
150
(3) Liens (i) imposed by law or deposits made in
connection therewith in the ordinary course of business in
connection with workers compensation, unemployment
insurance and other types of social security, (ii) incurred
in the ordinary course of business to secure the performance of
tenders, statutory obligations (other than excise taxes),
surety, stay, customs and appeal bonds, statutory bonds, bids,
leases, government contracts, trade contracts, performance and
return of money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money) or
(iii) arising by virtue of deposits made in the ordinary
course of business to secure liability for premiums to insurance
carriers;
(4) Liens upon specific items of inventory or other goods
and proceeds of any Person securing such Persons
obligations in respect of bankers acceptances issued or
created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(5) Liens arising out of judgments or awards not resulting
in a Default or an Event of Default;
(6) easements, rights of way, restrictions (including
zoning restrictions), covenants, encroachments, protrusions and
other similar charges or encumbrances, and minor title
deficiencies on or with respect to any Real Property, in each
case whether now or hereafter in existence, not
(i) securing Indebtedness, (ii) individually or in the
aggregate materially impairing the value or marketability of
such Real Property and (iii) individually or in the
aggregate materially interfering with the conduct of the
business of the Issuer and its Restricted Subsidiaries at such
Real Property;
(7) Liens securing reimbursement obligations with respect
to commercial letters of credit which encumber documents and
other assets relating to such letters of credit and products and
proceeds thereof;
(8) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual or warranty
requirements of the Issuer or any Restricted Subsidiary,
including rights of offset and setoff;
(9) bankers Liens, rights of setoff and other similar
Liens existing solely with respect to cash and Cash Equivalents
on deposit in one or more of accounts maintained by the Issuer
or any Restricted Subsidiary, in each case granted in the
ordinary course of business in favor of the bank or banks with
which such accounts are maintained, securing amounts owing to
such bank with respect to cash management and operating account
arrangements, including those involving pooled accounts and
netting arrangements;
(10) Leases with respect to the assets or properties of the
Issuer and any Restricted Subsidiary, in each case entered into
in the ordinary course of the Issuers or such Restricted
Subsidiarys business so long as such Leases do not,
individually or in the aggregate, (i) interfere in any
material respect with the ordinary conduct of the business of
the Issuer or any Restricted Subsidiary or (ii) materially
impair the use (for its intended purposes) or the value of the
property subject thereto;
(11) the filing of financing statements solely as a
precautionary measure in connection with operating leases or
consignment of goods;
(12) Liens securing all of the new notes and old notes and
Liens securing any guarantee of the new notes or old notes;
(13) Liens securing Hedging Obligations entered into for
bona fide hedging purposes of the Issuer or any Restricted
Subsidiary not for the purpose of speculation;
(14) Liens existing on the Issue Date securing Indebtedness
outstanding on the Issue Date; provided that (i) the
aggregate principal amount of the Indebtedness, if any, secured
by such Liens does not increase; and (ii) such Liens do not
encumber any property other than the property subject thereto on
the Issue Date;
(15) Liens in favor of the Issuer or a Guarantor;
151
(16) Liens securing Indebtedness incurred under the Credit
Facilities or with respect to other obligations that do not
exceed in the aggregate the greater of
(a) $15.0 million or (b) 3.0% of the
Issuers Consolidated Tangible Assets at any time
outstanding;
(17) Liens arising pursuant to Purchase Money Indebtedness
incurred pursuant to clause (7) of the second paragraph of
Limitations on Additional Indebtedness;
provided that (i) the Indebtedness secured by any
such Lien (including refinancings thereof) does not exceed 100%
of the cost of the property being acquired or leased at the time
of the incurrence of such Indebtedness and (ii) any such
Liens attach only to the property being financed pursuant to
such Purchase Money Indebtedness and do not encumber any other
property of the Issuer or any Restricted Subsidiary.
(18) Liens securing Acquired Indebtedness permitted to be
incurred under the Indenture; provided that the Liens do
not extend to assets not subject to such Lien at the time of
acquisition (other than improvements thereon) and are no more
favorable to the lienholders than those securing such Acquired
Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Issuer or a Restricted Subsidiary;
(19) Liens on property of a person existing at the time
such person is acquired or merged with or into or consolidated
with the Issuer or any Restricted Subsidiary (and not created in
anticipation or contemplation thereof); provided that
such Liens do not extend to property not subject to such Liens
at the time of acquisition (other than improvements thereon) and
are no more favorable to the lienholders than the existing Lien;
(20) Liens to secure Refinancing Indebtedness of
Indebtedness secured by Liens referred to in the foregoing
clauses (12), (14), (16), (17), (18) and (19); provided
that in the case of Liens securing Refinancing Indebtedness
of Indebtedness secured by Liens referred to in the foregoing
clauses (14), (17), (18) and (19), such Liens do not extend
to any additional assets (other than improvements thereon and
replacements thereof);
(21) licenses of Intellectual Property granted by the
Issuer or any Restricted Subsidiary in the ordinary course of
business and not interfering in any material respect with the
ordinary conduct of the business of the Issuer or such
Restricted Subsidiary;
(22) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of
goods entered into by Issuer or any Restricted Subsidiary in the
ordinary course of business in accordance with the past
practices of the Issuer or such Restricted Subsidiary;
(23) Liens on assets of any Foreign Restricted Subsidiary
to secure Indebtedness of such Foreign Restricted Subsidiary
which Indebtedness is permitted by the Indenture;
(24) Liens of franchisors arising in the ordinary course of
business not securing Indebtedness; and
(25) Liens in favor of the Trustee as provided for in the
Indenture on money or property held or collected by the Trustee
in its capacity as Trustee.
Person means any individual, corporation,
partnership, limited liability company, joint venture,
incorporated or unincorporated association, joint-stock company,
trust, unincorporated organization or government or other agency
or political subdivision thereof or other entity of any kind.
Plan of Liquidation with respect to any
Person, means a plan that provides for, contemplates or the
effectuation of which is preceded or accompanied by (whether or
not substantially contemporaneously, in phases or otherwise):
(1) the sale, lease, conveyance or other disposition of all
or substantially all of the assets of such Person otherwise than
as an entirety or substantially as an entirety; and (2) the
distribution of all or substantially all of the proceeds of such
sale, lease, conveyance or other disposition of all or
substantially all of the remaining assets of such Person to
holders of Equity Interests of such Person.
Preferred Stock means, with respect to any
Person, any and all preferred or preference stock or other
equity interests (however designated) of such Person whether now
outstanding or issued after the Issue Date.
152
principal means, with respect to the new
notes and old notes, the principal of, and premium, if any, on
the new notes and old notes.
Purchase Money Indebtedness means
Indebtedness, including Capitalized Lease Obligations, of the
Issuer or any Restricted Subsidiary incurred for the purpose of
financing all or any part of the purchase price of property,
plant or equipment used in the business of the Issuer or any
Restricted Subsidiary or the cost of installation, construction
or improvement thereof; provided, however, that (except
in the case of Capitalized Lease Obligations) (1) the
amount of such Indebtedness shall not exceed such purchase price
or cost and (2) such Indebtedness shall be incurred within
90 days after such acquisition of such asset by the Issuer
or such Restricted Subsidiary or such installation, construction
or improvement.
Qualified Equity Interests of any Person
means Equity Interests of such Person other than Disqualified
Equity Interests; provided that such Equity Interests
shall not be deemed Qualified Equity Interests to the extent
sold or owed to a Subsidiary of such Person or financed,
directly or indirectly, using funds (1) borrowed from such
Person or any Subsidiary of such Person until and to the extent
such borrowing is repaid or (2) contributed, extended,
guaranteed or advanced by such Person or any Subsidiary of such
Person (including, without limitation, in respect of any
employee stock ownership or benefit plan). Unless otherwise
specified, Qualified Equity Interests refer to Qualified Equity
Interests of the Issuer.
Qualified Equity Offering means the issuance
and sale of Qualified Equity Interests of the Issuer to Persons
other than (x) any Permitted Holder or (y) any other
Person who is, prior to such issuance and sale, an Affiliate of
the Issuer; provided, however, that cash proceeds
therefrom equal to not less than the redemption price of the new
notes and old notes to be redeemed are received by the Issuer as
a capital contribution immediately prior to such redemption.
Real Property means, collectively, all right,
title and interest (including any leasehold estate) in and to
any and all parcels of or interests in real property owned,
leased or operated by any person, whether by lease, license or
other means, together with, in each case, all easements,
hereditaments and appurtenances relating thereto, all
improvements and appurtenant fixtures and equipment, all general
intangibles and contract rights and other property and rights
incidental to the ownership, lease or operation thereof.
Redesignation has the meaning given to such
term in the covenant described under Certain
Covenants Limitations on Designation of Unrestricted
Subsidiaries.
refinance means to refinance, repay, prepay,
replace, renew or refund.
Refinancing Indebtedness means Indebtedness
of the Issuer or a Restricted Subsidiary incurred in exchange
for, or the proceeds of which are used to redeem, refinance,
replace, defease, discharge, refund or otherwise retire for
value, in whole or in part, any Indebtedness of the Issuer or
any Restricted Subsidiary (the Refinanced
Indebtedness); provided that:
(1) the principal amount (and accreted value, in the case
of Indebtedness issued at a discount) of the Refinancing
Indebtedness does not exceed the principal amount (and accreted
value, as the case may be) of the Refinanced Indebtedness plus
the amount of accrued and unpaid interest on the Refinanced
Indebtedness, any reasonable premium paid to the holders of the
Refinanced Indebtedness and reasonable expenses incurred in
connection with the incurrence of the Refinancing Indebtedness;
(2) the obligor of Refinancing Indebtedness does not
include any Person (other than the Issuer or any Guarantor) that
is not an obligor of the Refinanced Indebtedness;
(3) if the Refinanced Indebtedness was subordinated in
right of payment to the Notes or the Note Guarantees, as the
case may be, then such Refinancing Indebtedness, by its terms,
is subordinate in right of payment to the Notes or the Note
Guarantees, as the case may be, at least to the same extent as
the Refinanced Indebtedness;
(4) the Refinancing Indebtedness has a final stated
maturity either (a) no earlier than the Refinanced
Indebtedness being repaid or amended or (b) after the
maturity date of the Notes;
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(5) the portion, if any, of the Refinancing Indebtedness
that is scheduled to mature on or prior to the maturity date of
the Notes has a Weighted Average Life to Maturity at the time
such Refinancing Indebtedness is incurred that is equal to or
greater than the Weighted Average Life to Maturity of the
portion of the Refinanced Indebtedness being repaid that is
scheduled to mature on or prior to the maturity date of the
Notes; and
(6) the proceeds of the Refinancing Indebtedness shall be
used substantially concurrently with the incurrence thereof to
redeem, refinance, replace, defease, discharge, refund or
otherwise retire for value the Refinanced Indebtedness, unless
the Refinanced Indebtedness is not then due and is not
redeemable or prepayable at the option of the obligor thereof or
is redeemable or prepayable only with notice, in which case such
proceeds shall be held in a segregated account of the obligor of
the Refinanced Indebtedness until the Refinanced Indebtedness
becomes due or redeemable or prepayable or such notice period
lapses and then shall be used to refinance the Refinanced
Indebtedness; provided that in any event the Refinanced
Indebtedness shall be redeemed, refinanced, replaced, defeased,
discharged, refunded or otherwise retired for value within one
year of the incurrence of the Refinancing Indebtedness.
Registration Rights Agreement means
(i) the Registration Rights Agreement dated as of the Issue
Date among the Issuer, the Guarantors and the initial purchasers
of the old notes issued on the Issue Date and (ii) any
other registration rights agreement entered into in connection
with an issuance of Additional Notes in a private offering after
the Issue Date.
Restricted Payment means any of the following:
(1) the declaration or payment of any dividend or any other
distribution on Equity Interests of the Issuer or any Restricted
Subsidiary or any payment made to the direct or indirect holders
(in their capacities as such) of Equity Interests of the Issuer
or any Restricted Subsidiary, including, without limitation, any
payment in connection with any merger or consolidation involving
the Issuer but excluding (a) dividends or distributions
payable solely in Qualified Equity Interests or through
accretion or accumulation of such dividends on such Equity
Interests and (b) in the case of Restricted Subsidiaries,
dividends or distributions payable to the Issuer or to a
Restricted Subsidiary and pro rata dividends or distributions
payable to minority stockholders of any Restricted Subsidiary;
(2) the purchase, redemption, defeasance or other
acquisition or retirement for value of any Equity Interests of
the Issuer or any Restricted Subsidiary (including, without
limitation, any payment in connection with any merger or
consolidation involving the Issuer) but excluding any such
Equity Interests held by the Issuer or any Restricted Subsidiary;
(3) any Investment other than a Permitted
Investment; or
(4) any principal payment on, purchase, redemption,
defeasance, prepayment, decrease or other acquisition or
retirement for value prior to any scheduled maturity or prior to
any scheduled repayment of principal or sinking fund payment, as
the case may be, in respect of Subordinated Indebtedness (other
than any Subordinated Indebtedness owed to and held by the
Issuer or any Restricted Subsidiary).
Restricted Payments Basket has the meaning
given to such term in the first paragraph of the covenant
described under Certain Covenants
Limitations on Restricted Payments.
Restricted Subsidiary means any Subsidiary of
the Issuer other than an Unrestricted Subsidiary.
S&P means Standard &
Poors Ratings Services, a division of the McGraw-Hill
Companies, Inc., and its successors.
SEC means the U.S. Securities and
Exchange Commission.
Secretarys Certificate means a
certificate signed by the Secretary of the Issuer.
Securities Act means the U.S. Securities
Act of 1933, as amended.
Security Documents means any one or more
security agreements, pledge agreements, collateral assignments,
mortgages, deeds of covenants, assignments of earnings and
insurances, share pledges, collateral
154
agency agreements, deeds of trust or other grants or transfers
for security executed and delivered by the Issuer, the
Guarantors or any other obligor under the Indenture creating, or
purporting to create, a Lien upon Collateral in favor of the
Trustee for the benefit of the Holders of the new notes and old
notes, in each case as amended, modified, renewed, restated or
replaced, in whole or part, from time to time, in accordance
with its terms.
Significant Subsidiary means (1) any
Restricted Subsidiary that owns Collateral or that would be a
significant subsidiary as defined in
Regulation S-X
promulgated pursuant to the Securities Act as such Regulation is
in effect on the Issue Date and (2) any Restricted
Subsidiary that, when aggregated with all other Restricted
Subsidiaries that are not otherwise Significant Subsidiaries and
as to which any event described in clause (7) under
Events of Default has occurred and is
continuing, or which are being released from their Guarantees
(in the case of clause (9) of the provisions described
under Amendment, Supplement and Waiver),
would constitute a Significant Subsidiary under clause (1)
of this definition.
Subordinated Indebtedness means Indebtedness
of the Issuer or any Restricted Subsidiary that is expressly
subordinated in right of payment to the Notes or the Note
Guarantees, respectively. For purposes of the covenant described
under Certain Covenants
Limitations on Restricted Payments, the Issuers
outstanding 7.125% Senior Notes due 2016 and any
Refinancing Indebtedness issued with respect to such outstanding
senior notes will be deemed to be Subordinated
Indebtedness.
Subsidiary means, with respect to any Person:
(1) any corporation, limited liability company, association
or other business entity of which more than 50% of the total
voting power of the Equity Interests entitled (without regard to
the occurrence of any contingency) to vote in the election of
the Board of Directors thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of such Person (or a combination
thereof); and
(2) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners
of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
Unless otherwise specified, Subsidiary refers to a
Subsidiary of the Issuer.
Subsidiary Guarantor means any Guarantor that
is a Subsidiary.
Trust Indenture Act means the
Trust Indenture Act of 1939, as amended.
Unrestricted Subsidiary means (1) any
Subsidiary that at the time of determination shall be designated
an Unrestricted Subsidiary by the Board of Directors of the
Issuer in accordance with the covenant described under
Certain Covenants Limitations on
Designation of Unrestricted Subsidiaries and (2) any
Subsidiary of an Unrestricted Subsidiary.
U.S. Government Obligations means direct
non-callable obligations of, or guaranteed by, the United States
of America for the payment of which guarantee or obligations the
full faith and credit of the United States is pledged.
Voting Stock with respect to any Person,
means securities of any class of Equity Interests of such Person
entitling the holders thereof (whether at all times or only so
long as no senior class of stock or other relevant equity
interest has voting power by reason of any contingency) to vote
in the election of members of the Board of Directors of such
Person.
Weighted Average Life to Maturity when
applied to any Indebtedness at any date, means the number of
years obtained by dividing (1) the sum of the products
obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other
required payment of principal, including payment at final
maturity, in respect thereof by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment by (2) the then
outstanding principal amount of such Indebtedness.
155
GLOBAL
SECURITIES; BOOK-ENTRY SYSTEM
The
Global Securities
The new notes will initially be represented by one or more
permanent global notes in definitive, fully registered
book-entry form (the global securities) which will
be registered in the name of Cede & Co., as nominee of
DTC, or such other name as may be requested by an authorized
representative of DTC. The global notes will be deposited with
the Trustee as custodian for DTC and may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of
DTC to DTC or another nominee of DTC or by DTC or any nominee to
a successor of DTC or a nominee of such successor.
We expect that pursuant to procedures established by DTC
(a) upon deposit of the global securities, DTC or its
custodian will credit on its internal system portions of the
global securities which will contain the corresponding
respective amount of the global securities to the respective
accounts of persons who have accounts with such depositary and
(b) ownership of the new notes will be shown on, and the
transfer of ownership thereof will be affected only through,
records maintained by DTC or its nominee (with respect to
interests of participants (as defined below)) and the records of
participants (with respect to interests of persons other than
participants). Such accounts initially will be designated by or
on behalf of the initial purchasers and ownership of beneficial
interests in the global securities will be limited to persons
who have accounts with DTC (the participants) or
persons who hold interests through participants. Noteholders may
hold their interests in a global security directly through DTC
if they are participants in such system, or indirectly through
organizations which are participants in such system.
So long as DTC or its nominee is the registered owner or holder
of any of the new notes, DTC or such nominee will be considered
the sole owner or holder of such new notes represented by such
global securities for all purposes under the indenture and under
the new notes represented thereby. No beneficial owner of an
interest in the global securities will be able to transfer such
interest except in accordance with the applicable procedures of
DTC.
Certain
Book-Entry Procedures for the Global Securities
The operations and procedures of DTC is solely within the
control of DTC and are subject to change by them from time to
time. Investors are urged to contact the DTC or its participants
directly to discuss these matters.
DTC has advised us that it is:
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a limited purpose trust company organized under the laws of the
State of New York;
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a banking organization within the meaning of the New
York Banking Law;
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a member of the Federal Reserve System;
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a clearing corporation within the meaning of the New
York Uniform Commercial Code, as amended; and
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a clearing agency registered pursuant to
Section 17A of the Securities Exchange Act of 1934.
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DTC was created to hold securities for its participants
(collectively, the participants) and to facilitate
the clearance and settlement of securities transactions, such as
transfers and pledges, between participants through electronic
book-entry changes to the accounts of its participants, thereby
eliminating the need for physical transfer and delivery of
certificates. DTCs participants include securities brokers
and dealers (including the initial purchasers of the old notes),
banks and trust companies, clearing corporations and certain
other organizations. DTC is a wholly owned subsidiary of The
Depository Trust & Clearing Corporation, which is
owned by a number of direct participants of DTC and by the New
York Stock Exchange, Inc., the American Stock Exchange, LLC and
the National Association of Securities Dealers, Inc. Indirect
access to DTCs system is also available to other entities
such as banks, brokers, dealers and trust companies
(collectively, the indirect participants) that clear
through or maintain a custodial relationship with a
156
participant, either directly or indirectly. Investors who are
not participants may beneficially own securities held by or on
behalf of DTC only through participants or indirect
participants. The rules applicable to DTC and its participants
are on file with the SEC.
The laws of some jurisdictions may require that some purchasers
of securities take physical delivery of those securities in
definitive form. Accordingly, the ability to transfer beneficial
interests in notes represented by a global security to those
persons may be limited. In addition, because DTC can act only on
behalf of its participants, who in turn act on behalf of persons
who hold interests through participants, the ability of a person
holding a beneficial interest in a global security to pledge or
transfer that interest to persons or entities that do not
participate in DTCs system, or to otherwise take actions
in respect of that interest, may be affected by the lack of a
physical security in respect of that interest.
So long as DTC or its nominee is the registered owner of a
global security, DTC or that nominee, as the case may be, will
be considered the sole legal owner or holder of the notes
represented by that global security for all purposes of the
notes and the indenture. Except as provided below, owners of
beneficial interests in a global security will not be entitled
to have the notes represented by that global security registered
in their names, will not receive or be entitled to receive
physical delivery of certificated securities, and will not be
considered the owners or holders of the notes represented by
that beneficial interest under the indenture for any purpose,
including with respect to the giving of any direction,
instruction or approval to the Trustee. To facilitate subsequent
transfers, all global securities that are deposited with, or on
behalf of, DTC will be registered in the name of DTCs
nominee, Cede & Co. The deposit of global securities
with, or on behalf of, DTC and their registration in the name of
Cede & Co. effect no change in beneficial ownership.
We understand that DTC has no knowledge of the actual beneficial
owners of the securities. Accordingly, each holder owning a
beneficial interest in a global security must rely on the
procedures of DTC and, if that holder is not a participant or an
indirect participant, on the procedures of the participant
through which that holder owns its interest, to exercise any
rights of a holder of notes under the indenture or that global
security. We understand that under existing industry practice,
in the event that we request any action of holders of notes, or
a holder that is an owner of a beneficial interest in a global
security desires to take any action that DTC, as the holder of
that global security, is entitled to take, DTC would authorize
the participants to take that action and the participants would
authorize holders owning through those participants to take that
action or would otherwise act upon the instruction of those
holders.
Conveyance of notices and other communications by DTC to its
direct participants, by its direct participants to indirect
participants and by its direct and indirect participants to
beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with
respect to the global securities unless authorized by a direct
participant under DTCs procedures. Under its usual
procedures, DTC will mail an omnibus proxy to us as soon as
possible after the applicable record date. The omnibus proxy
assigns Cede & Co.s consenting or voting rights
to those direct participants of DTC to whose accounts the
securities are credited on the applicable record date, which are
identified in a listing attached to the omnibus proxy.
Neither we nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments
made on account of beneficial interests in the global securities
by DTC, or for maintaining, supervising or reviewing any records
of DTC relating to those beneficial interests.
Payments with respect to the principal of and premium, if any,
liquidated damages, if any, and interest on a global security
will be payable by the Trustee to or at the direction of DTC or
its nominee in its capacity as the registered holder of the
global security under the Indenture. Under the terms of the
Indenture, we and the Trustee may treat the persons in whose
names the notes, including the global securities, are registered
as the owners thereof for the purpose of receiving payment
thereon and for any and all other purposes whatsoever.
Accordingly, neither we nor the Trustee has or will have any
responsibility or liability for the payment of those amounts to
owners of beneficial interests in a global security. It is our
understanding that DTCs practice is to credit the direct
participants accounts upon DTCs receipt of funds and
corresponding detail information from us or the Paying Agent on
the applicable payment date in accordance with their respective
holdings
157
shown on DTCs records. Payments by the participants and
the indirect participants to the owners of beneficial interests
in a global security will be governed by standing instructions
and customary industry practice and will be the responsibility
of the participants and indirect participants and not of DTC, us
or the Trustee, subject to statutory or regulatory requirements
in effect at the time.
Transfers between participants in DTC will be effected in
accordance with DTCs procedures, and, except for trades
involving only the Euroclear System as operated by Euroclear
Bank S.A./N.V., or Euroclear, or Clearstream Banking, S.A. of
Luxembourg, or Clearstream Luxembourg, such transfers will be
settled in
same-day
funds. Transfers between participants in Euroclear or
Clearstream Luxembourg will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the participants in DTC, on the
one hand, and Euroclear or Clearstream Luxembourg participants,
on the other hand, will be effected through DTC in accordance
with DTCs rules on behalf of Euroclear or Clearstream
Luxembourg, as the case may be, by its respective depositary;
however, those cross-market transactions will require delivery
of instructions to Euroclear or Clearstream Luxembourg, as the
case may be, by the counterparty in that system in accordance
with the rules and procedures and within the established
deadlines (Brussels time) of that system. Euroclear or
Clearstream Luxembourg, as the case may be, will, if the
transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to
effect final settlement on its behalf by delivering or receiving
interests in the relevant global securities in DTC, and making
or receiving payment in accordance with normal procedures for
same-day
funds settlement applicable to DTC. Euroclear participants and
Clearstream Luxembourg participants may not deliver instructions
directly to the depositaries for Euroclear or Clearstream
Luxembourg.
Because of time zone differences, the securities account of a
Euroclear or Clearstream Luxembourg participant purchasing an
interest in a global security from a participant in DTC will be
credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream Luxembourg participant, during
the securities settlement processing day (which must be a
business day for Euroclear and Clearstream Luxembourg)
immediately following the settlement date of DTC. Cash received
in Euroclear or Clearstream Luxembourg as a result of sales of
interests in a global security by or through a Euroclear or
Clearstream Luxembourg participant to a participant in DTC will
be received with value on the settlement date of DTC but will be
available in the relevant Euroclear or Clearstream Luxembourg
cash account only as of the business day for Euroclear or
Clearstream Luxembourg following DTCs settlement date.
Although DTC has agreed to the foregoing procedures to
facilitate transfers of interests in the global securities among
participants in DTC, it is under no obligation to perform or to
continue to perform those procedures, and those procedures may
be discontinued at any time. Neither we nor the Trustee will
have any responsibility for the performance by DTC or its
participants or indirect participants of their respective
obligations under the rules and procedures governing their
operations.
Certificated
Notes
Notes in physical, certificated form will be issued and
delivered to each person that DTC identifies as a beneficial
owner of the related notes only if:
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DTC notifies us at any time that it is unwilling or unable to
continue as depositary for the global notes and a successor
depositary is not appointed within 90 days;
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DTC ceases to be registered as a clearing agency under the
Exchange Act and a successor depositary is not appointed within
90 days;
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we, at our option, notify the Trustee that we elect to cause the
issuance of certificated notes; or
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certain other events provided in the indenture should occur.
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We have provided the foregoing information with respect to DTC
to the financial community for information purposes only.
Although we obtained the information in this section and
elsewhere in this prospectus concerning DTC and its book-entry
system from sources that we believe are reliable, we take no
responsibility for the accuracy of such information.
158
MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material U.S. federal
income tax consequences relevant to the exchange of new notes
for old notes pursuant to the exchange offer does not purport to
be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as
amended, Treasury Regulations, Internal Revenue Service rulings
and pronouncements and judicial decisions now in effect, all of
which may be subject to change at any time by legislative,
judicial or administrative action. These changes may be applied
retroactively in a manner that could adversely affect a holder
of new notes. The description does not consider the effect of
any applicable foreign, state, local or other tax laws or estate
or gift tax consequences.
The exchange of new notes for old notes pursuant to the exchange
offer will not be a taxable exchange for U.S. federal
income tax purposes. A holder will not recognize any taxable
gain or loss as a result of the exchange and will have the same
tax basis and holding period in the new notes as the holder had
in the old notes immediately before the exchange.
PLAN OF
DISTRIBUTION
Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such new
notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes
where such old notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for
180 days after the consummation of the exchange offer, we
will make this prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale.
In addition,
until ,
2009, all dealers effecting transactions in the new notes may be
required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their
own account pursuant to the exchange offer may be sold from time
to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such
broker-dealer or the purchasers of any such new notes. Any
broker-dealer that resells new notes that were received by it
for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such new
notes may be deemed to be an underwriter within the
meaning of the Securities Act and any profit on any such resale
of new notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under
the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and be delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act.
For a period of 180 days after the consummation of the
exchange offer, we will promptly send additional copies of this
prospectus and any amendment or supplement to this prospectus to
any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the
holders of the notes) other than commissions or concessions of
any brokers or dealers and will indemnify the holders of the old
notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
Following completion of the exchange offer, we may, in our sole
discretion, commence one or more additional exchange offers to
holders of old notes who did not exchange their old notes for
new notes in the exchange offer on terms which may differ from
those contained in this prospectus and the enclosed letter of
transmittal. This prospectus, as it may be amended or
supplemented from time to time, may be used by us in connection
with any additional exchange offers. These additional exchange
offers may take place from time to
159
time until all outstanding old notes have been exchanged for new
notes, subject to the terms and conditions in the prospectus and
letter of transmittal distributed by us in connection with these
additional exchange offers.
LEGAL
MATTERS
The validity of the new notes and certain other matters will be
passed upon for us by Andrews Kurth LLP, Houston, Texas.
EXPERTS
The consolidated financial statements and related financial
statement schedules of Basic Energy Services, Inc. and
subsidiaries as of December 31, 2008 and 2007, and for each
of the years in the three-year period ended December 31,
2008, and managements assessment of the effectiveness of
internal control over financial reporting as of
December 31, 2008 have been included in this prospectus and
in the registration statement in reliance upon the reports of
KPMG LLP, independent registered public accounting firm,
appearing elsewhere in this prospectus, and upon the authority
of said firm as experts in accounting and auditing.
The audit report on the effectiveness of internal control over
financial reporting as of December 31, 2008, contains an
explanatory paragraph that states that the Company acquired
substantially all of the assets of Azurite Services Company,
Inc., Azurite Leasing Company, LLC and Freestone Disposal, L.P.
(collectively Azurite) during 2008, and management
excluded from its assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2008 Azurites internal control over
financial reporting associated with total assets of
approximately $60.2 million and total revenues of
approximately $10.9 million included in the consolidated
financial statements of Basic Energy Services, Inc. and
subsidiaries as of and for the year ended December 31,
2008. KPMG LLPs audit of internal control over financial
reporting of Basic Energy Services, Inc. also excluded an
evaluation of the internal control over financial reporting of
Azurite.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-4,
including exhibits and schedules, under the Securities Act with
respect to the offer to exchange our senior secured notes. This
prospectus does not contain all of the information found in the
registration statement. For further information regarding us and
the exchange offer, you may desire to review the full
registration statement, including its exhibits. The registration
statement, including the exhibits, may be inspected and copied
at the public reference facilities maintained by the SEC at
100 F Street, N.E., Washington D.C. 20549. Copies of
this material can also be obtained upon written request from the
Public Reference Section of the SEC at prescribed rates, or
accessed at the SECs website on the Internet at
http://www.sec.gov.
Please call the SEC at
1-800-SEC-0330
for further information on its public reference room. In
addition, our future public filings can also be inspected and
copied at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005.
You should rely only on the information contained in this
prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. We are not making an offer to sell these securities in any
jurisdiction where an offer or sale is not permitted. You should
assume that the information appearing in this prospectus is
accurate as of the date on the front cover of this prospectus
only. Our business, financial condition, results of operations
and prospects may have changed since that date.
We file with or furnish to the SEC periodic reports and other
information. These reports and other information may be
inspected and copied at the public reference facilities
maintained by the SEC or obtained from the SECs website as
provided above. Our website on the Internet is located at
http://www.basicenergyservices.com,
and we make our periodic reports and other information filed
with or furnished to the SEC available, free of charge, through
our website, as soon as reasonably practicable after those
reports and other information are electronically filed with or
furnished to the SEC. Information on our website or any other
website is not incorporated by reference into this prospectus
and does not constitute a part of this prospectus. You may also
request a copy of these filings at no cost, by writing or
telephoning us at the following address: Basic Energy Services,
Inc., Attention: Chief Financial Officer,
500 W. Illinois, Suite 100, Midland, Texas 79701,
(432) 620-5500.
160
MANAGEMENTS
REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Basic Energy Services, Inc. (Basic or
the Company) is responsible for establishing and
maintaining adequate internal control over financial reporting
and for the assessment of the effectiveness of internal control
over financial reporting for the Company. As defined by the
Securities and Exchange Commission
(Rule 13a-15(f)
under the Exchange Act of 1934, as amended), internal control
over financial reporting is a process designed by, or under the
supervision of Basics principal executive and principal
financial officers and effected by its Board of Directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of the consolidated financial statements in
accordance with U.S. generally accepted accounting
principles.
The Companys internal control over financial reporting is
supported by written policies and procedures that
(1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
Companys transactions and dispositions of the
Companys assets; (2) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of the consolidated financial statements in
accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Company
are being made only in accordance with authorization of the
Companys management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
consolidated financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Companys annual
consolidated financial statements, management has undertaken an
assessment of the effectiveness of the Companys internal
control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO Framework).
Managements assessment included an evaluation of the
design of the Companys internal control over financial
reporting and testing of the operational effectiveness of those
controls.
Based on this assessment, management has concluded that as of
December 31, 2008, the Companys internal control over
financial reporting was effective to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles.
The Company acquired substantially all of the assets of Azurite
Services Company, Inc., Azurite Leasing Company, LLC and
Freestone Disposal, L.P. (collectively Azurite)
during 2008, and management excluded from its assessment of the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2008 any internal
control evaluation over financial reporting the associated total
assets of approximately $60.2 million and total revenues of
approximately $10.9 million included in the consolidated
financial statements of Basic Energy Services Inc. and
subsidiaries as of and for the year ended December 31, 2008.
KPMG LLP, the independent registered public accounting firm that
audited the Companys consolidated financial statements
included in this report, has issued an audit report on the
effectiveness of internal control over financial reporting.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Kenneth
V. Huseman
Kenneth
V. Huseman
Chief Executive Officer
|
|
/s/ Alan
Krenek Alan
Krenek
Chief Financial Officer
|
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Basic Energy Services, Inc.:
We have audited Basic Energy Services, Incs (the Company)
internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Basic Energy Services, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
The Company acquired substantially all of the assets of Azurite
Services Company, Inc., Azurite Leasing Company, LLC, and
Freestone Disposal, L.P. (collectively, Azurite)
during 2008, and management excluded from its assessment of the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2008, Azurites
internal control over financial reporting associated with total
assets of $60.2 million and total revenues of
$10.9 million included in the consolidated financial
statements of Basic Energy Services, Inc. and subsidiaries as of
and for the year ended December 31, 2008. Our audit of
internal control over financial reporting of the Company also
excluded an evaluation of the internal control over financial
reporting of Azurite.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Basic Energy Services, Inc. and
subsidiaries as of December 31, 2008 and 2007, and the
related consolidated statements of operations and comprehensive
income (loss), stockholders equity, and cash flows for
each of the years in the three-year period ended
December 31, 2008, and our report dated March 6, 2009
expressed an unqualified opinion on those consolidated financial
statements.
KPMG LLP
Dallas, Texas
March 6, 2009
F-3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Basic Energy Services, Inc.:
We have audited the accompanying consolidated balance sheets of
Basic Energy Services, Inc. and subsidiaries (the Company) as of
December 31, 2008 and 2007, and the related consolidated
statements of operations and comprehensive income (loss),
stockholders equity, and cash flows for each of the years
in the three-year period ended December 31, 2008. In
connection with our audits of the consolidated financial
statements, we also have audited the accompanying financial
statement schedule. These consolidated financial statements and
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Basic Energy Services, Inc. and subsidiaries as of
December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Basic
Energy Services, Inc.s internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated March 6, 2009 expressed an unqualified opinion on the
effectiveness of the Companys internal control over
financial reporting.
KPMG LLP
Dallas, Texas
March 6, 2009
F-4
BASIC
ENERGY SERVICES, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except
|
|
|
|
share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
111,135
|
|
|
$
|
91,941
|
|
Trade accounts receivable, net of allowance of $5,838 and
$6,090, respectively
|
|
|
172,930
|
|
|
|
138,384
|
|
Accounts receivable related parties
|
|
|
148
|
|
|
|
91
|
|
Federal income tax receivable
|
|
|
3,324
|
|
|
|
1,130
|
|
Inventories
|
|
|
11,937
|
|
|
|
11,034
|
|
Prepaid expenses
|
|
|
6,838
|
|
|
|
6,999
|
|
Other current assets
|
|
|
6,508
|
|
|
|
6,353
|
|
Deferred tax assets
|
|
|
11,081
|
|
|
|
10,593
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
323,901
|
|
|
|
266,525
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
740,879
|
|
|
|
636,924
|
|
Deferred debt costs, net of amortization
|
|
|
5,132
|
|
|
|
6,100
|
|
Goodwill
|
|
|
202,749
|
|
|
|
204,963
|
|
Other intangible assets
|
|
|
36,004
|
|
|
|
26,975
|
|
Other assets
|
|
|
2,046
|
|
|
|
2,122
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,310,711
|
|
|
$
|
1,143,609
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
28,291
|
|
|
$
|
22,146
|
|
Accrued expenses
|
|
|
47,139
|
|
|
|
51,003
|
|
Current portion of long-term debt
|
|
|
26,063
|
|
|
|
17,413
|
|
Other current liabilities
|
|
|
658
|
|
|
|
1,474
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
102,151
|
|
|
|
92,036
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
454,260
|
|
|
|
406,306
|
|
Deferred tax liabilities
|
|
|
149,591
|
|
|
|
114,604
|
|
Other long-term liabilities
|
|
|
9,705
|
|
|
|
5,842
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock; $.01 par value; 5,000,000 shares
authorized; none designated or issued at December 31, 2008
and December 31, 2007, respectively
|
|
|
|
|
|
|
|
|
Common stock; $.01 par value; 80,000,000 shares
authorized; 41,734,485 shares issued and
40,851,862 shares outstanding at December 31, 2008;
and 40,925,530 shares issued and 40,896,217 shares
outstanding at December 31, 2007
|
|
|
417
|
|
|
|
409
|
|
Additional paid-in capital
|
|
|
325,785
|
|
|
|
314,705
|
|
Retained earnings
|
|
|
277,173
|
|
|
|
209,707
|
|
Treasury stock, 882,623 and 29,313 shares at
December 31, 2008 and 2007, respectively
|
|
|
(8,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
595,004
|
|
|
|
524,821
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,310,711
|
|
|
$
|
1,143,609
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
BASIC
ENERGY SERVICES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except
|
|
|
|
per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Well servicing
|
|
$
|
343,113
|
|
|
$
|
342,697
|
|
|
$
|
323,755
|
|
Fluid services
|
|
|
315,768
|
|
|
|
259,324
|
|
|
|
245,011
|
|
Completion and remedial services
|
|
|
304,326
|
|
|
|
240,692
|
|
|
|
154,412
|
|
Contract drilling
|
|
|
41,735
|
|
|
|
34,460
|
|
|
|
6,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,004,942
|
|
|
|
877,173
|
|
|
|
730,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Well servicing
|
|
|
215,243
|
|
|
|
205,132
|
|
|
|
178,028
|
|
Fluid services
|
|
|
203,205
|
|
|
|
165,327
|
|
|
|
153,445
|
|
Completion and remedial services
|
|
|
165,574
|
|
|
|
125,948
|
|
|
|
74,981
|
|
Contract drilling
|
|
|
28,629
|
|
|
|
22,510
|
|
|
|
8,400
|
|
General and administrative, including stock-based compensation
of $4,149, $3,964 and $3,429 in 2008, 2007 and 2006, respectively
|
|
|
115,319
|
|
|
|
99,042
|
|
|
|
81,318
|
|
Depreciation and amortization
|
|
|
118,607
|
|
|
|
93,048
|
|
|
|
62,087
|
|
Loss on disposal of assets
|
|
|
76
|
|
|
|
477
|
|
|
|
277
|
|
Goodwill impairment
|
|
|
22,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
869,175
|
|
|
|
711,484
|
|
|
|
558,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
135,767
|
|
|
|
165,689
|
|
|
|
171,612
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(26,766
|
)
|
|
|
(27,416
|
)
|
|
|
(17,466
|
)
|
Interest income
|
|
|
2,136
|
|
|
|
2,280
|
|
|
|
1,962
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
(230
|
)
|
|
|
(2,705
|
)
|
Other income
|
|
|
12,235
|
|
|
|
176
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
123,372
|
|
|
|
140,499
|
|
|
|
153,572
|
|
Income tax expense
|
|
|
(55,134
|
)
|
|
|
(52,766
|
)
|
|
|
(54,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
68,238
|
|
|
|
87,733
|
|
|
|
98,830
|
|
Basic earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1.67
|
|
|
$
|
2.19
|
|
|
$
|
2.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1.64
|
|
|
$
|
2.13
|
|
|
$
|
2.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
68,238
|
|
|
$
|
87,733
|
|
|
$
|
98,830
|
|
Unrealized gains on hedging activities
|
|
|
|
|
|
|
|
|
|
|
51
|
|
Less: reclassification adjustment for gain included in net income
|
|
|
|
|
|
|
|
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
$
|
68,238
|
|
|
$
|
87,733
|
|
|
$
|
98,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
BASIC
ENERGY SERVICES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Treasury
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Stock
|
|
|
(Deficit)
|
|
|
Income
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
Balance December 31, 2005
|
|
|
33,931,935
|
|
|
$
|
339
|
|
|
$
|
239,218
|
|
|
$
|
(7,341
|
)
|
|
$
|
(2,531
|
)
|
|
$
|
28,654
|
|
|
$
|
236
|
|
|
$
|
258,575
|
|
Adoption of Statement of Financial Accounting Standard
No. 123R
|
|
|
|
|
|
|
|
|
|
|
(7,341
|
)
|
|
|
7,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
3,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,429
|
|
Unrealized gain on interest rate swap agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
51
|
|
Settlement of interest rate swap agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(287
|
)
|
|
|
(287
|
)
|
Offering costs
|
|
|
|
|
|
|
|
|
|
|
(227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227
|
)
|
Exercise of stock warrants
|
|
|
4,350,000
|
|
|
|
44
|
|
|
|
17,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,401
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,218
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,218
|
)
|
Exercise of stock options
|
|
|
15,670
|
|
|
|
|
|
|
|
4,091
|
|
|
|
|
|
|
|
5,749
|
|
|
|
(5,144
|
)
|
|
|
|
|
|
|
4,696
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,830
|
|
|
|
|
|
|
|
98,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
38,297,605
|
|
|
|
383
|
|
|
|
256,527
|
|
|
|
|
|
|
|
|
|
|
|
122,340
|
|
|
|
|
|
|
|
379,250
|
|
Issuance of restricted stock
|
|
|
229,100
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of share based compensation
|
|
|
|
|
|
|
|
|
|
|
3,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,873
|
|
Stock issued as compensation to Chairman of the Board
|
|
|
4,000
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
Stock issued in JetStar Consolidated Holdings, Inc. acquisition
|
|
|
1,794,759
|
|
|
|
18
|
|
|
|
41,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,029
|
|
Stock issued in Sledge Drilling Holding Corp acquisition
|
|
|
430,191
|
|
|
|
4
|
|
|
|
10,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,165
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
(462
|
)
|
Exercise of stock options
|
|
|
169,875
|
|
|
|
2
|
|
|
|
3,044
|
|
|
|
|
|
|
|
462
|
|
|
|
(366
|
)
|
|
|
|
|
|
|
3,142
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,733
|
|
|
|
|
|
|
|
87,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
40,925,530
|
|
|
|
409
|
|
|
|
314,705
|
|
|
|
|
|
|
|
|
|
|
|
209,707
|
|
|
|
|
|
|
|
524,821
|
|
Issuances of restricted stock
|
|
|
361,700
|
|
|
|
4
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of share based compensation
|
|
|
|
|
|
|
|
|
|
|
4,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,064
|
|
Treasury stock issued as compensation to Chairman of the Board
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
85
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,994
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,994
|
)
|
Exercise of stock options
|
|
|
447,255
|
|
|
|
4
|
|
|
|
7,041
|
|
|
|
|
|
|
|
1,513
|
|
|
|
(768
|
)
|
|
|
|
|
|
|
7,790
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,238
|
|
|
|
|
|
|
|
68,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
41,734,485
|
|
|
$
|
417
|
|
|
$
|
325,785
|
|
|
$
|
|
|
|
$
|
(8,371
|
)
|
|
$
|
277,173
|
|
|
$
|
|
|
|
$
|
595,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
BASIC
ENERGY SERVICES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
68,238
|
|
|
$
|
87,733
|
|
|
$
|
98,830
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
118,607
|
|
|
|
93,048
|
|
|
|
62,087
|
|
Goodwill impairment
|
|
|
22,522
|
|
|
|
|
|
|
|
|
|
Accretion on asset retirement obligation
|
|
|
131
|
|
|
|
115
|
|
|
|
78
|
|
Change in allowance for doubtful accounts
|
|
|
(252
|
)
|
|
|
2,127
|
|
|
|
1,188
|
|
Amortization of deferred financing costs
|
|
|
968
|
|
|
|
962
|
|
|
|
804
|
|
Non-cash compensation
|
|
|
4,149
|
|
|
|
3,964
|
|
|
|
3,429
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
230
|
|
|
|
2,705
|
|
Loss on disposal of assets
|
|
|
76
|
|
|
|
477
|
|
|
|
277
|
|
Deferred income taxes
|
|
|
30,165
|
|
|
|
15,285
|
|
|
|
2,611
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(32,411
|
)
|
|
|
4,396
|
|
|
|
(32,933
|
)
|
Inventories
|
|
|
(558
|
)
|
|
|
(328
|
)
|
|
|
(714
|
)
|
Prepaid expenses and other current assets
|
|
|
2,348
|
|
|
|
6,325
|
|
|
|
(6,771
|
)
|
Other assets
|
|
|
47
|
|
|
|
(753
|
)
|
|
|
(450
|
)
|
Accounts payable
|
|
|
4,759
|
|
|
|
(1,237
|
)
|
|
|
5,128
|
|
Excess tax benefits from exercise of employee stock options
|
|
|
(5,062
|
)
|
|
|
(2,169
|
)
|
|
|
(4,022
|
)
|
Income tax payable
|
|
|
2,963
|
|
|
|
(11,262
|
)
|
|
|
6,344
|
|
Other liabilities
|
|
|
1,217
|
|
|
|
(332
|
)
|
|
|
(171
|
)
|
Accrued expenses
|
|
|
(5,080
|
)
|
|
|
10
|
|
|
|
7,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
212,827
|
|
|
|
198,591
|
|
|
|
145,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(91,890
|
)
|
|
|
(98,536
|
)
|
|
|
(104,574
|
)
|
Proceeds from sale of assets
|
|
|
8,184
|
|
|
|
6,815
|
|
|
|
5,560
|
|
Payments for other long-term assets
|
|
|
(2,683
|
)
|
|
|
(2,709
|
)
|
|
|
(6,769
|
)
|
Payments for businesses, net of cash acquired
|
|
|
(110,913
|
)
|
|
|
(199,673
|
)
|
|
|
(135,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(197,302
|
)
|
|
|
(294,103
|
)
|
|
|
(241,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
|
30,000
|
|
|
|
150,000
|
|
|
|
305,546
|
|
Payments of debt
|
|
|
(24,126
|
)
|
|
|
(15,838
|
)
|
|
|
(204,793
|
)
|
Purchase of treasury stock
|
|
|
(9,994
|
)
|
|
|
(462
|
)
|
|
|
(3,218
|
)
|
Offering costs related to initial public offering
|
|
|
|
|
|
|
|
|
|
|
(227
|
)
|
Excess tax benefits from exercise of employee stock options
|
|
|
5,062
|
|
|
|
2,169
|
|
|
|
4,022
|
|
Tax withholding from exercise of stock options
|
|
|
(4,174
|
)
|
|
|
(1,290
|
)
|
|
|
(1,310
|
)
|
Exercise of employee stock options
|
|
|
6,901
|
|
|
|
2,265
|
|
|
|
1,984
|
|
Proceeds from exercise stock warrants
|
|
|
|
|
|
|
|
|
|
|
17,401
|
|
Deferred loan costs and other financing activities
|
|
|
|
|
|
|
(756
|
)
|
|
|
(5,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,669
|
|
|
|
136,088
|
|
|
|
114,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and equivalents
|
|
|
19,194
|
|
|
|
40,576
|
|
|
|
18,520
|
|
Cash and cash equivalents beginning of year
|
|
|
91,941
|
|
|
|
51,365
|
|
|
|
32,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of year
|
|
$
|
111,135
|
|
|
$
|
91,941
|
|
|
$
|
51,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-8
BASIC
ENERGY SERVICES, INC.
December 31,
2008, 2007, and 2006
Basic Energy Services, Inc. provides a range of well site
services to oil and gas drilling and producing companies,
including well servicing, fluid services, completion and
remedial services and contract drilling. These services are
primarily provided by Basics fleet of equipment.
Basics operations are concentrated in the major United
States onshore oil and gas producing regions in Texas, New
Mexico, Oklahoma, Kansas, Arkansas and Louisiana, and the Rocky
Mountain states.
Basic revised its reportable business segments beginning in the
first quarter of 2008, and in connection therewith restated the
corresponding items of segment information for earlier periods.
The new operating segments are Well Servicing, Fluid Services,
Completion and Remedial Services, and Contract Drilling. These
segments were selected based on changes in managements
resource allocation and performance assessment in making
decisions regarding the Company. Contract Drilling was
previously included in our Well Servicing segment. Well Site
Construction Services is consolidated with our Fluid Services
segment. These changes reflect Basics operating focus in
compliance with SFAS No. 131, Disclosures
about Segments of an Enterprise and Related
Information.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of Basic and its wholly-owned subsidiaries. Basic has
no interest in any other organization, entity, partnership, or
contract that could require any evaluation under FASB
Interpretation No. 46R or Accounting Research
Bulletin No. 51. All intercompany transactions and
balances have been eliminated.
Estimates,
Risks and Uncertainties
Preparation of the accompanying consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amount
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates. Areas where critical accounting estimates are
made by management include:
|
|
|
|
|
Depreciation and amortization of property and equipment and
intangible assets
|
|
|
|
Impairment of property and equipment, goodwill and intangible
assets
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
Litigation and self-insured risk reserves
|
|
|
|
Fair value of assets acquired and liabilities assumed
|
|
|
|
Stock-based compensation
|
|
|
|
Income taxes
|
|
|
|
Asset retirement obligation
|
Oil and gas prices decreased significantly in the second half of
2008 which resulted in lower utilization of the Companys
services in the fourth quarter of 2008. For 2009, the Company
expects oil and gas prices to remain substantially below the
levels required to support aggressive capital spending programs
by its customers and that maintenance related spending by
customers will be deferred as long as possible. The Company
F-9
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
expects the reduced spending level by its customers will result
in lower demand for its services and increased price competition
among service providers in all segments of its business which
will negatively affect the Companys revenue and gross
margins.
Revenue
Recognition
Well Servicing Well servicing consists
primarily of maintenance services, workover services, completion
services and plugging and abandonment services. Basic recognizes
revenue when services are performed, collection of the relevant
receivables is probable, persuasive evidence of an arrangement
exists and the price is fixed or determinable. Basic prices well
servicing by the hour or by the day of service performed.
Fluid Services Fluid services consist
primarily of the sale, transportation, storage and disposal of
fluids used in drilling, production and maintenance of oil and
natural gas wells. Basic recognizes revenue when services are
performed, collection of the relevant receivables is probable,
persuasive evidence of an arrangement exists and the price is
fixed or determinable. Basic prices fluid services by the job,
by the hour or by the quantities sold, disposed of or hauled.
Completion and Remedial Services (formerly Drilling and
Completion Services) Basic recognizes revenue
when services are performed, collection of the relevant
receivables is probable, persuasive evidence of an arrangement
exists and the price is fixed or determinable. Basic prices
completion and remedial services by the hour, day, or project
depending on the type of service performed. When Basic provides
multiple services to a customer, revenue is allocated to the
services performed based on the fair values of the services.
Contract Drilling Basic recognizes revenue
when services are performed, collection of the relevant
receivables is probable, persuasive evidence of an arrangement
exists and the price is fixed or determinable. Basic prices
these jobs by daywork contracts, in which an agreed
upon rate per day is charged to the customer, or
footage contracts, in which an agreed upon rate per
the number of feet drilled is charged to the customer.
Taxes assessed on sales transactions are presented on a net
basis and are not included in revenue.
Cash
and Cash Equivalents
Basic considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents. Basic
maintains its excess cash in various financial institutions,
where deposits may exceed federally insured amounts at times.
Fair
Value of Financial Instruments
The carrying value amount of cash, accounts receivable, accounts
payable and accrued liabilities approximate fair value due to
the short maturity of these instruments. The carrying amount of
long-term debt approximates fair value because Basics
current borrowing rate is based on a variable market rate of
interest.
Inventories
For rental and fishing tools, inventories consisting mainly of
grapples, controls, and drill bits are stated at the lower of
cost or market, with cost being determined on the average cost
method. Other inventories, consisting mainly of rig components,
repair parts, drilling and completion materials and gravel, are
held for use in the operations of Basic and are stated at the
lower of cost or market, with cost being determined on the
first-in,
first-out (FIFO) method.
Property
and Equipment
Property and equipment are stated at cost or at estimated fair
value at acquisition date if acquired in a business combination.
Expenditures for repairs and maintenance are charged to expense
as incurred and
F-10
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
additions and improvements that significantly extend the lives
of the assets are capitalized. Upon sale or other retirement of
depreciable property, the cost and accumulated depreciation and
amortization are removed from the related accounts and any gain
or loss is reflected in operations. All property and equipment
are depreciated or amortized (to the extent of estimated salvage
values) on the straight-line method and the estimated useful
lives of the assets are as follows:
|
|
|
|
|
Building and improvements
|
|
|
20-30 years
|
|
Well servicing units and equipment
|
|
|
3-15 years
|
|
Fluid services equipment
|
|
|
5-10 years
|
|
Brine and fresh water stations
|
|
|
15 years
|
|
Frac/test tanks
|
|
|
10 years
|
|
Pressure pumping equipment
|
|
|
5-10 years
|
|
Construction equipment
|
|
|
3-10 years
|
|
Contract drilling equipment
|
|
|
3-10 years
|
|
Disposal facilities
|
|
|
10-15 years
|
|
Vehicles
|
|
|
3-7 years
|
|
Rental equipment
|
|
|
3-15 years
|
|
Aircraft
|
|
|
20 years
|
|
Software and computers
|
|
|
3 years
|
|
The components of a well servicing rig generally require
replacement or refurbishment during the well servicing
rigs life and are depreciated over their estimated useful
lives, which ranges from 3 to 15 years. The costs of the
original components of a purchased or acquired well servicing
rig are not maintained separately from the base rig.
Impairments
In accordance with Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144),
long-lived assets, such as property, plant, and equipment, and
purchased intangibles subject to amortization, are reviewed for
impairment at a minimum annually, or whenever, in
managements judgment events or changes in circumstances
indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of such assets
to estimated undiscounted future cash flows expected to be
generated by the assets. Expected future cash flows and carrying
values are aggregated at their lowest identifiable level. If the
carrying amount of such assets exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which
the carrying amount of such assets exceeds the fair value of the
assets. Assets to be disposed of would be separately presented
in the consolidated balance sheet and reported at the lower of
the carrying amount or fair value less costs to sell, and are no
longer depreciated. The assets and liabilities, if material, of
a disposed group classified as held for sale would be presented
separately in the appropriate asset and liability sections of
the consolidated balance sheet. These assets are normally sold
within a short period of time through a third party auctioneer.
Deferred
Debt Costs
Basic capitalizes certain costs in connection with obtaining its
borrowings, such as lenders fees and related
attorneys fees. These costs are being amortized to
interest expense using the effective interest method.
Deferred debt costs were approximately $7.6 million net of
accumulated amortization of $2.4 million, and
$7.6 million net of accumulated amortization of
$1.5 million at December 31, 2008 and
December 31, 2007,
F-11
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
respectively. Amortization of deferred debt costs totaled
approximately $968,000, $962,000 and $804,000 for the years
ended December 31, 2008, 2007 and 2006, respectively.
In 2006, Basic recognized a loss on early extinguishment of debt
related to deferred debt costs. (See note 5)
Goodwill
and Other Intangible Assets
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(SFAS No. 142) eliminates the
amortization of goodwill and other intangible assets with
indefinite lives. Intangible assets with lives restricted by
contractual, legal, or other means will continue to be amortized
over their useful lives. Goodwill and other intangible assets
not subject to amortization are tested for impairment annually
or more frequently if events or changes in circumstances
indicate that the asset might be impaired.
SFAS No. 142 requires a two-step process for testing
impairment. First, the fair value of each reporting unit is
compared to its carrying value to determine whether an
indication of impairment exists. If impairment is indicated,
then the fair value of the reporting units goodwill is
determined by allocating the units fair value to its
assets and liabilities (including any unrecognized intangible
assets) as if the reporting unit had been acquired in a business
combination. The amount of impairment for goodwill is measured
as the excess of its carrying value over its fair value. Basic
completed its assessment of goodwill impairment as of the date
of adoption and completed a subsequent annual impairment
assessment as of December 31 each year thereafter.
In step one of the annual impairment test and due to the adverse
equity market conditions affecting the Companys common
stock price and the declines in oil and natural gas prices in
the fourth quarter of 2008 and continuing into 2009, the Company
tested its four reporting units, well servicing, fluid services,
completion and remedial services, and contract drilling, for
impairment. To estimate the fair value of the reporting units,
the Company used a weighting of the discounted cash flow method,
the guideline transaction method, and the public company
guideline company method. The Company weighted the discounted
cash flow method 85% in its analysis and the other two methods
combined 15% due to differences between the Companys
reporting units and the peer companies size, profitability and
diversity of operations. In order to validate the reasonableness
of the estimated fair values obtained for the reporting units, a
reconciliation of fair value to market cap was performed. The
control premium used in the reconciliation was derived from a
market transaction data study along with historical control
premiums from the Companys other acquisitions. The
measurement date for the stock price for the reconciliation was
the closing price on December 31, 2008.
Based on the results of step one, impairment was indicated in
the contract drilling reporting unit but not in the other three
reporting units. As a result, the Company tested the contract
drilling reporting units long-lived assets for impairment
under SFAS No. 144, which indicated no impairment. The
Company performed step two for the contract drilling unit by
allocating the estimated fair value to the tangible and
intangible assets and liabilities, which indicated that the
entire value of the goodwill in contract drilling of
$22.5 million was impaired. This non-cash charge eliminates
the goodwill recorded in connection with the Sledge acquisition
in 2007. The goodwill associated with this acquisition has no
tax basis, and accordingly, there is no tax benefit derived from
recording the impairment charge. Further declines in the
Companys stock price and general market conditions may be
considered as a triggering event for the first quarter of 2009.
If this is the case, the Company will analyze its goodwill as of
March 31, 2009 and potentially record further goodwill
impairments in its well servicing, fluid services and/or
completion and remedial services reporting units.
Intangible assets subject to amortization under
SFAS No. 142 consist of customer relationships and
non-compete agreements. The gross carrying amount of customer
relationships subject to amortization was $35.4 million and
$23.8 million as of December 31, 2008 and 2007,
respectively. The gross carrying amount of non-compete
agreements subject to amortization totaled approximately
$4.4 million and $5.2 million at December 31,
2008 and 2007, respectively. Accumulated amortization related to
these intangible assets totaled approximately $3.8 and
$2.1 million at December 31, 2008 and 2007,
respectively. Amortization expense for the years ended
December 31, 2008, 2007 and 2006 was approximately
$2.8 million, $773,000, and $650,000, respectively.
Amortization expense
F-12
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
for the next five succeeding years is estimated to be
approximately $3.2 million, $3.1 million,
$3.0 million, $2.6 million, and $2.4 million in
2009, 2010, 2011, 2012, and 2013, respectively.
|
|
|
|
|
Amortizable Intangible Assets at December 31, 2008 (in
thousands):
|
|
|
|
|
Customer Relationships
|
|
$
|
35,441
|
|
Accumulated Amortization Customer Relationships
|
|
|
(1,879
|
)
|
Non-Compete Agreements
|
|
|
4,392
|
|
Accumulated Amortization Non-Compete Agreements
|
|
|
(1,950
|
)
|
|
|
|
|
|
Total Amortizable Intangible Assets
|
|
$
|
36,004
|
|
|
|
|
|
|
Customer relationships are amortized over a 15 year life.
Non-Compete Agreements are amortized over a five year life.
Basic has identified its reporting units to be well servicing,
fluid services, completion and remedial services and contract
drilling. The goodwill allocated to such reporting units as of
December 31, 2008 was $29.9 million,
$49.3 million, $123.5 million, and $0, respectively.
The change in the carrying amount of goodwill for the year ended
December 31, 2008 of $2.2 million relates to goodwill
from acquisitions and payments pursuant to contingent earn-out
agreements and impairments, with approximately
$3.1 million, $6.1 million and $12.0 million of
goodwill additions relating to the well servicing, fluid
services, and completion and remedial units, respectively. There
was a decrease in the carrying amount of goodwill for the year
ended December 31, 2008 of $23.4 million related to
contract drilling. The decrease in the carrying amount of
goodwill for contract drilling is due primarily to the
impairment of $22.5 million. Other intangibles net of
accumulated amortization allocated to reporting units as of
December 31, 2008 was $454,000, $3.3 million,
$26.3 million and $5.9 million for well servicing,
fluid services, completion and remedial services, and contract
drilling, respectively.
Stock-Based
Compensation
On January 1, 2006, Basic adopted Statement of Financial
Accounting Standards No. 123 (revised
2004) Share-Based Payment
(SFAS No. 123R). Prior to
January 1, 2006, the Company accounted for share-based
payments under the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25,
Accounting for Stock issued to Employees
(APB No. 25) which was permitted by
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation
(SFAS No. 123).
Basic adopted SFAS No. 123R using both the modified
prospective method and the prospective method as applicable to
the specific awards granted. The modified prospective method was
applied to awards granted subsequent to the Company becoming a
public company. Awards granted prior to the Company becoming
public and which were accounted for under APB No. 25 were
adopted by using the prospective method. The results of prior
periods have not been restated. Compensation expense cost of the
unvested portion of awards granted as a private company and
outstanding as of January 1, 2006 will continue to be based
upon the intrinsic value method calculated under APB No. 25.
Under SFAS No. 123R, entities using the minimum value
method and the prospective application are not permitted to
provide the pro forma disclosures (as was required under
SFAS No. 123) subsequent to adoption of
SFAS No. 123R since they do not have the fair value
information required by SFAS No. 123R. Therefore, in
accordance with SFAS No. 123R, Basic no longer
includes pro forma disclosures that were required by
SFAS No. 123.
Income
Taxes
Basic accounts for income taxes based upon Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS 109). Under
SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying
F-13
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured
using statutory tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in the period
that includes the statutory enactment date. A valuation
allowance for deferred tax assets is recognized when it is more
likely than not that the benefit of deferred tax assets will not
be realized.
Concentrations
of Credit Risk
Financial instruments, which potentially subject Basic to
concentration of credit risk, consist primarily of temporary
cash investments and trade receivables. Basic restricts
investment of temporary cash investments to financial
institutions with high credit standing. Basics customer
base consists primarily of multi-national and independent oil
and natural gas producers. It performs ongoing credit
evaluations of its customers but generally does not require
collateral on its trade receivables. Credit risk is considered
by management to be limited due to the large number of customers
comprising its customer base. Basic maintains an allowance for
potential credit losses on its trade receivables, and such
losses have been within managements expectations.
Basic did not have any one customer which represented 10% or
more of consolidated revenue for 2008, 2007, or 2006.
Derivative
Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS No. 133), which establishes
standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all
derivative as either assets or liabilities on the balance sheet
and measure those instruments at fair value. It establishes
conditions under which a derivative may be designated as a
hedge, and establishes standards for reporting changes in the
fair value of a derivative. Basic adopted
SFAS No. 133, as amended by SFAS No. 138, on
January 1, 2001. Basic adopted the additional amendments
pursuant to SFAS No. 149 for contracts entered or
modified after June 30, 2003, if any. At inception, Basic
formally documents the relationship between the hedging
instrument and the underlying hedged item as well as risk
management objective and strategy. Basic assesses, both at
inception and on an ongoing basis, whether the derivative used
in hedging transition is highly effective in offsetting changes
in the fair value of cash flows of the respective hedged item.
In May 2004, Basic implemented a cash flow hedge to protect
itself from fluctuation in cash flows associated with its credit
facility. Changes in fair value of the hedging derivative were
initially recorded in other comprehensive income, then
recognized in income in the same period(s) in which the hedged
transaction affected income. Ineffective portions of a cash flow
hedging derivatives change in fair value were recognized
currently in earnings. Basic had no ineffectiveness related to
its cash flow hedge in 2005. The March 28, 2006 amendment
to the 2005 credit facility deleted the requirement to maintain
the cash flow hedge upon payoff of the Term B Loans. In April
2006, Basic paid off all outstanding borrowings under the Term B
Loan (See note 5). Accordingly in April 2006, the interest
rate swap was terminated and the balance remaining in
accumulated comprehensive income was recognized in earnings.
Asset
Retirement Obligations
As of January 1, 2003, Basic adopted Statement of Financial
Accounting Standards No. 143, Accounting for Asset
Retirement Obligation
(SFAS No. 143). SFAS No. 143
requires Basic to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible
long-lived assets and capitalize an equal amount as a cost of
the asset depreciating it over the life of the asset. Subsequent
to the initial measurement of the asset retirement obligation,
the obligation is adjusted at the end of each quarter to reflect
the passage of time, changes in the estimated future cash flows
underlying the obligation, acquisition or construction of
assets, and settlements of obligations.
F-14
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Basic owns and operates salt water disposal sites, brine water
wells, gravel pits and land farm sites, each of which is subject
to rules and regulations regarding usage and eventual closure.
The following table reflects the changes in the liability during
years ended December 31, 2008 and 2007 (in thousands):
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
1,336
|
|
Additional asset retirement obligations recognized through
acquisitions
|
|
|
101
|
|
Accretion expense
|
|
|
115
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
1,552
|
|
Additional asset retirement obligations recognized through
acquisitions
|
|
|
143
|
|
Accretion expense
|
|
|
131
|
|
Settlements
|
|
|
(30
|
)
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
1,796
|
|
|
|
|
|
|
Environmental
Basic is subject to extensive federal, state and local
environmental laws and regulations. These laws, which are
constantly changing, regulate the discharge of materials into
the environment and may require Basic to remove or mitigate the
adverse environmental effects of disposal or release of
petroleum, chemical and other substances at various sites.
Environmental expenditures are expensed or capitalized depending
on the future economic benefit. Expenditures that relate to an
existing condition caused by past operations and that have no
future economic benefits are expensed. Liabilities for
expenditures of a non-capital nature are recorded when
environmental assessment
and/or
remediation is probable and the costs can be reasonably
estimated.
Litigation
and Self-Insured Risk Reserves
Basic estimates its reserves related to litigation and
self-insured risks based on the facts and circumstances specific
to the litigation and self-insured claims and its past
experience with similar claims in accordance with Statement of
Financial Accounting Standard No. 5 Accounting for
Contingencies. Basic maintains accruals in the
consolidated balance sheets to cover self-insurance retentions
(See note 7).
Comprehensive
Income
Basic follows the provisions of Statement of Financial
Accounting Standards No. 130, Reporting of
Comprehensive Income
(SFAS No. 130). SFAS No. 130
establishes standards for reporting and presentation of
comprehensive income and its components. SFAS No. 130
requires all items that are required to be recognized under
accounting standards as components of comprehensive income to be
reported in a financial statement that is displayed with the
same prominence as other financial statements. In accordance
with the provisions of SFAS No. 130, gains and losses
on cash flow hedging derivatives, to the extent effective, are
included in other comprehensive income (loss).
Reclassifications
Certain reclassifications of prior year financial statement
amounts have been made to conform to current year presentations.
Recent
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157), which became
effective for financial assets and liabilities of the Company on
January 1, 2008 and non-financial assets and liabilities of
the Company on January 1, 2009. This standard defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. SFAS 157
does not require any new
F-15
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
fair value measurements but would apply to assets and
liabilities that are required to be recorded at fair value under
other accounting standards. The impact, if any, to the Company
from the adoption of SFAS 157 in 2009 will depend on the
Companys assets and liabilities at that time that are
required to be measured at fair value.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159), which became effective for the Company on
January 1, 2008. This standard permits companies to choose
to measure many financial instruments and certain other items at
fair value and report unrealized gains and losses in earnings.
Such accounting is optional and is generally to be applied
instrument by instrument.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations (SFAS 141R), which becomes
effective for the Company on January 1, 2009. This
Statement requires an acquirer to recognize the assets acquired,
the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date be measured at their fair
values as of that date. An acquirer is required to recognize
assets or liabilities arising from all other contingencies
(contractual contingencies) as of the acquisition date, measured
at their acquisition-date fair values, only if it is more likely
than not that they meet the definition of an asset or a
liability in FASB Concepts Statement No. 6, Elements of
Financial Statements. Any acquisition related costs are to be
expensed instead of capitalized. The impact to the Company from
the adoption of SFAS 141R in 2009 will depend on
acquisitions at the time.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(SFAS 160), which becomes effective for the Company on
January 1, 2009. This standard establishes accounting and
reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net
income attributable to the parent and to the noncontrolling
interest, changes in a parents ownership interest and the
valuation of retained non-controlling equity investments when a
subsidiary is deconsolidated. The Statement also establishes
reporting requirements that provide sufficient disclosures that
clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. The
Company does not anticipate that this pronouncement will have a
material impact on its results of operations or consolidated
financial position.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161), which became effective for the
Company on January 1, 2009. This standard improves
financial reporting for derivative instruments and hedging
activities requiring enhanced disclosures to expand on these
instruments effects on the Companys financial
position, financial performance and cash flows. The Company does
not anticipate that this pronouncement will have a material
impact on its results of operations or consolidated financial
position.
In April 2008, the FASB issued FSP SFAS No. 142-3,
Determination of Useful Life of Intangible Assets
(FSP 142-3). FSP 142-3 amends the factors that
should be considered in developing the renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset under SFAS 142. FSP 142-3 is effective for
fiscal years beginning after December 15, 2008. Earlier
adoption is not permitted. We are currently evaluating the
potential impact the adoption of FSP 142-3 will have on our
consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting Principles
(SFAS 162), which becomes effective for the Company
60 days following the SECs approval of the Public
Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles. This standard
identifies the sources of accounting principles and the
framework for selecting the principles used in preparation of
financial statements that are presented in conformity with
generally accepted accounting principles (GAAP). The Company
does not anticipate that this pronouncement will have a material
impact on its results of operations or consolidated financial
position.
In June 2008, the FASB issued Staff Position
EITF 03-6-1
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities
(FSP
EITF 03-6-1).
FSP
EITF 03-6-1
addresses
F-16
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
whether instruments granted in share based payment transactions
are participating securities prior to vesting and, therefore,
need to be included in earnings allocation in computing earnings
per share (EPS) under the two-class method described
in paragraphs 60 and 61 of SFAS No. 128,
Earnings Per Share. FSP
EITF 03-6-1
is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2008 and
requires retrospective adjustment for all comparable prior
periods presented. The Company does not anticipate that the
adoption of FSP
EITF 03-6-1
will have a material impact on its EPS disclosures.
In 2008, 2007 and 2006, Basic acquired either substantially all
of the assets or all of the outstanding capital stock of each of
the following businesses, each of which were accounted for using
the purchase method of accounting (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Paid
|
|
|
|
|
|
|
(Net of Cash
|
|
|
|
Closing Date
|
|
|
Acquired)
|
|
|
LeBus Oil Field Services Co.
|
|
|
January 31, 2006
|
|
|
$
|
24,618
|
|
G&L Tool, Ltd.
|
|
|
February 28, 2006
|
|
|
|
58,514
|
|
Arkla Cementing, Inc.
|
|
|
March 27, 2006
|
|
|
|
5,012
|
|
Globe Well Service, Inc.
|
|
|
May 30, 2006
|
|
|
|
11,674
|
|
Hydro-Static Tubing Testers, Inc.
|
|
|
July 6, 2006
|
|
|
|
1,143
|
|
Hennessey Rental Tools, Inc.
|
|
|
August 1, 2006
|
|
|
|
8,205
|
|
Stimulation Services, LLC
|
|
|
August 1, 2006
|
|
|
|
4,500
|
|
Chaparral Service, Inc.
|
|
|
August 15, 2006
|
|
|
|
17,605
|
|
Reddline Services, LLC
|
|
|
August 24, 2006
|
|
|
|
1,900
|
|
Rebel Testers, Ltd.
|
|
|
September 14, 2006
|
|
|
|
2,397
|
|
|
|
|
|
|
|
|
|
|
Total 2006
|
|
|
|
|
|
$
|
135,568
|
|
|
|
|
|
|
|
|
|
|
Parker Drilling Offshore USA, LLC
|
|
|
January 3, 2007
|
|
|
|
20,594
|
|
Davis Tool Company, Inc.
|
|
|
January 17, 2007
|
|
|
|
4,164
|
|
JetStar Consolidated Holdings, Inc.
|
|
|
March 6, 2007
|
|
|
|
86,316
|
|
Sledge Drilling Holding Corp.
|
|
|
April 2, 2007
|
|
|
|
50,632
|
|
Eagle Frac Tank Rentals, LP
|
|
|
May 30, 2007
|
|
|
|
3,813
|
|
Wildhorse Services, Inc.
|
|
|
June 1, 2007
|
|
|
|
17,283
|
|
Bilco Machine, Inc.
|
|
|
June 21, 2007
|
|
|
|
600
|
|
Steve Carter Inc. and Hughes Services Inc.
|
|
|
September 26, 2007
|
|
|
|
19,041
|
|
|
|
|
|
|
|
|
|
|
Total 2007
|
|
|
|
|
|
$
|
202,443
|
|
|
|
|
|
|
|
|
|
|
Xterra Fishing and Rental Tools Co.
|
|
|
January 28, 2008
|
|
|
$
|
21,110
|
|
Lackey Construction, LLC
|
|
|
January 30, 2008
|
|
|
|
4,328
|
|
B&S Disposal, LLC and B&S Equipment, Ltd
|
|
|
April 30, 2008
|
|
|
|
7,067
|
|
Triple N Services, Inc.
|
|
|
May 27, 2008
|
|
|
|
17,315
|
|
Azurite Services Company, Inc., Azurite Leasing Company, LLC and
Freestone Disposal, L.P. (collectively, Azurite)
|
|
|
September 26, 2008
|
|
|
|
60,155
|
|
|
|
|
|
|
|
|
|
|
Total 2008
|
|
|
|
|
|
$
|
109,975
|
|
|
|
|
|
|
|
|
|
|
F-17
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The operations of each of the acquisitions listed above are
included in Basics statement of operations as of each
respective closing date. The acquisition of G&L Tool, Ltd.
in 2006, JetStar Consolidated Holdings, Inc. and Sledge Drilling
Holding Corp. in 2007 and Azurite in 2008 have been deemed
significant and are discussed below in further detail.
G&L
Tool, Ltd.
On February 28, 2006, Basic acquired substantially all of
the assets of G&L Tool, Ltd. (G&L) for
$58.5 million plus a contingent earn-out payment not to
exceed $21.0 million. The contingent earn-out payment will
be equal to fifty percent of the amount by which the annual
EBITDA (as defined in the purchase agreement) earned by the
G&L assets exceeds an annual targeted EBITDA. There is no
guarantee or assurance that the targeted EBITDA will be reached.
This acquisition provided a platform to expand into the rental
and fishing tool market. The cost of the G&L acquisition
was allocated $40.8 million to property and equipment,
$5.2 million to inventory, $12.5 million to goodwill,
all of which is expected to be deductible for tax purposes, and
$51,000 to non-compete agreements.
JetStar
Consolidated Holdings, Inc.
On March 6, 2007, Basic acquired all of the capital stock
of JetStar Consolidated Holdings, Inc. (JetStar).
The results of JetStars operations have been included in
the financial statements since that date. The aggregate purchase
price was approximately $127.3 million, including
$86.3 million in cash which included the retirement of
JetStars outstanding debt. Basic issued
1,794,759 shares of common stock, at a fair value of $22.86
per share for a total fair value of approximately
$41 million. The value of the 1,794,759 shares issued
was determined based on the average market price of Basics
common shares over the
2-day period
before and after the date the number of shares were determined.
This acquisition allowed us to enter into the Kansas market and
increased our presence in North Texas. JetStar will operate in
Basics completion and remedial segment. The following
table summarizes the final fair value of the assets acquired and
liabilities assumed at the date of acquisition for JetStar (in
thousands):
|
|
|
|
|
Current Assets
|
|
$
|
12,547
|
|
Property and Equipment
|
|
|
58,785
|
|
Amortizable Intangible Assets(1)
|
|
|
17,857
|
|
Goodwill(2)
|
|
|
61,720
|
|
|
|
|
|
|
Total Assets Acquired
|
|
|
150,909
|
|
|
|
|
|
|
Current Liabilities
|
|
|
(4,581
|
)
|
Deferred Income Taxes
|
|
|
(18,649
|
)
|
Current and Long Term Debt(3)
|
|
|
(37,563
|
)
|
|
|
|
|
|
Total Liabilities Assumed
|
|
|
(60,793
|
)
|
|
|
|
|
|
Net Assets Acquired
|
|
$
|
90,116
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of Customer Relationship of $17,543, amortizable over
15 years, and Non-Compete Agreements of $314, amortizable
over 5 years. |
|
(2) |
|
Approximately $25,955 is expected to be deductible for tax
purposes |
|
(3) |
|
Total balance was paid by Basic on the closing date |
F-18
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Sledge
Drilling Holding Corp.
On April 2, 2007, Basic acquired all of the capital stock
of Sledge Drilling Holding Corp. (Sledge). The
results of Sledges operations have been included in the
financial statements since that date. The aggregate purchase
price was approximately $60.8 million, including
$50.6 million in cash which included the retirement of
Sledges outstanding debt. Basic issued 430,191 shares
of common stock at a fair value of $23.63 per share for a total
fair value of approximately $10.2 million. The value of the
430,191 shares issued was determined based on the average
market price of Basics common shares over the
2-day period
before and after the date the number shares were determined.
This acquisition allowed Basic to expand its drilling operations
in the Permian Basin. The following table summarizes the final
fair value of the assets acquired and liabilities assumed at the
date of acquisition for Sledge (in thousands):
|
|
|
|
|
Current Assets
|
|
$
|
6,807
|
|
Property and Equipment
|
|
|
30,638
|
|
Intangible Assets(1)
|
|
|
6,365
|
|
Goodwill(2)
|
|
|
22,522
|
|
|
|
|
|
|
Total Assets Acquired
|
|
|
66,332
|
|
|
|
|
|
|
Current Liabilities
|
|
|
(587
|
)
|
Deferred Income Taxes
|
|
|
(3,804
|
)
|
Current and Long Term Debt(3)
|
|
|
(19,093
|
)
|
|
|
|
|
|
Total Liabilities Assumed
|
|
|
(23,484
|
)
|
|
|
|
|
|
Net Assets Acquired
|
|
$
|
42,848
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of Customer Relationship of $6,269, amortizable over
15 years, and Non-Compete Agreements of $96, amortizable
over 5 years. |
|
(2) |
|
None of which is expected to be deducted for tax purposes |
|
(3) |
|
Total balance was paid by Basic on the closing date |
Azurite
On September 26, 2008, Basic acquired substantially all of
the assets of Azurite Services Company, Inc., Azurite Leasing
Company, LLC, and Freestone Disposal, L.P. (collectively,
Azurite) for $60.2 million in cash. This
acquisition operates in our fluid services line of business and
allowed us to expand our operations in the east Texas markets.
The following table summarizes the preliminary estimated fair
value of the assets acquired and liabilities assumed at the date
of acquisition for Azurite (in thousands):
|
|
|
|
|
Property and Equipment
|
|
$
|
53,127
|
|
Intangible Assets(1)
|
|
|
1,862
|
|
Goodwill(2)
|
|
|
5,166
|
|
|
|
|
|
|
Total Assets Acquired
|
|
$
|
60,155
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of customer relationship of $1,832, amortizable over
15 years, and non-compete agreements of $30, amortizable
over five years. |
|
(2) |
|
All of which is expected to be deductible for tax purposes. |
Revisions to the fair values, which may be significant, will be
recorded by the Company as further adjustments to the purchase
price allocations.
F-19
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The following unaudited pro-forma results of operations have
been prepared as though the JetStar, Sledge, and Azurite
acquisitions had been completed on January 1, 2007. Pro
forma amounts are based on the purchase price allocations of the
significant acquisitions and are not necessarily indicative of
the results that may be reported in the future (in thousands,
except per share data).
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
1,040,160
|
|
|
$
|
933,697
|
|
Net income
|
|
$
|
70,680
|
|
|
$
|
92,064
|
|
Earnings per common share basic
|
|
$
|
1.73
|
|
|
$
|
2.28
|
|
Earnings per common share diluted
|
|
$
|
1.70
|
|
|
$
|
2.22
|
|
Basic does not believe the pro-forma effect of the remainder of
the acquisitions completed in 2007 or 2008 is material, either
individually or when aggregated, to the reported results of
operations.
Contingent
Earn-out Arrangements and Final Purchase Price
Allocations
Contingent earn-out arrangements are generally arrangements
entered into on certain acquisitions to encourage the
owner/manager to continue operating and building the business
after the purchase transaction. The contingent earn-out
arrangements of the related acquisitions are generally linked to
certain financial measures and performance of the assets
acquired in the various acquisitions. Contingent earn-out
payments that are based on continued employment with the Company
are recorded as compensation expense, in accordance with EITF
No. 95-8,
Accounting for Contingent Consideration Paid to the
Shareholders of an Acquired Enterprise in Purchase Business
Combinations. All other amounts paid or reasonably
accrued for related to the contingent earn-out payments are
reflected as increases to the goodwill associated with the
acquisitions of New Force Energy Services, Rolling Plains,
Premier Vacuum Services and G&L Tool. Payments related to
contingent earn-out agreements on Chaparral Services will be
reflected as compensation expense when paid or accrued.
The following presents a summary of acquisitions that have a
contingent earn-out arrangement in effect as of
December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
Exposure of
|
|
|
|
|
|
|
Termination Date of
|
|
Contingent
|
|
|
Amount Paid or
|
|
|
|
Contingent Earn-Out
|
|
Earn-Out
|
|
|
Accrued through
|
|
Acquisition
|
|
Arrangement
|
|
Arrangement
|
|
|
December 31, 2008
|
|
|
Rolling Plains
|
|
April 30, 2009
|
|
|
|
*
|
|
$
|
6,732
|
|
Chaparral Services, Inc.
|
|
August 31, 2011
|
|
$
|
1,000
|
|
|
|
|
|
G&L Tool, Ltd.
|
|
February 28, 2011
|
|
|
21,000
|
|
|
|
5,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,000
|
|
|
$
|
11,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Basic will pay to the sellers an amount for each of the five
consecutive
12-month
periods beginning on May 1, 2004 equal to 50% of the amount
by which annual EBITDA exceeds an annual targeted EBITDA. There
is no guarantee or assurance that the targeted EBITDA will be
reached. |
F-20
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
4.
|
Property
and Equipment
|
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Land
|
|
$
|
4,689
|
|
|
$
|
3,475
|
|
Buildings and improvements
|
|
|
29,913
|
|
|
|
21,655
|
|
Well service units and equipment
|
|
|
379,167
|
|
|
|
328,468
|
|
Fluid services equipment
|
|
|
136,814
|
|
|
|
91,830
|
|
Brine and fresh water stations
|
|
|
10,203
|
|
|
|
8,964
|
|
Frac/test tanks
|
|
|
128,845
|
|
|
|
85,649
|
|
Pressure pumping equipment
|
|
|
156,406
|
|
|
|
132,746
|
|
Construction equipment
|
|
|
22,483
|
|
|
|
28,798
|
|
Contract drilling equipment
|
|
|
60,340
|
|
|
|
59,231
|
|
Disposal facilities
|
|
|
49,878
|
|
|
|
27,790
|
|
Vehicles
|
|
|
41,129
|
|
|
|
36,440
|
|
Rental equipment
|
|
|
36,898
|
|
|
|
33,381
|
|
Aircraft
|
|
|
4,119
|
|
|
|
4,119
|
|
Other
|
|
|
21,758
|
|
|
|
15,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,082,642
|
|
|
|
878,404
|
|
Less accumulated depreciation and amortization
|
|
|
341,763
|
|
|
|
241,480
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
740,879
|
|
|
$
|
636,924
|
|
|
|
|
|
|
|
|
|
|
Basic is obligated under various capital leases for certain
vehicles and equipment that expire at various dates during the
next five years. The gross amount of property and equipment and
related accumulated amortization recorded under capital leases
and included above consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Light vehicles
|
|
$
|
30,141
|
|
|
$
|
25,768
|
|
Well service units and equipment
|
|
|
1,194
|
|
|
|
1,016
|
|
Fluid services equipment
|
|
|
56,010
|
|
|
|
34,668
|
|
Pressure pumping equipment
|
|
|
20,492
|
|
|
|
4,540
|
|
Construction equipment
|
|
|
3,679
|
|
|
|
4,440
|
|
Software
|
|
|
9,464
|
|
|
|
6,308
|
|
Other
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,685
|
|
|
|
76,740
|
|
Less accumulated amortization
|
|
|
37,370
|
|
|
|
22,660
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84,315
|
|
|
$
|
54,080
|
|
|
|
|
|
|
|
|
|
|
Amortization of assets held under capital leases of
approximately $14.7 million, $8.9 million and
$5.3 million for the years ended December 31, 2008,
2007 and 2006, respectively, is included in depreciation and
amortization expense in the consolidated statements of
operations.
F-21
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007 Credit Facility
|
|
$
|
180,000
|
|
|
$
|
150,000
|
|
7.125% Senior Notes
|
|
|
225,000
|
|
|
|
225,000
|
|
Capital leases and other notes
|
|
|
75,323
|
|
|
|
48,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480,323
|
|
|
|
423,719
|
|
Less current portion
|
|
|
26,063
|
|
|
|
17,413
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
454,260
|
|
|
$
|
406,306
|
|
|
|
|
|
|
|
|
|
|
Senior
Notes
On April 12, 2006, the Company issued $225.0 million
of 7.125% Senior Notes due April 2016 in a private
placement. Proceeds from the sale of the Senior Notes were used
to retire the outstanding balance on the Companys
$90.0 million Term B Loan and to pay down approximately
$96.0 million under the revolving credit facility, which
amounts may be reborrowed to fund future acquisitions or for
general corporate purposes. Interest payments on the Senior
Notes are due semi-annually, on April 15 and October 15.
The Senior Notes are unsecured. Under the terms of the sale of
the Senior Notes, the Company was required to take appropriate
steps to offer to exchange other Senior Notes with the same
terms that have been registered with the Securities and Exchange
Commission for the private placement Senior Notes. The Company
completed the exchange offer for all of the Senior Notes on
October 16, 2006.
The Senior Notes are redeemable at the option of the Company on
or after April 15, 2011 at the specified redemption price
as described in the Indenture. Prior to April 15, 2011, the
Company may redeem the Senior Notes, in whole or in part, at a
redemption price equal to 100% of the principal amount of the
Senior Notes redeemed plus the Applicable Premium as defined in
the Indenture. Prior to April 15, 2009, the Company may
redeem up to 35% of the Senior Notes with the proceeds of
certain equity offerings at a redemption price equal to 107.125%
of the principal amount of the Senior Notes redeemed, plus
accrued and unpaid interest to the date of redemption. This
redemption must occur less than 90 days after the date of
the closing of any such equity offering.
Following a change of control, as defined in the Indenture, the
Company will be required to make an offer to repurchase all or
any portion of the Senior Notes at a purchase price of 101% of
the principal amount, plus accrued and unpaid interest to the
date of repurchase.
Pursuant to the Indenture, the Company is subject to covenants
that limit the ability of the Company and its restricted
subsidiaries to, among other things: incur additional
indebtedness, pay dividends, make certain other payments
repurchase or redeem capital stock, make certain investments,
incur liens, enter into certain types of transactions with
affiliates, limit dividends or other payments by restricted
subsidiaries, and sell assets or consolidate or merge with or
into other companies. These limitations are subject to a number
of important qualifications and exceptions set forth in the
Indenture. The Company was in compliance with the restrictive
covenants at December 31, 2008.
As part of the issuance of the above-mentioned Senior Notes, the
Company incurred debt issuance costs of approximately
$4.6 million, which are being amortized to interest expense
using the effective interest method over the term of the Senior
Notes.
F-22
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The Senior Notes are jointly and severally guaranteed by the
Company and all of its restricted subsidiaries. Basic Energy
Services, Inc., the ultimate parent company, does not have any
independent operating assets or operations. Subsidiaries other
than the restricted subsidiaries that are guarantors are minor.
2007
Credit Facility
On February 6, 2007, Basic entered into a $225 million
Fourth Amended and Restated Credit Agreement with a syndicate of
lenders (the 2007 Credit Facility), which refinanced
all of the existing credit facilities. Under the 2007 Credit
Facility, Basic Energy Services, Inc. is the sole borrower and
each of its subsidiaries is a subsidiary guarantor. The 2007
Credit Facility provides for a $225 million revolving line
of credit (Revolver). The 2007 Credit Facility
includes provisions allowing us to request an increase in
commitments of up to $100 million aggregate principal
amount subject to meeting certain tangible value requirements
and subject to lender participation at the time of the request.
Additionally, the 2007 Credit Facility permits us to make
greater expenditures for acquisitions, capital expenditures and
capital leases and to incur greater purchase money obligations,
acquisition indebtedness and general unsecured indebtedness. The
commitment under the Revolver provides for (1) the
borrowing of funds, (2) the issuance of up to
$30 million of letters of credit and
(3) $2.5 million of swing-line loans. All of the
outstanding amounts under the Revolver are due and payable on
December 15, 2010. The 2007 Credit Facility is secured by
substantially all of our tangible and intangible assets. Basic
incurred approximately $0.7 million in debt issuance costs
in connection with the 2007 Credit Facility.
At Basics option, borrowings under the Revolver bears
interest at either (1) the Alternative Base
Rate (i.e., the higher of the banks prime rate or
the federal funds rate plus .50% per year) plus a margin ranging
from 0.25% to 0.5% or (2) an Adjusted LIBOR
Rate (equal to (a) the London Interbank Offered Rate
(the LIBOR rate) as determined by the Administrative
Agent in effect for such interest period divided by (b) one
minus the Statutory Reserves, if any, for such borrowing for
such interest period) plus a margin ranging from 1.25% to 1.5%.
The margins vary depending on our leverage ratio. Fees on the
letters of credit are due quarterly on the outstanding amount of
the letters of credit at a rate ranging from 1.25% to 1.5% for
participation fees and 0.125% for fronting fees. A commitment
fee is due quarterly on the available borrowings under the
Revolver at a rate of 0.375%.
At December 31, 2008, Basic, under its Revolver, had
outstanding $180 million of borrowings and
$16.2 million of letters of credit and no amounts
outstanding in swing-line loans. At December 31, 2008,
Basic had availability under its Revolver of $28.8 million.
Pursuant to the 2007 Credit Facility, Basic must apply proceeds
from certain specified events to reduce principal outstanding
borrowings under the Revolver, from (a) assets sales
greater than $2.0 million individually or $7.5 million
in the aggregate on an annual basis, (b) 100% of the net
cash proceeds from any debt issuance, including certain
permitted unsecured senior or senior subordinated debt, but
excluding certain other permitted debt issuances and
(c) 50% of the net cash proceeds from any equity issuance
(including equity issued upon the exercise of any warrant or
option).
The 2007 Credit Facility contains various restrictive covenants
and compliance requirements, which include (a) limitations
on the incurrence of additional indebtedness,
(b) restrictions on mergers, sales or transfer of assets
without the lenders consent (c) limitations on
dividends and distributions and (d) various financial
covenants, including (1) a maximum leverage ratio of 3.25
to 1.00, and (2) a minimum interest coverage ratio of 3.00
to 1.00. At December 31, 2008, Basic was in compliance with
its covenants.
Other
Debt
Basic has a variety of other capital leases and notes payable
outstanding that are generally customary in its business. None
of these debt instruments are material individually or in the
aggregate.
F-23
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
As of December 31, 2008 the aggregate maturities of debt,
including capital leases, for the next five years and thereafter
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
Capital Leases
|
|
|
2009
|
|
$
|
|
|
|
$
|
26,063
|
|
2010
|
|
|
180,000
|
|
|
|
21,985
|
|
2011
|
|
|
|
|
|
|
14,307
|
|
2012
|
|
|
|
|
|
|
10,450
|
|
2013
|
|
|
|
|
|
|
2,518
|
|
Thereafter
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
405,000
|
|
|
$
|
75,323
|
|
|
|
|
|
|
|
|
|
|
Basics interest expense consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash payments for interest
|
|
$
|
24,484
|
|
|
$
|
25,594
|
|
|
$
|
12,587
|
|
Commitment and other fees paid
|
|
|
211
|
|
|
|
249
|
|
|
|
566
|
|
Amortization of debt issuance costs
|
|
|
968
|
|
|
|
962
|
|
|
|
804
|
|
Accrued interest
|
|
|
1,157
|
|
|
|
540
|
|
|
|
3,384
|
|
Other
|
|
|
(54
|
)
|
|
|
71
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,766
|
|
|
$
|
27,416
|
|
|
$
|
17,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses
on Extinguishment of Debt
In February 2007 and April 2006, Basic recognized a loss on the
early extinguishment of debt. In February 2007, Basic wrote off
unamortized debt issuance costs of approximately
$0.2 million, which related to the 2005 credit facility. In
April 2006, Basic wrote off unamortized debt issuance costs of
approximately $2.7 million, which related to the prepayment
of the Term B Loan.
Income tax expense consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
20,533
|
|
|
$
|
33,157
|
|
|
$
|
50,499
|
|
State
|
|
|
4,436
|
|
|
|
5,160
|
|
|
|
1,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,969
|
|
|
$
|
38,317
|
|
|
$
|
52,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
28,792
|
|
|
$
|
14,207
|
|
|
$
|
3,594
|
|
State
|
|
|
1,373
|
|
|
|
242
|
|
|
|
(983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,165
|
|
|
$
|
14,449
|
|
|
$
|
2,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
55,134
|
|
|
$
|
52,766
|
|
|
$
|
54,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Basic paid Federal income taxes of $22.0 million during
2008, $44.1 million during 2007 and $40.2 million
during 2006.
Reconciliation between the amount determined by applying the
Federal statutory rate of 35% to income from continuing
operations with the provision for income taxes is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statutory federal income tax
|
|
$
|
43,180
|
|
|
$
|
49,174
|
|
|
$
|
53,750
|
|
Meals and entertainment
|
|
|
542
|
|
|
|
532
|
|
|
|
430
|
|
State taxes, net of federal benefit
|
|
|
4,726
|
|
|
|
4,062
|
|
|
|
778
|
|
Impairment of non-deductible goodwill
|
|
|
7,883
|
|
|
|
|
|
|
|
|
|
Changes in estimates and other
|
|
|
(1,197
|
)
|
|
|
(1,002
|
)
|
|
|
(216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,134
|
|
|
$
|
52,766
|
|
|
$
|
54,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Receivables allowance
|
|
$
|
2,151
|
|
|
$
|
2,314
|
|
Inventory
|
|
|
42
|
|
|
|
41
|
|
Asset retirement obligation
|
|
|
331
|
|
|
|
283
|
|
Accrued liabilities
|
|
|
8,696
|
|
|
|
8,044
|
|
Operating loss carryforward
|
|
|
788
|
|
|
|
1,100
|
|
Deferred compensation
|
|
|
3,497
|
|
|
|
2,648
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
15,505
|
|
|
|
14,430
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(135,354
|
)
|
|
|
(104,476
|
)
|
Goodwill and intangibles
|
|
|
(18,541
|
)
|
|
|
(13,846
|
)
|
Prepaid expenses
|
|
|
(120
|
)
|
|
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(154,015
|
)
|
|
|
(118,441
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(138,510
|
)
|
|
$
|
(104,011
|
)
|
|
|
|
|
|
|
|
|
|
Recognized as:
|
|
|
|
|
|
|
|
|
Deferred tax assets current
|
|
|
11,081
|
|
|
|
10,593
|
|
Deferred tax liabilities non-current
|
|
|
(149,591
|
)
|
|
|
(114,604
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(138,510
|
)
|
|
$
|
(104,011
|
)
|
|
|
|
|
|
|
|
|
|
Basic provides a valuation allowance when it is more likely than
not that some portion of the deferred tax assets will not be
realized. There was no valuation allowance necessary as of
December 31, 2008 or 2007.
Effective January 1, 2007, Basic adopted the provisions of
the FASB issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes. Our adoption of FIN 48 in January 2007
did not result in any change to retained earnings or any
additional unrecognized tax benefit. Interest is recorded in
interest expense and penalties are recorded in income tax
expense. We had no interest or penalties related to
F-25
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
an uncertain tax positions during 2008. Basic files federal
income tax returns and state income tax returns in Texas and
other state tax jurisdictions. In general, the Companys
tax returns for fiscal years after 2003 currently remain subject
to examination by appropriate taxing authorities. None of the
Companys income tax returns are under examination at this
time.
As of December 31, 2008, Basic had approximately
$2.3 million of net operating loss carryforwards
(NOL) for U.S. federal income tax purposes
related to the preacquisition period of FESCO (acquired in
2003), which are subject to an annual limitation of
approximately $892,000. The carryforwards begin to expire in
2017.
|
|
7.
|
Commitments
and Contingencies
|
Environmental
Basic is subject to various federal, state and local
environmental laws and regulations that establish standards and
requirements for protection of the environment. Basic cannot
predict the future impact of such standards and requirements
which are subject to change and can have retroactive
effectiveness. Basic continues to monitor the status of these
laws and regulations. Management believes that the likelihood of
the disposition of any of these items resulting in a material
adverse impact to Basics financial position, liquidity,
capital resources or future results of operations is remote.
Currently, Basic has not been fined, cited or notified of any
environmental violations that would have a material adverse
effect upon its financial position, liquidity or capital
resources. However, management does recognize that by the very
nature of its business, material costs could be incurred in the
near term to bring Basic into total compliance. The amount of
such future expenditures is not determinable due to several
factors including the unknown magnitude of possible
contamination, the unknown timing and extent of the corrective
actions which may be required, the determination of Basics
liability in proportion to other responsible parties and the
extent to which such expenditures are recoverable from insurance
or indemnification.
Litigation
From time to time, Basic is a party to litigation or other legal
proceedings that Basic considers to be a part of the ordinary
course of business. Basic is not currently involved in any legal
proceedings that it considers probable or reasonably possible,
individually or in the aggregate, to result in a material
adverse effect on its financial condition, results of operations
or liquidity.
Operating
Leases
Basic leases certain property and equipment under non-cancelable
operating leases. The term of the operating leases generally
range from 12 to 60 months with varying payment dates
throughout each month.
As of December 31, 2008, the future minimum lease payments
under non-cancelable operating leases are as follows (in
thousands):
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2009
|
|
$
|
4,543
|
|
2010
|
|
|
4,257
|
|
2011
|
|
|
3,588
|
|
2012
|
|
|
2,550
|
|
2013
|
|
|
2,164
|
|
Thereafter
|
|
|
5,220
|
|
F-26
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Rent expense approximated $20.3 million,
$17.4 million, and $13.9 million for 2008, 2007 and
2006, respectively.
Basic leases rights for the use of various brine and fresh water
wells and disposal wells ranging in terms from
month-to-month
up to 99 years. The above table reflects the future minimum
lease payments if the lease contains a periodic rental. However,
the majority of these leases require payments based on a royalty
percentage or a volume usage.
Employment
Agreements
Under the employment agreement with Mr. Huseman, Chief
Executive Officer and President of Basic, effective
December 31, 2006 through December 31, 2009, amended
February 27, 2008, Mr. Huseman will be entitled to an
annual salary of $550,000. Under this employment agreement,
Mr. Huseman is eligible from time to time to receive grants
of stock options and other long-term equity incentive
compensation under our Amended and Restated 2003 Incentive Plan.
In addition, upon a qualified termination of employment,
Mr. Huseman would be entitled to three times his base
salary plus his current annual incentive target bonus for the
full year in which the termination of employment occurred. If
employment is terminated for certain reasons within the six
months preceding or the twelve months following the change of
control of our Company, Mr. Huseman would be entitled to a
lump sum severance payment equal to three times the sum of his
base salary plus the higher of (i) his current incentive
target bonus for the full year in which the termination of
employment occurred or (ii) the highest annual incentive
bonus received by him for any of the last three fiscal years.
Basic has entered into employment agreements with various other
executive officers of Basic that range in term up through
December 2009. Under these agreements, if the officers
employment is terminated for certain reasons, he would be
entitled to a lump sum severance payment equal to amounts
ranging from 1.5 times to 0.75 times the sum of his base salary
plus his current annual incentive target bonus for the full year
in which the termination occurred . If employment is terminated
for certain reasons within the six months preceding or the
twelve months following the chance of control of our Company, he
would be entitled to a lump sum severance payment equal to three
times the sum of his base salary plus the higher of (i) his
current incentive target bonus for the full year in which the
termination of employment occurred or (ii) the highest
annual incentive bonus received by him for any of the last three
fiscal years.
Self-Insured
Risk Accruals
Basic is self-insured up to retention limits as it relates to
workers compensation and medical and dental coverage of
its employees. Basic, generally, maintains no physical property
damage coverage on its workover rig fleet, with the exception of
certain of its
24-hour
workover rigs and newly manufactured rigs. Basic has deductibles
per occurrence for workers compensation and medical and
dental coverage of $375,000 and $180,000, respectively. Basic
has lower deductibles per occurrence for automobile liability
and general liability. Basic maintains accruals in the
accompanying consolidated balance sheets related to
self-insurance retentions by using third-party data and claims
history. In 2008 Basic classified the workers compensation
self-insured risk reserve between short-term and long-term, with
$4.0 million being allocated to short-term and
$5.0 million being allocated to long-term.
At December 31, 2008 and December 31, 2007,
self-insured risk accruals totaled approximately
$15.4 million, net of $992,000 receivable for medical and
dental coverage, and $15.1 million, net of
$0 receivable for medical and dental coverage, respectively.
F-27
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Common
Stock
At December 31, 2008 and 2007, Basic had
80,000,000 shares of Basics common stock, par value
$.01 per share, authorized.
In February 2002, a group of related investors purchased a total
of 3,000,000 shares of Basics common stock at a
purchase price of $4 per share, for a total purchase price of
$12 million. As part of the purchase, 600,000 common stock
warrants were issued in connection with this transaction, the
fair value of which was approximately $1.2 million
(calculated using an option valuation model). The warrants
allowed the holder to purchase 600,000 shares of
Basics common stock at $4 per share. The warrants were
exercisable in whole or in part after June 30, 2002 and
prior to February 13, 2007.
In June of 2002 Basic granted 3,750,000 common stock warrants to
acquire a total of 3,750,000 shares of common stock at a
price of $4 per share, exercisable in whole or in part from
June 30, 2002 through June 30, 2007.
In February 2004, Basic granted certain officers and directors
837,500 restricted shares of common stock. The shares vest 25%
per year for four years from the award date and are subject to
other vesting and forfeiture provisions. The estimated fair
value of the restricted shares was $5.8 million at the date
of the grant. This amount is being charged to expense over the
respective vesting period and totaled approximately $182,000,
$1.2 million and $1.3 million for the years ended
December 31, 2008, 2007 and 2006.
In December 2005, Basic issued 5,000,000 shares of common
stock during the Companys Initial Public Offering to a
group of investors for $100 million or $20 per share. After
deducting fees, this resulted in net proceeds to Basic totaling
approximately $91.5 million.
On October 5, 2006, all outstanding warrants were exercised
to purchase an aggregate of 4,350,000 shares of
Basics common stock. In connection with the exercise of
the warrants, Basic received an aggregate of $17.4 million
from the Holders in satisfaction of the exercise price of the
warrants (representing an exercise price of $4.00 per share of
Basics common stock acquired).
In March and April 2007, Basic issued 1,794,759 and
430,191 shares of common stock in connection with the
acquisitions of JetStar Consolidated Holding, Inc. and Sledge
Drilling Holding Corp., respectively. (See note 3)
In March 2007, Basic granted various employees 217,100 unvested
shares of common stock which vest over a five year period. Also,
in March 2007, Basic granted the Chairman of the Board
4,000 shares of common stock. In July 2007, Basic granted a
vice president 12,000 shares of restricted common stock
which vest over a four year period.
In March 2008, Basic granted various employees 361,700 unvested
shares of common stock which vest over a five-year period. Also,
in March 2008, Basic granted the Chairman of the Board
4,000 shares of common stock which vested immediately in
lieu of annual cash director fees. In October 2008, Basic
granted a vice president 5,000 shares of restricted common
stock which vest over a three year period.
During the year ended 2008, Basic issued 138,675 shares of
common stock from treasury stock for the exercise of stock
options. Also, Basic issued 447,255 shares of newly-issued
common stock for the exercise of stock options.
Treasury
Stock
On October 13, 2008, Basic announced that its Board of
Directors authorized the repurchase of up to $50.0 million
of Basics shares of common stock from time to time in open
market or private transactions, at
F-28
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Basics discretion. The number of shares purchased and the
timing of purchases is based on several factors, including the
price of the common stock, general market conditions, available
cash and alternative investment opportunities. As of
December 31, 2008, Basic repurchased 897,558 shares at
a total price of $8.8 million (an average of $9.82 per
share), inclusive of commissions and fees.
Basic also acquired treasury shares through net share
settlements for payment of payroll taxes upon the vesting of
restricted stock. We repurchased a total of 52,877 and
20,388 shares through net share settlements during 2008 and
2007, respectively.
Preferred
Stock
At December 31, 2008 and 2007, Basic had
5,000,000 shares of preferred stock, par value
$.01 per share, authorized, of which none was designated,
issued or outstanding.
|
|
9.
|
Stockholders
Agreement
|
Basic has a Stockholders Agreement, as amended on
April 2, 2004 (Stockholders Agreement),
which provides for rights relating to the shares of our
stockholders and certain corporate governance matters.
The Stockholders Agreement provides for participation
rights of the other stockholders to require affiliates of DLJ
Merchant Banking to offer to include a specified percentage of
their shares whenever affiliates of DLJ Merchant Banking sell
their shares for value in a transaction or series of
transactions involving 10% or more of the then-outstanding
shares of Basics common stock, other than a public
offering or a sale in which all of the parties to the
Stockholders Agreement agree to participate. The
Stockholders Agreement also contains
drag-along rights. The drag-along rights
entitle the affiliated of DLJ Merchant Banking to require the
other stockholders who are a party to this agreement to sell a
portion of their shares of common stock and common stock
equivalents in the sale in any proposed to sale of shares of
common stock and common stock equivalents representing more than
50% of such equity interest held by the affiliates of DLJ
Merchant Banking to a person or persons who are not an affiliate
of them.
The Stockholders Agreement also provides for demand and
piggyback registration rights to parties who continue to hold
Registrable Securities as defined in the agreement.
In May 2003, Basics board of directors and stockholders
approved the Basic 2003 Incentive Plan (as amended effective
April 22, 2005) (the Plan), which provides for
granting of incentive awards in the form of stock options,
restricted stock, performance awards, bonus shares, phantom
shares, cash awards and other stock-based awards to officers,
employees, directors and consultants of Basic. The Plan assumed
the awards of the plans of Basics predecessors that were
awarded and remained outstanding prior to adoption of the Plan.
The Plan provides for the issuance of 5,000,000 shares. Of
these shares, approximately 816,000 shares are available
for grant as of December 31, 2008. The Plan is administered
by the Plan committee, and in the absence of a Plan committee,
by the Board of Directors, which determines the awards and the
associated terms of the awards and interprets its provisions and
adopts policies for implementing the Plan. The number of shares
authorized under the Plan and the number of shares subject to an
award under the Plan will be adjusted for stock splits, stock
dividends, recapitalizations, mergers and other changes
affecting the capital stock of Basic.
On March 15, 2006, the Board of Directors granted various
employees and directors options to purchase 418,000 shares
of common stock of Basic at an exercise price of $26.84 per
share. All of the 418,000 options granted in 2006 vest over a
five-year period and expire 10 years from the date they
were granted. These option awards were granted with an exercise
price equal to the market price of the Companys stock at
the date of grant. On March 15, 2007, the board of
directors granted various employees options to purchase
92,000 shares of common stock of Basic at an exercise price
of $22.66 per share. All of the 92,000 options granted in 2007
F-29
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
vest over a five-year period and expire 10 years from the
date they were granted. These option awards were granted with an
exercise price equal to the market price of the Companys
stock at the date of grant. There were no options granted during
2008.
The fair value of each option award is estimated on the date of
grant using the Black-Scholes-Merton option-pricing model that
uses the subjective assumptions noted in the following table.
Since the Company has only been public since December 2005,
expected volatility for options granted during 2006 is a
volatility based upon a peer group. Expected volatility for
options granted during 2007 is a combination of the
Companys historical data and volatility based upon a peer
group. The expected term of options granted represents the
period of time that options granted are expected to be
outstanding. For options granted in 2007 and 2006, the Company
used the simplified method to calculate the expected term. For
options granted in 2007 and 2006, the risk-free rate for periods
within the contractual life of the options is based on the
U.S. Treasury yield curve in effect at the time of grant.
The estimates involve inherent uncertainties and the application
of management judgment. In addition, we are required to estimate
the expected forfeiture rate and only recognize expense for
those options expected to vest. During the years ended
December 31, 2008, 2007 and 2006, compensation expense
related to share-based arrangements was approximately
$4.1 million, $3.9 million and $3.4 million,
respectively. For compensation expense recognized during the
years ended December 31, 2008, 2007 and 2006 Basic
recognized a tax benefit of approximately $1.9 million,
$1.5 million and $1.2 million, respectively.
The fair value of each option award accounted for under
SFAS No. 123R is estimated on the date of grant using
the Black-Scholes-Merton option-pricing model that uses the
assumptions noted in the following table:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Risk-free interest rate
|
|
|
4.5
|
%
|
|
|
4.7
|
%
|
Expected term
|
|
|
6.65
|
|
|
|
6.65
|
|
Expected volatility
|
|
|
45.3
|
%
|
|
|
47.0
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
Options granted under the Plan expire 10 years from the
date they are granted, and generally vest over a
three-to-five
year service period.
The following table reflects the summary of stock options
outstanding at December 31, 2008 and the changes during the
twelve months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Granted
|
|
|
Price
|
|
|
Term (Years)
|
|
|
(000s)
|
|
|
Non-statutory stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of period
|
|
|
2,257,355
|
|
|
$
|
9.58
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(53,750
|
)
|
|
$
|
15.29
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(585,930
|
)
|
|
$
|
4.65
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(9,000
|
)
|
|
$
|
21.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
|
1,608,675
|
|
|
$
|
11.11
|
|
|
|
5.76
|
|
|
$
|
8,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of period
|
|
|
957,925
|
|
|
$
|
7.44
|
|
|
|
5.03
|
|
|
$
|
6,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest, end of period
|
|
|
1,584,425
|
|
|
$
|
10.88
|
|
|
|
5.73
|
|
|
$
|
8,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The weighted-average grant date fair value of share options
granted during the years ended December 31, 2007 and 2006
was $11.85 and $14.47, respectively. The total intrinsic value
of share options exercised during the years ended
December 31, 2008, 2007 and 2006 was approximately
$12.2 million, $3.6 million and $7.1 million,
respectively.
On March 11, 2008, the Compensation Committee of our Board
of Directors approved grants of performance-based stock awards
to certain members of management. The performance-based awards
consist of the Company achieving certain earnings per share
growth targets and certain return on capital employed
performance, over the performance period from January 1,
2006 through December 31, 2008 as compared to other members
of a defined peer group. The number of shares to be issued will
range from 0% to 150% of the target number of shares of 101,500
depending on the performance noted above. Any shares earned at
the end of the performance period will then remain subject to
vesting over a three-year period, with the first shares vesting
March 15, 2010.
A summary of the status of the Companys non-vested share
grants at December 31, 2008 and changes during the year
ended December 31, 2008 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Fair Value
|
|
Nonvested Shares
|
|
Shares
|
|
|
per Share
|
|
|
Nonvested at beginning of period
|
|
|
378,000
|
|
|
$
|
15.74
|
|
Granted during period
|
|
|
456,975
|
|
|
|
20.85
|
|
Vested during period
|
|
|
(178,300
|
)
|
|
|
7.90
|
|
Forfeited during period
|
|
|
(57,350
|
)
|
|
|
21.55
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of period
|
|
|
599,325
|
|
|
$
|
21.41
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, there was $11.9 million of
total unrecognized compensation related to non-vested
share-based compensation arrangements granted under the Plan.
That cost is expected to be recognized over a weighted-average
period of 2.65 years. The total fair value of share-based
awards vested during the years ended December 31, 2008,
2007 and 2006 was approximately $10.3 million,
$11.3 million and $12.3 million, respectively. The
actual tax benefit realized for the tax deduction from vested
share-based awards was $1.5 million, $1.6 million and
$2.1 million, respectively for the years ended
December 31, 2008, 2007 and 2006.
Cash received from share option exercises under the incentive
plan was approximately $2.7 million, $975,000 and $674,000
for the years ended December 31, 2008, 2007 and 2006,
respectively. The actual tax benefit realized for the tax
deductions from options exercised was $5.6 million,
$1.4 million and $4.0 million, respectively, for the
years ended December 31, 2008, 2007 and 2006.
The Company has a history of issuing Treasury and newly-issued
shares to satisfy share option exercises.
|
|
11.
|
Related
Party Transactions
|
Basic had receivables from employees of approximately $148,000
and $91,000 as of December 31, 2008 and December 31,
2007, respectively. During 2006, Basic entered into a lease
agreement with Darle Vuelta Cattle Co., LLC, an affiliate of the
Chief Executive Officer, for approximately $69,000. The term of
the lease is five years and will continue on a
year-to-year
basis unless terminated by either party.
F-31
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Basic has a 401(k) profit sharing plan that covers substantially
all employees. Employees may contribute up to their base salary
not to exceed the annual Federal maximum allowed for such plans.
Basic makes a matching contribution proportional to each
employees contribution. Employee contributions are fully
vested at all times. Employer matching contributions vest
incrementally, with full vesting occurring after five years of
service. Employer contributions to the 401(k) plan approximated
$4.1 million, $3.0 million, and $2.5 million in
2008, 2007 and 2006, respectively.
|
|
13.
|
Deferred
Compensation Plan
|
In April 2005, Basic established a deferred compensation plan
for certain employees. Participants may defer up to 50% of their
salary and 100% of any cash bonuses. Basic makes matching
contributions of 100% of the first 3% of the participants
deferred pay and 50% of the next 2% of the participants
deferred pay to a maximum match of $9,200 per year. Employer
matching contributions and earnings thereon are subject to a
five-year vesting schedule with full vesting occurring after
five years of service. Employer contributions to the deferred
compensation plan net of earnings approximated a $563,000 gain
in 2008 and a $216,000, and $199,000 expense in 2007 and 2006,
respectively.
Basic presents earnings per share information in accordance with
the provisions of Statement of Financial Accounting Standards
No. 128, Earnings per Share
(SFAS No. 128). Under
SFAS No. 128, basic earnings per common share are
determined by dividing net earnings applicable to common stock
by the weighted average number of common shares actually
outstanding during the year. Diluted earnings per common share
is based on the increased number of shares that would be
outstanding assuming conversion of dilutive outstanding
securities using the as if converted method. The
following table sets forth the computation of basic and diluted
earnings per share (in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Numerator (both basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
68,238
|
|
|
$
|
87,733
|
|
|
$
|
98,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
|
|
|
40,754,890
|
|
|
|
40,013,054
|
|
|
|
34,471,771
|
|
Stock options
|
|
|
682,958
|
|
|
|
831,026
|
|
|
|
1,054,040
|
|
Unvested restricted stock
|
|
|
225,842
|
|
|
|
268,324
|
|
|
|
244,153
|
|
Common stock warrants
|
|
|
|
|
|
|
|
|
|
|
2,823,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share
|
|
|
41,663,690
|
|
|
|
41,112,404
|
|
|
|
38,592,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1.67
|
|
|
$
|
2.19
|
|
|
$
|
2.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1.64
|
|
|
$
|
2.13
|
|
|
$
|
2.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of antidilutive shares at December 31, 2008,
2007 and 2006 was 413,000, 442,000 and 401,000, respectively.
F-32
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
15.
|
Business
Segment Information
|
Basic revised its reportable business segments beginning in the
first quarter of 2008 and in connection therewith restated the
corresponding items of segment information for earlier periods.
The new operating segments are Well Servicing, Fluid Services,
Completion and Remedial Services, and Contract Drilling. These
segments have been selected based on changes in
managements resource allocation and performance assessment
in making decisions regarding the Company. Contract Drilling was
previously included in our Well Servicing segment. Well Site
Construction Services is now consolidated with our Fluid
Services segment. These changes reflect Basics operating
focus in compliance with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information. The following is a description of the
segments:
Well Servicing: This business segment
encompasses a full range of services performed with a mobile
well servicing rig, including the installation and removal of
downhole equipment and elimination of obstructions in the well
bore to facilitate the flow of oil and gas. These services are
performed to establish, maintain and improve production
throughout the productive life of an oil and gas well and to
plug and abandon a well at the end of its productive life. Basic
well servicing equipment and capabilities are essential to
facilitate most other services performed on a well.
Fluid Services: This segment utilizes a fleet
of trucks and related assets, including specialized tank trucks,
storage tanks, water wells, disposal facilities and related
equipment. Basic employs these assets to provide, transport,
store and dispose of a variety of fluids. These services are
required in most workover, completion and remedial projects as
well as part of daily producing well operations. Also included
in this segment is our construction services which provide
services for the construction and maintenance of oil and gas
production infrastructures.
Completion and Remedial Services: This segment
utilizes a fleet of pressure pumping units, air compressor
packages specially configured for underbalanced drilling
operations, cased-hole wireline units and an array of
specialized rental equipment and fishing tools. The largest
portion of this business consists of pressure pumping services
focused on cementing, acidizing and fracturing services in niche
markets.
Contract Drilling: This segment utilizes
shallow and medium depth rigs and associated equipment for
drilling wells to a specified depth for customers on a contract
basis.
Basics management evaluates the performance of its
operating segments based on operating revenues and segment
profits. Corporate expenses include general corporate expenses
associated with managing all reportable operating segments.
Corporate assets consist principally of working capital and debt
financing costs.
F-33
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The following table sets forth certain financial information
with respect to Basics reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion
|
|
|
|
|
|
|
|
|
|
|
|
|
Well
|
|
|
Fluid
|
|
|
and Remedial
|
|
|
Contract
|
|
|
Corporate
|
|
|
|
|
|
|
Servicing
|
|
|
Services
|
|
|
Services
|
|
|
Drilling
|
|
|
and Other
|
|
|
Total
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
343,113
|
|
|
$
|
315,768
|
|
|
$
|
304,326
|
|
|
$
|
41,735
|
|
|
$
|
|
|
|
$
|
1,004,942
|
|
Direct operating costs
|
|
|
(215,243
|
)
|
|
|
(203,205
|
)
|
|
|
(165,574
|
)
|
|
|
(28,629
|
)
|
|
|
|
|
|
|
(612,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits
|
|
$
|
127,870
|
|
|
$
|
112,563
|
|
|
$
|
138,752
|
|
|
$
|
13,106
|
|
|
$
|
|
|
|
$
|
392,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
45,298
|
|
|
$
|
33,629
|
|
|
$
|
27,473
|
|
|
$
|
6,816
|
|
|
$
|
5,391
|
|
|
$
|
118,607
|
|
Capital expenditures, (excluding acquisitions)
|
|
$
|
35,094
|
|
|
$
|
26,054
|
|
|
$
|
21,285
|
|
|
$
|
5,281
|
|
|
$
|
4,176
|
|
|
$
|
91,890
|
|
Identifiable assets
|
|
$
|
310,964
|
|
|
$
|
262,377
|
|
|
$
|
334,120
|
|
|
$
|
47,027
|
|
|
$
|
356,223
|
|
|
$
|
1,310,711
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
342,697
|
|
|
$
|
259,324
|
|
|
$
|
240,692
|
|
|
$
|
34,460
|
|
|
$
|
|
|
|
$
|
877,173
|
|
Direct operating costs
|
|
|
(205,132
|
)
|
|
|
(165,327
|
)
|
|
|
(125,948
|
)
|
|
|
(22,510
|
)
|
|
|
|
|
|
|
(518,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits
|
|
$
|
137,565
|
|
|
$
|
93,997
|
|
|
$
|
114,744
|
|
|
$
|
11,950
|
|
|
$
|
|
|
|
$
|
358,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
37,586
|
|
|
$
|
23,858
|
|
|
$
|
21,138
|
|
|
$
|
6,433
|
|
|
$
|
4,033
|
|
|
$
|
93,048
|
|
Capital expenditures, (excluding acquisitions)
|
|
$
|
39,803
|
|
|
$
|
25,266
|
|
|
$
|
22,384
|
|
|
$
|
6,813
|
|
|
$
|
4,270
|
|
|
$
|
98,536
|
|
Identifiable assets
|
|
$
|
284,058
|
|
|
$
|
207,380
|
|
|
$
|
284,321
|
|
|
$
|
73,787
|
|
|
$
|
294,063
|
|
|
$
|
1,143,609
|
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
323,755
|
|
|
$
|
245,011
|
|
|
$
|
154,412
|
|
|
$
|
6,970
|
|
|
$
|
|
|
|
$
|
730,148
|
|
Direct operating costs
|
|
|
(178,028
|
)
|
|
|
(153,445
|
)
|
|
|
(74,981
|
)
|
|
|
(8,400
|
)
|
|
|
|
|
|
|
(414,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits
|
|
$
|
145,727
|
|
|
$
|
91,566
|
|
|
$
|
79,431
|
|
|
$
|
(1,430
|
)
|
|
$
|
|
|
|
$
|
315,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
26,992
|
|
|
$
|
19,692
|
|
|
$
|
11,070
|
|
|
$
|
1,938
|
|
|
$
|
2,395
|
|
|
$
|
62,087
|
|
Capital expenditures, (excluding acquisitions)
|
|
$
|
29,677
|
|
|
$
|
33,167
|
|
|
$
|
18,646
|
|
|
$
|
19,050
|
|
|
$
|
4,034
|
|
|
$
|
104,574
|
|
Identifiable assets
|
|
$
|
226,566
|
|
|
$
|
193,927
|
|
|
$
|
129,471
|
|
|
$
|
17,112
|
|
|
$
|
229,184
|
|
|
$
|
796,260
|
|
The following table reconciles the segment profits reported
above to the operating income as reported in the consolidated
statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Segment profits
|
|
$
|
392,291
|
|
|
$
|
358,256
|
|
|
$
|
315,294
|
|
General and administrative expenses
|
|
|
(115,319
|
)
|
|
|
(99,042
|
)
|
|
|
(81,318
|
)
|
Depreciation and amortization
|
|
|
(118,607
|
)
|
|
|
(93,048
|
)
|
|
|
(62,087
|
)
|
Gain (loss) on disposal of assets
|
|
|
(76
|
)
|
|
|
(477
|
)
|
|
|
(277
|
)
|
Goodwill Impairment (Contract drilling segment)
|
|
|
(22,522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
135,767
|
|
|
$
|
165,689
|
|
|
$
|
171,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The accrued expenses are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Compensation related
|
|
$
|
19,832
|
|
|
$
|
16,790
|
|
Workers compensation self-insured risk reserve
|
|
|
4,248
|
|
|
|
9,326
|
|
Health self-insured risk reserve
|
|
|
6,690
|
|
|
|
6,054
|
|
Accrual for receipts
|
|
|
4,976
|
|
|
|
3,955
|
|
Authority for expenditure accrual
|
|
|
543
|
|
|
|
211
|
|
Ad valorem taxes
|
|
|
137
|
|
|
|
73
|
|
Sales tax
|
|
|
588
|
|
|
|
1,140
|
|
Insurance obligations
|
|
|
2,474
|
|
|
|
995
|
|
Purchase order accrual
|
|
|
38
|
|
|
|
45
|
|
Professional fee accrual
|
|
|
185
|
|
|
|
424
|
|
Contingent earnout obligation
|
|
|
1,438
|
|
|
|
1,158
|
|
Retainers
|
|
|
|
|
|
|
172
|
|
Fuel accrual
|
|
|
897
|
|
|
|
1,692
|
|
Accrued interest
|
|
|
5,083
|
|
|
|
3,926
|
|
Contingent liability
|
|
|
|
|
|
|
1,296
|
|
Franchise Tax Payable
|
|
|
|
|
|
|
3,704
|
|
Other
|
|
|
10
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
47,139
|
|
|
$
|
51,003
|
|
|
|
|
|
|
|
|
|
|
|
|
17.
|
Supplemental
Schedule of Cash Flow Information
|
The following table reflects non-cash financing and investing
activity during:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Capital leases issued for equipment
|
|
$
|
50,730
|
|
|
$
|
26,814
|
|
|
$
|
26,420
|
|
Value of shares that may be issued
|
|
$
|
|
|
|
$
|
2,194
|
|
|
$
|
|
|
Contingent earnout accrual
|
|
$
|
183
|
|
|
$
|
1,032
|
|
|
$
|
2,256
|
|
Asset retirement obligation additions
|
|
$
|
143
|
|
|
$
|
101
|
|
|
$
|
767
|
|
Value of common stock issued in business combinations
|
|
$
|
|
|
|
$
|
51,193
|
|
|
$
|
|
|
Basic paid income taxes of approximately $27.2 million,
$44.1 million and $43.2 million during the years ended
December 31, 2008, 2007 and 2006, respectively.
F-35
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
18.
|
Quarterly
Financial Data (Unaudited)
|
The following table summarizes results for each of the four
quarters in the years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
Year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
229,873
|
|
|
$
|
251,522
|
|
|
$
|
277,575
|
|
|
$
|
245,972
|
|
|
$
|
1,004,942
|
|
Segment profits
|
|
$
|
92,126
|
|
|
$
|
97,495
|
|
|
$
|
108,980
|
|
|
$
|
93,690
|
|
|
$
|
392,291
|
|
Income from continuing operations
|
|
$
|
19,656
|
|
|
$
|
18,713
|
|
|
$
|
25,942
|
|
|
$
|
3,927
|
|
|
$
|
68,238
|
|
Net income available to common stockholders
|
|
$
|
19,656
|
|
|
$
|
18,713
|
|
|
$
|
25,942
|
|
|
$
|
3,927
|
|
|
$
|
68,238
|
|
Basic earnings per share of common stock(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
0.48
|
|
|
$
|
0.46
|
|
|
$
|
0.63
|
|
|
$
|
0.10
|
|
|
$
|
1.67
|
|
Diluted earnings per share of common stock(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
0.47
|
|
|
$
|
0.45
|
|
|
$
|
0.62
|
|
|
$
|
0.10
|
|
|
$
|
1.64
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,577
|
|
|
|
40,721
|
|
|
|
40,988
|
|
|
|
40,731
|
|
|
|
40,755
|
|
Diluted
|
|
|
41,464
|
|
|
|
41,659
|
|
|
|
41,787
|
|
|
|
41,100
|
|
|
|
41,664
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
198,930
|
|
|
$
|
223,256
|
|
|
$
|
229,232
|
|
|
$
|
225,755
|
|
|
$
|
877,173
|
|
Segment profits
|
|
$
|
82,785
|
|
|
$
|
91,235
|
|
|
$
|
94,280
|
|
|
$
|
89,956
|
|
|
$
|
358,256
|
|
Income from continuing operations
|
|
$
|
22,073
|
|
|
$
|
21,692
|
|
|
$
|
24,426
|
|
|
$
|
19,541
|
|
|
$
|
87,733
|
|
Net income available to common stockholders
|
|
$
|
22,073
|
|
|
$
|
21,692
|
|
|
$
|
24,426
|
|
|
$
|
19,541
|
|
|
$
|
87,733
|
|
Basic earnings per share of common stock(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
0.57
|
|
|
$
|
0.54
|
|
|
$
|
0.60
|
|
|
$
|
0.48
|
|
|
$
|
2.19
|
|
Diluted earnings per share of common stock(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
0.56
|
|
|
$
|
0.52
|
|
|
$
|
0.59
|
|
|
$
|
0.47
|
|
|
$
|
2.13
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
38,521
|
|
|
|
40,493
|
|
|
|
40,516
|
|
|
|
40,517
|
|
|
|
40,013
|
|
Diluted
|
|
|
39,661
|
|
|
|
41,621
|
|
|
|
41,591
|
|
|
|
41,551
|
|
|
|
41,112
|
|
|
|
|
(a) |
|
The sum of individual quarterly net income per share may not
agree to the total for the year due to each periods
computation being based on the weighted average number of common
shares outstanding during each period. |
On October 13, 2008, Basic announced that its Board of
Directors had authorized the repurchase of up to
$50.0 million of Basics common shares from time to
time in open market or private transactions, at Basics
discretion. From January 1, 2009 through February 27,
2009, Basic has repurchased 622,700 common shares at a total
price of $4.9 million (an average of $7.92 per share).
F-36
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Other
|
|
|
|
|
|
End of
|
|
Description
|
|
Period
|
|
|
Expenses(a)
|
|
|
Accounts(b)
|
|
|
Deductions(c)
|
|
|
Period
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Bad Debt
|
|
$
|
6,090
|
|
|
$
|
2,331
|
|
|
$
|
|
|
|
$
|
(2,583
|
)
|
|
$
|
5,838
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Bad Debt
|
|
$
|
3,963
|
|
|
$
|
3,251
|
|
|
$
|
|
|
|
$
|
(1,124
|
)
|
|
$
|
6,090
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Bad Debt
|
|
$
|
2,775
|
|
|
$
|
1,909
|
|
|
$
|
|
|
|
$
|
(721
|
)
|
|
$
|
3,963
|
|
|
|
|
(a) |
|
Charges relate to provisions for doubtful accounts |
|
(b) |
|
Reflects the impact of acquisitions |
|
(c) |
|
Deductions relate to the write-off of accounts receivable deemed
uncollectible |
F-37
Basic
Energy Services, Inc.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
134,304
|
|
|
$
|
111,135
|
|
Trade accounts receivable, net of allowance of $6,396 and
$5,838, respectively
|
|
|
98,997
|
|
|
|
172,930
|
|
Accounts receivable related parties
|
|
|
138
|
|
|
|
148
|
|
Income tax receivable
|
|
|
27,052
|
|
|
|
3,324
|
|
Inventories
|
|
|
11,279
|
|
|
|
11,937
|
|
Prepaid expenses
|
|
|
4,615
|
|
|
|
6,838
|
|
Other current assets
|
|
|
5,648
|
|
|
|
6,508
|
|
Deferred tax assets
|
|
|
28,076
|
|
|
|
11,081
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
310,109
|
|
|
|
323,901
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
714,560
|
|
|
|
740,879
|
|
Deferred debt costs, net of amortization
|
|
|
7,058
|
|
|
|
5,132
|
|
Goodwill
|
|
|
|
|
|
|
202,749
|
|
Other intangible assets, net of amortization
|
|
|
34,381
|
|
|
|
36,004
|
|
Other assets
|
|
|
2,285
|
|
|
|
2,046
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,068,393
|
|
|
$
|
1,310,711
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,784
|
|
|
$
|
28,291
|
|
Accrued expenses
|
|
|
37,950
|
|
|
|
47,139
|
|
Current portion of long-term debt
|
|
|
28,316
|
|
|
|
26,063
|
|
Other current liabilities
|
|
|
401
|
|
|
|
658
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
84,451
|
|
|
|
102,151
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
451,958
|
|
|
|
454,260
|
|
Deferred tax liabilities
|
|
|
135,079
|
|
|
|
149,591
|
|
Other long-term liabilities
|
|
|
9,686
|
|
|
|
9,705
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock; $.01 par value; 5,000,000 shares
authorized; none designated or issued at June 30, 2009 and
December 31, 2008, respectively
|
|
|
|
|
|
|
|
|
Common stock; $.01 par value; 80,000,000 shares
authorized; 42,394,809 shares issued; and
40,703,187 shares outstanding at June 30, 2009;
41,734,485 shares issued; and 40,851,862 shares
outstanding at December 31, 2008
|
|
|
424
|
|
|
|
417
|
|
Additional paid-in capital
|
|
|
328,101
|
|
|
|
325,785
|
|
Retained earnings
|
|
|
72,642
|
|
|
|
277,173
|
|
Treasury stock, at cost, 1,691,622 and 882,623 shares at
June 30, 2009 and December 31, 2008, respectively
|
|
|
(13,948
|
)
|
|
|
(8,371
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
387,219
|
|
|
|
595,004
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,068,393
|
|
|
$
|
1,310,711
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-38
Basic
Energy Services, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well servicing
|
|
$
|
36,399
|
|
|
$
|
89,018
|
|
|
$
|
85,213
|
|
|
$
|
169,537
|
|
Fluid services
|
|
|
49,088
|
|
|
|
72,581
|
|
|
|
114,065
|
|
|
|
143,980
|
|
Completion and remedial services
|
|
|
29,373
|
|
|
|
79,579
|
|
|
|
66,632
|
|
|
|
148,037
|
|
Contract drilling
|
|
|
3,988
|
|
|
|
10,344
|
|
|
|
7,626
|
|
|
|
19,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
118,848
|
|
|
|
251,522
|
|
|
|
273,536
|
|
|
|
481,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well servicing
|
|
|
27,825
|
|
|
|
55,293
|
|
|
|
64,742
|
|
|
|
103,759
|
|
Fluid services
|
|
|
35,381
|
|
|
|
48,554
|
|
|
|
79,968
|
|
|
|
94,987
|
|
Completion and remedial services
|
|
|
21,484
|
|
|
|
42,651
|
|
|
|
47,378
|
|
|
|
78,439
|
|
Contract drilling
|
|
|
3,338
|
|
|
|
7,529
|
|
|
|
6,607
|
|
|
|
14,589
|
|
General and administrative, including stock-based compensation
of $1,290 and $1,184 in three months ended June 30, 2009
and 2008, and $2,665 and $2,264 in the six months ended
June 30, 2009 and 2008, respectively
|
|
|
27,424
|
|
|
|
26,811
|
|
|
|
56,503
|
|
|
|
52,663
|
|
Depreciation and amortization
|
|
|
32,413
|
|
|
|
28,732
|
|
|
|
65,150
|
|
|
|
56,764
|
|
(Gain) loss on disposal of assets
|
|
|
474
|
|
|
|
(809
|
)
|
|
|
1,339
|
|
|
|
(584
|
)
|
Goodwill impairment
|
|
|
(82
|
)
|
|
|
|
|
|
|
204,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
148,257
|
|
|
|
208,761
|
|
|
|
525,701
|
|
|
|
400,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(29,409
|
)
|
|
|
42,761
|
|
|
|
(252,165
|
)
|
|
|
80,778
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(5,974
|
)
|
|
|
(6,453
|
)
|
|
|
(11,710
|
)
|
|
|
(13,802
|
)
|
Interest income
|
|
|
173
|
|
|
|
471
|
|
|
|
393
|
|
|
|
1,172
|
|
Other income (expense)
|
|
|
118
|
|
|
|
(6,469
|
)
|
|
|
252
|
|
|
|
(6,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(35,092
|
)
|
|
|
30,310
|
|
|
|
(263,230
|
)
|
|
|
61,717
|
|
Income tax benefit (expense)
|
|
|
13,856
|
|
|
|
(11,597
|
)
|
|
|
59,169
|
|
|
|
(23,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(21,236
|
)
|
|
$
|
18,713
|
|
|
$
|
(204,061
|
)
|
|
$
|
38,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.54
|
)
|
|
$
|
0.46
|
|
|
$
|
(5.13
|
)
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.54
|
)
|
|
$
|
0.45
|
|
|
$
|
(5.13
|
)
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-39
Basic
Energy Services, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
Balance December 31, 2008
|
|
|
41,734,485
|
|
|
$
|
417
|
|
|
$
|
325,785
|
|
|
$
|
(8,371
|
)
|
|
$
|
277,173
|
|
|
$
|
595,004
|
|
Issuances of restricted stock
|
|
|
660,324
|
|
|
|
7
|
|
|
|
(7
|
)
|
|
|
431
|
|
|
|
(431
|
)
|
|
|
|
|
Amortization of share based compensation
|
|
|
|
|
|
|
|
|
|
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
2,640
|
|
Treasury stock issued as compensation to Chairman of the Board
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
(19
|
)
|
|
|
24
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,104
|
)
|
|
|
|
|
|
|
(6,104
|
)
|
Exercise of stock options/vesting of restricted stock
|
|
|
|
|
|
|
|
|
|
|
(317
|
)
|
|
|
53
|
|
|
|
(20
|
)
|
|
|
(284
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(204,061
|
)
|
|
|
(204,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2009 (unaudited)
|
|
|
42,394,809
|
|
|
$
|
424
|
|
|
$
|
328,101
|
|
|
$
|
(13,948
|
)
|
|
$
|
72,642
|
|
|
$
|
387,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-40
Basic
Energy Services, Inc.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(204,061
|
)
|
|
$
|
38,369
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
65,150
|
|
|
|
56,764
|
|
Goodwill impairment
|
|
|
204,014
|
|
|
|
|
|
Accretion on asset retirement obligation
|
|
|
73
|
|
|
|
63
|
|
Change in allowance for doubtful accounts
|
|
|
558
|
|
|
|
(483
|
)
|
Amortization of deferred financing costs
|
|
|
630
|
|
|
|
482
|
|
Non-cash compensation
|
|
|
2,665
|
|
|
|
2,264
|
|
(Gain) loss on disposal of assets
|
|
|
1,339
|
|
|
|
(584
|
)
|
Deferred income taxes
|
|
|
(31,507
|
)
|
|
|
7,666
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
73,385
|
|
|
|
(23,934
|
)
|
Inventories
|
|
|
658
|
|
|
|
402
|
|
Prepaid expenses and other current assets
|
|
|
3,380
|
|
|
|
5,177
|
|
Other assets
|
|
|
(219
|
)
|
|
|
(198
|
)
|
Accounts payable
|
|
|
(10,507
|
)
|
|
|
991
|
|
Excess tax expense (benefit) from exercise of employee stock
options/vesting of restricted stock
|
|
|
317
|
|
|
|
(1,583
|
)
|
Income tax payable
|
|
|
(24,213
|
)
|
|
|
1,015
|
|
Other liabilities
|
|
|
(243
|
)
|
|
|
(3,414
|
)
|
Accrued expenses
|
|
|
(8,370
|
)
|
|
|
4,331
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
73,049
|
|
|
|
87,328
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(25,187
|
)
|
|
|
(45,023
|
)
|
Proceeds from sale of assets
|
|
|
1,912
|
|
|
|
6,470
|
|
Payments for other long-term assets
|
|
|
(995
|
)
|
|
|
(2,048
|
)
|
Payments for businesses, net of cash acquired
|
|
|
(1,190
|
)
|
|
|
(51,239
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(25,460
|
)
|
|
|
(91,840
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments of debt
|
|
|
(15,475
|
)
|
|
|
(10,874
|
)
|
Purchase of treasury stock
|
|
|
(6,104
|
)
|
|
|
(1,149
|
)
|
Excess tax (expense) benefit from exercise of employee stock
options/vesting of restricted stock
|
|
|
(317
|
)
|
|
|
1,583
|
|
Tax withholding from exercise of stock options
|
|
|
(5
|
)
|
|
|
(842
|
)
|
Exercise of employee stock options
|
|
|
37
|
|
|
|
1,637
|
|
Deferred loan costs and other financing activities
|
|
|
(2,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(24,420
|
)
|
|
|
(9,645
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and equivalents
|
|
|
23,169
|
|
|
|
(14,157
|
)
|
Cash and cash equivalents beginning of period
|
|
|
111,135
|
|
|
|
91,941
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
134,304
|
|
|
$
|
77,784
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-41
BASIC
ENERGY SERVICES, INC.
June 30,
2009 (unaudited)
|
|
1.
|
Basis of
Presentation and Nature of Operations
|
Basis
of Presentation
The accompanying unaudited consolidated financial statements of
Basic Energy Services, Inc. and subsidiaries (Basic
or the Company) have been prepared in accordance
with accounting principles generally accepted in the United
States for interim financial reporting. Accordingly, they do not
include all of the information and footnotes required by
accounting principles generally accepted in the United States
for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation
have been made in the accompanying unaudited financial
statements.
Nature
of Operations
Basic Energy Services, Inc. provides a range of well site
services to oil and gas drilling and producing companies,
including well servicing, fluid services, completion and
remedial services, and contract drilling. These services are
primarily provided by Basics fleet of equipment.
Basics operations are concentrated in the major United
States onshore oil and gas producing regions in Texas, New
Mexico, Oklahoma, Arkansas, Kansas and Louisiana, and the Rocky
Mountain states.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of Basic and its wholly-owned subsidiaries. Basic has
no interest in any other organization, entity, partnership, or
contract that could require any evaluation under FASB
Interpretation No. 46R or Accounting Research
Bulletin No. 51. All intercompany transactions and
balances have been eliminated.
Estimates
and Uncertainties
Preparation of the accompanying consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amount
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates. Areas where critical accounting estimates are
made by management include:
|
|
|
|
|
Depreciation and amortization of property and equipment and
intangible assets
|
|
|
|
Impairment of property and equipment, goodwill and intangible
assets
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
Litigation and self-insured risk reserves
|
|
|
|
Fair value of assets acquired and liabilities assumed
|
|
|
|
Stock-based compensation
|
|
|
|
Income taxes
|
|
|
|
Asset retirement obligations
|
F-42
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Revenue
Recognition
Well Servicing Well servicing consists
primarily of maintenance services, workover services, completion
services and plugging and abandonment services. Basic recognizes
revenue when services are performed, collection of the relevant
receivables is probable, persuasive evidence of an arrangement
exists and the price is fixed or determinable. Basic prices well
servicing by the hour or by the day of service performed.
Fluid Services Fluid services consists
primarily of the sale, transportation, storage and disposal of
fluids used in drilling, production and maintenance of oil and
natural gas wells, and well site construction and maintenance
services. Basic recognizes revenue when services are performed,
collection of the relevant receivables is probable, persuasive
evidence of an arrangement exists and the price is fixed or
determinable. Basic prices fluid services by the job, by the
hour or by the quantities sold, disposed of or hauled.
Completion and Remedial Services Completion
and remedial services consists primarily of pressure pumping
services, focused on cementing, acidizing and fracturing,
nitrogen units, coiled tubing units, and rental and fishing
tools. Basic recognizes revenue when services are performed,
collection of the relevant receivables is probable, persuasive
evidence of an arrangement exists and the price is fixed or
determinable. Basic prices completion and remedial services by
the hour, day, or project depending on the type of service
performed. When Basic provides multiple services to a customer,
revenue is allocated to the services performed based on the fair
values of the services.
Contract Drilling Contract drilling consists
primarily of drilling wells to a specified depth using shallow
and medium depth rigs. Basic recognizes revenues based on either
a daywork contract, in which an agreed upon rate per
day is charged to the customer, or a footage
contract, in which an agreed upon rate is charged per the number
of feet drilled.
Taxes assessed on sales transactions are presented on a net
basis and are not included in revenue.
Inventories
For Rental and Fishing Tools, inventories consisting mainly of
grapples and drill bits are stated at the lower of cost or
market, with cost being determined on the average cost method.
Other inventories, consisting mainly of rig components, repair
parts, drilling and completion materials and gravel, are held
for use in the operations of Basic and are stated at the lower
of cost or market, with cost being determined on the
first-in,
first-out (FIFO) method.
Property
and Equipment
Property and equipment are stated at cost or at estimated fair
value at acquisition date if acquired in a business combination.
Expenditures for repairs and maintenance are charged to expense
as incurred and additions and improvements that significantly
extend the lives of the assets are capitalized. Upon sale or
other retirement of depreciable property, the cost and
accumulated depreciation and amortization are removed from the
related accounts and any gain or loss is reflected in
operations. All property and equipment are depreciated or
amortized (to the extent of estimated salvage values) on the
straight-line method. The components of a well servicing rig
generally require replacement or refurbishment during the well
servicing rigs life and are depreciated over their
estimated useful lives, which ranges from 3 to 15 years.
The costs of the original components of a purchased or acquired
well servicing rig are not maintained separately from the base
rig.
Impairments
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(SFAS No. 144), long-lived assets,
such as property, plant, and equipment, and purchased
intangibles subject to amortization, are reviewed for impairment
at a minimum
F-43
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
annually, or whenever, in managements judgment, events or
changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying
amount of such assets to estimated undiscounted future cash
flows expected to be generated by the assets. Expected future
cash flows and carrying values are aggregated at their lowest
identifiable level. If the carrying amount of such assets
exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of such
assets exceeds the fair value of the assets. Assets to be
disposed of would be separately presented in the consolidated
balance sheet and reported at the lower of the carrying amount
or fair value less costs to sell, and are no longer depreciated.
The assets and liabilities, if material, of a disposed group
classified as held for sale would be presented separately in the
appropriate asset and liability sections of the consolidated
balance sheet. These assets are normally sold within a short
period of time through a third party auctioneer.
Basics goodwill is considered to have an indefinite useful
economic life and is not amortized. Basic assesses impairment of
its goodwill annually as of December 31 or on an interim basis
if events or circumstances indicate that the fair value of the
asset has decreased below its carrying value.
SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142), requires
a two-step process for testing impairment. First, the fair value
of each reporting unit is compared to its carrying value to
determine whether an indication of impairment exists. If
impairment is indicated, then the fair value of the reporting
units goodwill is determined by allocating the units
fair value to its assets and liabilities (including any
unrecognized intangible assets) as if the reporting unit had
been acquired in a business combination. The amount of
impairment for goodwill is measured as the excess of its
carrying value over its fair value.
In accordance with SFAS No. 142, the Company performed
an assessment of goodwill as of March 31, 2009. A
triggering event requiring this assessment was
deemed to occur because the oil and gas services industry
continued to decline in the first quarter and the Companys
common stock price declined by 50% from December 31, 2008
to March 31, 2009. For SFAS No. 142 Step One
testing purposes, the Company tested three reporting units for
goodwill impairment: well servicing, fluid services, and
completion and remedial services. The Companys contract
drilling reporting unit does not carry any goodwill, and is not
subject to the test.
To estimate the fair value of the reporting units, the Company
used a weighting of the discounted cash flow method and the
public company guideline method of determining fair value of a
business unit. The Company weighted the discounted cash flow
method 85% and public company guideline method 15%, due to
differences between the Companys reporting units and the
peer companies size, profitability and diversity of
operations. In order to validate the reasonableness of the
estimated fair values obtained for the reporting units, a
reconciliation of fair value to market capitalization was
performed for each unit on a stand-alone basis. A control
premium, derived from market transaction data, was used in this
reconciliation to ensure that fair values were reasonably stated
in conjunction with the Companys capitalization. The
measurement date for the Companys common stock price and
market capitalization was the closing price on March 31,
2009.
Based on the results of SFAS No. 142 Step One,
impairment was indicated in all three of the assessed reporting
units. As such, the Company was required to perform Step Two
assessment on all three of the reporting units. Step Two
requires the allocation of the estimated fair value to the
tangible and intangible assets and liabilities of the respective
unit. This assessment indicated that $204.1 million was
considered impaired as of March 31, 2009. This non-cash
charge eliminated all of the Companys goodwill.
Additionally, in accordance with SFAS No. 144, the
Company performed an assessment of the Companys long-lived
assets for impairment. This assessment is performed as a
comparison of the undiscounted future cash flows of each
reporting unit to the carrying value of the assets in each unit.
No impairment was indicated by this test.
F-44
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Deferred
Debt Costs
Basic capitalizes certain costs in connection with obtaining its
borrowings, such as lenders fees and related
attorneys fees. These costs are amortized to interest
expense using the effective interest method.
Deferred debt costs were approximately $10.1 million net of
accumulated amortization of $3.1 million and
$7.6 million net of accumulated amortization of
$2.4 million at June 30, 2009 and December 31,
2008, respectively. Amortization of deferred debt costs totaled
approximately $391,000 and $242,000 for the three months ended
June 30, 2009 and 2008, respectively. For the six months
ended June 30, 2009 and 2008, amortization of deferred debt
costs totaled approximately $630,000 and $482,000, respectively.
Goodwill
and Other Intangible Assets
SFAS No. 142 eliminates the amortization of goodwill
and other intangible assets with indefinite lives. Intangible
assets with lives restricted by contractual, legal, or other
means will continue to be amortized over their useful lives.
Goodwill and other intangible assets not subject to amortization
are tested for impairment annually or more frequently if events
or changes in circumstances indicate that the asset might be
impaired. Basic completed its assessment of goodwill impairment
as of the date of adoption and completed a subsequent annual
impairment assessment as of December 31 each year thereafter.
As of June 30, 2009, Basic had no goodwill. All of the
Companys goodwill was considered impaired as of
March 31, 2009.
Intangible assets subject to amortization under
SFAS No. 142 consist of customer relationships and
non-compete agreements. The gross carrying amount of customer
relationships subject to amortization was $35.4 million as
of June 30, 2009 and December 31, 2008. The gross
carrying amount of non-compete agreements subject to
amortization totaled approximately $4.2 million and
$4.4 million at June 30, 2009 and December 31,
2008, respectively. Accumulated amortization related to these
intangible assets totaled approximately $5.3 million and
$3.8 million at June 30, 2009 and December 31,
2008, respectively. Amortization expense for the three months
ended June 30, 2009 and 2008 was approximately $803,000 and
$636,000, respectively. Amortization expense for the six months
ended June 30, 2009 and 2008 was approximately
$1.6 million and $1.3 million, respectively Other
intangibles net of accumulated amortization allocated to
reporting units as of June 30, 2009 were $376,000,
$3.1 million, $25.2 million and $5.7 million for
well servicing, fluid services, completion and remedial
services, and contract drilling, respectively.
Customer relationships are amortized over a
15-year
life. Non-compete agreements are amortized over a five-year life.
Stock-Based
Compensation
Basic accounts for stock-based compensation based on
SFAS No. 123 (revised 2004), Share Based
Payment (SFAS No. 123R). Options
issued are valued on the grant date using the
Black-Scholes-Merton option-pricing model and all awards are
adjusted for an expected forfeiture rate. Awards are amortized
over the vesting period. Compensation expense of the unvested
portion of awards granted as a private company and outstanding
as of January 1, 2006 will be based upon the intrinsic
value method calculated under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25).
Income
Taxes
Basic accounts for income taxes based upon
SFAS No. 109, Accounting for Income
Taxes (SFAS No. 109). Under
SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using statutory
F-45
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rate is recognized in the period that includes
the statutory enactment date. A valuation allowance for deferred
tax assets is recognized when it is more likely than not that
the benefit of deferred tax assets will not be realized.
Basic recognized an effective tax benefit rate of 22% in the
first six months of 2009 compared to a tax rate of 38% in the
first six months of 2008. The lower effective tax rate in the
first six months of 2009 was primarily due to the
$204.0 million goodwill impairment charge. The tax
deductibility of the impairment charge was determined by the
taxable basis of the goodwill considered to be impaired. A
portion of the Companys goodwill was not tax-deductible.
Interest charges are recorded in interest expense and penalties
are recorded in income tax expense.
Concentrations
of Credit Risk
Financial instruments, which potentially subject Basic to
concentration of credit risk, consist primarily of temporary
cash investments and trade receivables. Basic restricts
investment of temporary cash investments to financial
institutions with high credit standing. Basics customer
base consists primarily of multi-national and independent oil
and natural gas producers. Basic performs ongoing credit
evaluations of its customers but generally does not require
collateral on its trade receivables. Credit risk is considered
by management to be limited due to the large number of customers
comprising its customer base. Basic maintains an allowance for
potential credit losses on its trade receivables, and such
losses have been within managements expectations.
Basic did not have any one customer which represented 10% or
more of consolidated revenue during the three months ended
June 30, 2009 or 2008.
Asset
Retirement Obligations
As of January 1, 2003, Basic adopted
SFAS No. 143, Accounting for Asset Retirement
Obligation (SFAS No. 143).
SFAS No. 143 requires Basic to record the fair value
of an asset retirement obligation as a liability in the period
in which it incurs a legal obligation associated with the
retirement of tangible long-lived assets and capitalize an equal
amount as a cost of the asset depreciating it over the life of
the asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation is adjusted at the end of
each quarter to reflect the passage of time, changes in the
estimated future cash flows underlying the obligation,
acquisition or construction of assets, and settlements of
obligations.
Environmental
Basic is subject to extensive federal, state and local
environmental laws and regulations. These laws, which are
constantly changing, regulate the discharge of materials into
the environment and may require Basic to remove or mitigate the
adverse environmental effects of disposal or release of
petroleum, chemical and other substances at various sites.
Environmental expenditures are expensed or capitalized depending
on the future economic benefit. Expenditures that relate to an
existing condition caused by past operations and that have no
future economic benefits are expensed. Liabilities for
expenditures of a non-capital nature are recorded when
environmental assessment
and/or
remediation is probable and the costs can be reasonably
estimated.
Litigation
and Self-Insured Risk Reserves
Basic estimates its reserves related to litigation and
self-insured risks based on the facts and circumstances specific
to the litigation and self-insured claims and its past
experience with similar claims in accordance with
SFAS No. 5 Accounting for
Contingencies. Basic maintains accruals in the
consolidated balance sheets to cover self-insurance retentions
(See note 6).
F-46
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair
Value Measurements
(SFAS No. 157), which became
effective for financial assets and liabilities of the Company on
January 1, 2008 and became effective for non-financial
assets and liabilities of the Company on January 1, 2009.
This standard defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements. SFAS No. 157 does not require any new
fair value measurements but would apply to assets and
liabilities that are required to be recorded at fair value under
other accounting standards. This standard was adopted for
financial assets and liabilities as of January 1, 2008 and
was adopted for non-financial assets and liabilities, including
fair value measurements for asset impairments, goodwill and
intangible asset impairments, purchase price allocations and
asset retirement obligations on January 1, 2009. The
adoption of this standard did not have any impact on the fair
value of any of the Companys financial assets or
liabilities. For further information, see note 13.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations
(SFAS No. 141R), which became
effective for the Company on January 1, 2009. This
Statement requires an acquirer to recognize the assets acquired,
the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date at their fair values as of that
date. An acquirer is required to recognize assets or liabilities
arising from all other contingencies (contractual contingencies)
as of the acquisition date, measured at their acquisition-date
fair values, only if it is more likely than not that they meet
the definition of an asset or a liability in FASB Concepts
Statement No. 6, Elements of Financial
Statements. Any acquisition related costs are to be
expensed instead of capitalized. The impact to the Company from
the adoption of SFAS No. 141R in 2009 will vary
acquisition by acquisition.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements (SFAS No. 160), which
became effective for the Company on January 1, 2009. This
standard establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than
the parent, the amount of consolidated net income attributable
to the parent and to the noncontrolling interest, changes in a
parents ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting
requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and
the interests of the non-controlling owners. This pronouncement
has not had a significant impact on the Companys results
of operation or consolidated financial position since the
Company does not have any noncontrolling interests.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161), which
became effective for the Company on January 1, 2009. This
standard improves financial reporting for derivative instruments
and hedging activities by requiring enhanced disclosures to
expand on these instruments effects on a companys
financial position, financial performance and cash flows. This
pronouncement did not have any impact on the Companys
results of operation or consolidated financial position since
the Company does not have any derivative instruments.
In April 2008, the FASB issued FASB Staff Position
SFAS No. 142-3,
Determination of Useful Life of Intangible Assets
(FSP
No. 142-3).
FSP
No. 142-3
amends the factors that should be considered in developing the
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142. FSP
No. 142-3
is effective for fiscal years beginning after December 15,
2008. This pronouncement has not had a significant impact on the
results of operation or consolidated financial position of the
Company.
In June 2008, the FASB issued FASB Staff Position
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities
(FSP
EITF 03-6-1).
FSP
EITF 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings
F-47
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
per share (EPS) under the two-class method described
in paragraphs 60 and 61 of SFAS No. 128,
Earnings Per Share. FSP
EITF 03-6-1
is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2008 and
requires retrospective adjustment for all comparable prior
periods presented. FSP
EITF 03-6-1
has not had a significant impact on the Companys results
of operation or consolidated financial position since the
Company does not have any participating securities.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events
(SFAS No. 165), which became effective for
the Company on April 1, 2009. This standard establishes
principles and requirements for disclosure of subsequent events.
It establishes the period after the balance sheet date during
which events or transactions are to be evaluated for potential
disclosure. It also establishes the circumstances under which an
entity shall recognize events or transactions occurring after
the balance sheet date. The adoption of this standard requires
the Company to disclose the date through which subsequent events
have been reviewed.
In June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement no. 162
(SFAS No. 168), which becomes effective
for the Company on July 1, 2009. SFAS No. 168
establishes the FASB Accounting Standards Codification as the
source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP.
SFAS No. 168 is not expected to change GAAP and will
not have a material impact on the Companys consolidated
financial statements.
In the first six months of 2009 Basic did not acquire any
businesses. In 2008, Basic acquired either substantially all of
the assets or all of the outstanding capital stock of each of
the following businesses, each of which was accounted for using
the purchase method of accounting (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Total Cash Paid
|
|
|
|
Closing Date
|
|
(Net of Cash Acquired)
|
|
|
Xterra Fishing and Rental Tools Co.
|
|
January 28, 2008
|
|
$
|
21,473
|
|
Lackey Construction, LLC
|
|
January 30, 2008
|
|
|
4,328
|
|
B&S Disposal, LLC and B&S Equipment, Ltd
|
|
April 30, 2008
|
|
|
7,071
|
|
Triple N Services, Inc.
|
|
May 27, 2008
|
|
|
17,315
|
|
Azurite Services Company, Inc., Azurite Leasing Company, LLC and
Freestone Disposal, L.P. (collectively, Azurite)
|
|
September 26, 2008
|
|
|
60,977
|
|
|
|
|
|
|
|
|
Total 2008
|
|
|
|
$
|
111,164
|
|
|
|
|
|
|
|
|
The operations of each of the acquisitions listed above are
included in Basics statement of operations as of each
respective closing date. The acquisition of Azurite in 2008 has
been deemed material and is discussed below in further detail.
Contingent
Earn-out Arrangements and Purchase Price
Allocations
Contingent earn-out arrangements are generally arrangements
entered into on certain acquisitions to encourage the
owner/manager to continue operating and building the business
after the purchase transaction. The contingent earn-out
arrangements of the related acquisitions are generally linked to
certain financial measures and performance of the assets
acquired in the various acquisitions. All amounts paid or
reasonably accrued for related to the contingent earn-out
payments are reflected as increases to the goodwill associated
with the acquisition or compensation expense depending on the
terms and conditions of the earn-out arrangement.
F-48
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Azurite
On September 26, 2008, Basic acquired substantially all of
the assets of Azurite Services Company, Inc., Azurite Leasing
Company, LLC, and Freestone Disposal, L.P. (collectively,
Azurite) for $61.0 million in cash. This
acquisition operates in our fluid services line of business and
expands our operations in the East Texas markets. The following
table summarizes the preliminary estimated fair value of the
assets acquired and liabilities assumed at the date of
acquisition for Azurite (in thousands):
|
|
|
|
|
Property and Equipment
|
|
$
|
53,127
|
|
Intangible Assets(1)
|
|
|
1,862
|
|
Goodwill(2)
|
|
|
5,988
|
|
|
|
|
|
|
Total Assets Acquired
|
|
$
|
60,977
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of customer relationships of $1,832, amortizable over
15 years, and non-compete agreements of $30, amortizable
over five years. |
|
(2) |
|
All of which is expected to be deductible for tax purposes. |
The following unaudited pro forma results of operations have
been prepared as though the Azurite acquisition had been
completed on January 1, 2008. Pro forma amounts are based
on the purchase price allocations of the significant
acquisitions and are not necessarily indicative of the results
that may be reported in the future (in thousands, except per
share data).
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2008
|
|
|
Revenues
|
|
$
|
504,149
|
|
Net income
|
|
$
|
40,020
|
|
Earnings per common share basic
|
|
$
|
0.98
|
|
Earnings per common share diluted
|
|
$
|
0.96
|
|
Basic does not believe the pro forma effect of the remainder of
the acquisitions completed in 2008 are material, either
individually or when aggregated, to the reported results of
operations.
F-49
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
4.
|
Property
and Equipment
|
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
5,275
|
|
|
$
|
4,689
|
|
Buildings and improvements
|
|
|
31,913
|
|
|
|
29,913
|
|
Well service units and equipment
|
|
|
385,750
|
|
|
|
379,167
|
|
Fluid services equipment
|
|
|
138,671
|
|
|
|
136,814
|
|
Brine and fresh water stations
|
|
|
10,443
|
|
|
|
10,203
|
|
Frac/test tanks
|
|
|
117,514
|
|
|
|
128,845
|
|
Pressure pumping equipment
|
|
|
169,636
|
|
|
|
156,406
|
|
Construction equipment
|
|
|
25,475
|
|
|
|
22,483
|
|
Contract drilling equipment
|
|
|
60,467
|
|
|
|
60,340
|
|
Disposal facilities
|
|
|
55,566
|
|
|
|
49,878
|
|
Vehicles
|
|
|
39,998
|
|
|
|
41,129
|
|
Rental equipment
|
|
|
37,317
|
|
|
|
36,898
|
|
Aircraft
|
|
|
4,119
|
|
|
|
4,119
|
|
Other
|
|
|
29,350
|
|
|
|
21,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,111,494
|
|
|
|
1,082,642
|
|
Less accumulated depreciation and amortization
|
|
|
396,934
|
|
|
|
341,763
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
714,560
|
|
|
$
|
740,879
|
|
|
|
|
|
|
|
|
|
|
Basic is obligated under various capital leases for certain
vehicles and equipment that expire at various dates during the
next five years. The gross amount of property and equipment and
related accumulated amortization recorded under capital leases
and included above consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Light vehicles
|
|
$
|
26,572
|
|
|
$
|
30,141
|
|
Well service units and equipment
|
|
|
1,713
|
|
|
|
1,194
|
|
Fluid services equipment
|
|
|
56,516
|
|
|
|
56,010
|
|
Pressure pumping equipment
|
|
|
27,276
|
|
|
|
20,492
|
|
Construction equipment
|
|
|
1,034
|
|
|
|
3,679
|
|
Software
|
|
|
13,659
|
|
|
|
9,464
|
|
Other
|
|
|
|
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,770
|
|
|
|
121,685
|
|
Less accumulated amortization
|
|
|
38,018
|
|
|
|
37,370
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,752
|
|
|
$
|
84,315
|
|
|
|
|
|
|
|
|
|
|
Amortization of assets held under capital leases of
approximately $5.1 million and $3.2 million for the
three months ended June 30, 2009 and 2008 and
$10.1 million and $6.6 million for the six months
ended June 30, 2009 and 2008, respectively, is included in
depreciation and amortization expense in the consolidated
statements of operations.
F-50
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Credit Facilities:
|
|
|
|
|
|
|
|
|
Revolver
|
|
$
|
180,000
|
|
|
$
|
180,000
|
|
7.125% Senior Notes
|
|
|
225,000
|
|
|
|
225,000
|
|
Capital leases and other notes
|
|
|
75,274
|
|
|
|
75,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480,274
|
|
|
|
480,323
|
|
Less current portion
|
|
|
28,316
|
|
|
|
26,063
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
451,958
|
|
|
$
|
454,260
|
|
|
|
|
|
|
|
|
|
|
Senior
Notes
On April 12, 2006, Basic issued $225.0 million of
7.125% Senior Notes due April 2016 in a private placement.
Proceeds from the sale of the Senior Notes were used to retire
the outstanding balance on the $90.0 million Term B Loan
and to pay down approximately $96.0 million under the
revolving credit facility, which amounts may be reborrowed to
fund future acquisitions or for general corporate purposes.
Interest payments on the Senior Notes are due semi-annually, on
April 15 and October 15. The Senior Notes are unsecured.
Under the terms of the sale of the Senior Notes, Basic was
required to take appropriate steps to offer to exchange other
Senior Notes with the same terms that have been registered with
the Securities and Exchange Commission for the private placement
Senior Notes. Basic completed the exchange offer for all of the
Senior Notes on October 16, 2006.
The Senior Notes are redeemable at the option of Basic on or
after April 15, 2011 at the specified redemption price as
described in the Indenture. Prior to April 15, 2011, Basic
may redeem the Senior Notes, in whole or in part, at a
redemption price equal to 100% of the principal amount of the
Senior Notes redeemed plus the Applicable Premium as defined in
the Indenture.
Following a change of control, as defined in the Indenture,
Basic will be required to make an offer to repurchase all or any
portion of the Senior Notes at a purchase price of 101% of the
principal amount, plus accrued and unpaid interest to the date
of repurchase.
Pursuant to the Indenture, Basic is subject to covenants that
limit the ability of Basic and its restricted subsidiaries to,
among other things: incur additional indebtedness, pay dividends
or repurchase or redeem capital stock, make certain investments,
incur liens, enter into certain types of transactions with
affiliates, limit dividends or other payments by restricted
subsidiaries, and sell assets or consolidate or merge with or
into other companies. These limitations are subject to a number
of important qualifications and exceptions set forth in the
Indenture. Basic was in compliance with the restrictive
covenants at June 30, 2009. In the event of a default on
the Credit Facility the trustee or the holders of at least 25%
in aggregate principal amount of the Senior Notes then
outstanding may declare all of the amounts outstanding under the
Senior Notes to be due and payable immediately.
As part of the issuance of the above-mentioned Senior Notes,
Basic incurred debt issuance costs of approximately
$4.6 million, which are being amortized to interest expense
using the effective interest method over the term of the Senior
Notes.
The Senior Notes are jointly and severally guaranteed by Basic
and all of its restricted subsidiaries. Basic Energy Services,
Inc., the ultimate parent company, does not have any independent
operating assets or operations. Subsidiaries other than the
restricted subsidiaries that are guarantors are minor.
F-51
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Credit
Facility
On May 4, 2009, Basic entered into Amendment and Consent
No. 1 (the Amendment) to its Fourth Amended and
Restated Credit Agreement, dated February 6, 2007 (the
Existing Credit Agreement, and as amended by the
Amendment, the Credit Facility).
Under the Credit Facility, Basic Energy Services, Inc. is the
sole borrower and each of our subsidiaries is a subsidiary
guarantor. The Credit Facility provides for an aggregate
$225 million revolving line of credit (the
Revolver). The Credit Facility includes provisions
allowing Basic to request an increase in commitments of up to
$100.0 million aggregate principal amount subject to
meeting certain tangible value requirements and subject to
lender participation at the time of the request. The commitment
under the Revolver provides for (1) the borrowing of funds,
(2) the issuance of up to $30 million of letters of
credit and (3) $2.5 million of swing-line loans.
Under the Credit Facility, certain revolving loans are
reclassified as (i) Tranche A Revolving Loans, which
have the same maturity date as that of revolving loans under the
Existing Credit Agreement (December 15, 2010), and
(ii) Tranche B Revolving Loans, which have an extended
maturity date of January 31, 2012. Revolving lenders are
reclassified into two groups: those who agreed to extend the
maturity date for their revolving commitments are deemed
Tranche B Revolving Lenders, and the other revolving
lenders are deemed Tranche A Revolving Lenders. The amount
of commitments under the Tranche A Revolving Loans is
$80 million and the amount under the Tranche B
Revolving Loans is $145 million.
For Tranche A Revolving Loans and Tranche B Revolving
Loans, Alternative Base Rate loans (ABR Loans) bear
interest at the highest of (i) the banks prime rate,
(ii) the federal funds rate plus 0.50% per year, and
(iii) the adjusted LIBOR rate for an interest period of one
month beginning on the day of the ABR Loan plus 100 basis
points, plus an applicable margin. The applicable margin for ABR
Loans ranges from 0.25% to 0.50% for Tranche A Revolving
Loans and ranges from 2.50% to 3.50% for Tranche B
Revolving Loans. The applicable margin for Eurodollar revolving
loans with respect to any Tranche B Revolving Loan ranges
from 3.50% to 4.50%. Furthermore, the applicable commitment fee
for the unused portion of any Tranche B revolving
commitments, based on average daily unused amounts, is 1.0% per
annum, as compared to 0.375% per annum for Tranche A
revolving commitments.
At June 30, 2009, Basic had $180.0 million of
borrowings, and $16.2 million of letters of credit and no
swing-line loans outstanding under the Revolver and remaining
availability of $28.8 million.
Pursuant to the Credit Facility, Basic must apply proceeds from
certain specified events to reduce principal outstanding
borrowings under the Revolver, including (a) assets sales
greater than $2.0 million individually or $7.5 million
in the aggregate on an annual basis, (b) 100% of the net
cash proceeds from any debt issuance, including certain
permitted unsecured senior or senior subordinated debt, but
excluding certain other permitted debt issuances and
(c) 50% of the net cash proceeds from any equity issuance
(including equity issued upon the exercise of any warrant or
option).
The Credit Facility contains various restrictive covenants and
compliance requirements, which include (a) limitations on
the incurrence of additional indebtedness, (b) restrictions
on mergers, sales or transfer of assets without the
lenders consent (c) limitations on dividends and
distributions and (d) various financial covenants,
including (1) a maximum leverage ratio of 3.75 to 1.00 on
the effective date of the Amendment and thereafter, and
(2) a minimum interest coverage ratio of 3.00 to 1.00. At
June 30, 2009, Basic was in compliance with its covenants.
Other
Debt
Basic has a variety of other capital leases and notes payable
outstanding that are generally customary in its business. None
of these debt instruments are individually material.
F-52
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
See note 14 for discussion of secured senior notes offering.
Basics interest expense consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash payments for interest
|
|
$
|
12,263
|
|
|
$
|
12,935
|
|
Commitment and other fees paid
|
|
|
157
|
|
|
|
51
|
|
Amortization of debt issuance costs
|
|
|
630
|
|
|
|
482
|
|
Change in accrued interest
|
|
|
(1,345
|
)
|
|
|
51
|
|
Other
|
|
|
5
|
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,710
|
|
|
$
|
13,802
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Commitments
and Contingencies
|
Environmental
Basic is subject to various federal, state and local
environmental laws and regulations that establish standards and
requirements for protection of the environment. Basic cannot
predict the future impact of such standards and requirements
which are subject to change and can have retroactive
effectiveness. Basic continues to monitor the status of these
laws and regulations. Management believes that the likelihood of
any of these items resulting in a material adverse impact to
Basics financial position, liquidity, capital resources or
future results of operations is remote.
Currently, Basic has not been fined, cited or notified of any
environmental violations that would have a material adverse
effect upon its financial position, liquidity or capital
resources. However, management does recognize that by the very
nature of its business, material costs could be incurred in the
near term to bring Basic into total compliance. The amount of
such future expenditures is not determinable due to several
factors including the unknown magnitude of possible
contamination, the unknown timing and extent of the corrective
actions which may be required, the determination of Basics
liability in proportion to other responsible parties and the
extent to which such expenditures are recoverable from insurance
or indemnification.
Litigation
From time to time, Basic is a party to litigation or other legal
proceedings that Basic considers to be a part of the ordinary
course of business. Basic is not currently involved in any legal
proceedings that it considers probable or reasonably possible,
individually or in the aggregate, to result in a material
adverse effect on its financial condition, results of operations
or liquidity.
Self-Insured
Risk Accruals
Basic is self-insured up to retention limits as it relates to
workers compensation and medical and dental coverage of
its employees. Basic generally maintains no physical property
damage coverage on its workover rig fleet, with the exception of
certain of its
24-hour
workover rigs and newly manufactured rigs. Basic has deductibles
per occurrence for workers compensation and medical and
dental coverage of $375,000 and $250,000, respectively. Basic
has lower deductibles per occurrence for automobile liability
and general liability. Basic maintains accruals in the
accompanying consolidated balance sheets related to
self-insurance retentions by using third-party data and claims
history.
F-53
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
At June 30, 2009 and December 31, 2008, self-insured
risk accruals for medical and dental coverage totaled
approximately $14.6 million net of a $49,000 receivable and
$15.4 million net of a $992,000 receivable, respectively.
Common
Stock
At June 30, 2009 and December 31, 2008, Basic had
80,000,000 shares of common stock, par value $.01 per
share, authorized.
During the year ended December 31, 2008, Basic issued
447,255 shares of newly-issued common stock and
138,675 shares of treasury stock for the exercise of stock
options.
In March 2008, Basic granted various employees 361,700 unvested
shares of common stock which vest over a five year period. Also,
in March 2008, Basic granted the Chairman of the Board
4,000 shares of common stock which vested immediately in
lieu of annual cash director fees. In October 2008, Basic
granted a vice president 5,000 shares of restricted common
stock which vest over a three year period.
In March 2008, the Compensation Committee of Basics Board
of Directors approved grants of performance-based stock awards
to certain members of management. In March 2009, it was
determined that 93,500 shares, or 100% of the target number
of shares, were earned based on the Companys achievement
of certain earnings per share growth and return on capital
employed performance over the performance period from
January 1, 2006 through December 31, 2008, as compared
to other members of a defined peer group. These shares remain
subject to vesting over a three-year period, with the first
shares vesting on March 15, 2010.
In March 2009, Basic granted various employees 571,824 unvested
shares of common stock which vest over a five-year period. Also,
in March 2009, Basic granted the Chairman of the Board
4,000 shares of common stock which vested immediately in
lieu of annual cash director fees.
In May 2009, consistent with its director compensation
practices, Basic granted a new board member 37,500 shares
of restricted common stock which vest over a three-year period.
During the six months ended June 30, 2009, Basic issued
5,000 shares of common stock from treasury stock for the
exercise of stock options.
Treasury
Stock
On October 13, 2008, Basic announced that its Board of
Directors authorized the repurchase of up to $50.0 million
of Basics shares of common stock from time to time in open
market or private transactions, at Basics discretion. The
number of shares purchased and the timing of purchases are based
on several factors, including the price of the common stock,
general market conditions, available cash and alternative
investment opportunities. During the year ended
December 31, 2008, Basic repurchased 897,558 shares at
a total price of $8.8 million (an average of $9.82 per
share), inclusive of commissions and fees. During the first six
months of 2009, Basic repurchased 809,093 shares at a total
price of $6.0 million (an average of $7.41 per share),
inclusive of commissions and fees.
Basic also acquired treasury shares through net share
settlements for payment of payroll taxes upon the vesting of
restricted stock. Basic acquired a total of 52,877 shares
through net share settlements during 2008 and 13,719 shares
through net share settlements during the first six months of
2009.
F-54
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Preferred
Stock
At June 30, 2009 and December 31, 2008, Basic had
5,000,000 shares of preferred stock, par value
$.01 per share, authorized, of which none was designated,
issued or outstanding.
In May 2003, Basics board of directors and stockholders
approved the Basic 2003 Incentive Plan (as amended effective
May 26, 2009) (the Plan), which provides for
granting of incentive awards in the form of stock options,
restricted stock, performance awards, bonus shares, phantom
shares, cash awards and other stock-based awards to officers,
employees, directors and consultants of Basic. The Plan assumed
awards of the plans of Basics successors that were awarded
and remained outstanding prior to adoption of the Plan. The Plan
provides for the issuance of 7,100,000 shares. The Plan is
administered by the Plan committee, and in the absence of a Plan
committee, by the Board of Directors, which determines the
awards and the associated terms of the awards and interprets its
provisions and adopts policies for implementing the Plan. The
number of shares authorized under the Plan and the number of
shares subject to an award under the Plan will be adjusted for
stock splits, stock dividends, recapitalizations, mergers and
other changes affecting the capital stock of Basic.
The fair value of each option award is estimated on the date of
grant using the Black-Scholes-Merton option-pricing model. Basic
is required to estimate the expected forfeiture rate and only
recognize expense for those options expected to vest. During the
three months ended June 30, 2009 and 2008, compensation
expense related to share-based arrangements was approximately
$1.3 million and $1.2 million, respectively. For
compensation expense recognized during the three months ended
June 30, 2009 and 2008, Basic recognized a tax benefit of
approximately $509,000 and $453,000 respectively. During the six
months ended June 30, 2009 and 2008, compensation expense
related to share-based arrangements was approximately
$2.7 million and $2.3 million, respectively. For
compensation expense recognized during the six months ended
June 30, 2009 and 2008, Basic recognized a tax benefit of
approximately $992,000 and $857,000 respectively.
Options granted under the Plan expire 10 years from the
date they are granted, and generally vest over a three to
five-year service period.
The following table reflects the summary of stock options
outstanding at June 30, 2009 and the changes during the six
months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Instrinsic
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Granted
|
|
|
Price
|
|
|
Term (Years)
|
|
|
(000s)
|
|
|
Non-statutory stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of period
|
|
|
1,608,675
|
|
|
$
|
11.11
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(15,500
|
)
|
|
$
|
14.03
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(5,000
|
)
|
|
$
|
6.98
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(91,250
|
)
|
|
$
|
6.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
|
1,496,925
|
|
|
$
|
11.40
|
|
|
|
5.34
|
|
|
$
|
1,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of period
|
|
|
1,124,050
|
|
|
$
|
9.18
|
|
|
|
4.96
|
|
|
$
|
1,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest, end of period
|
|
|
1,483,175
|
|
|
$
|
11.27
|
|
|
|
5.32
|
|
|
$
|
1,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The total intrinsic value of share options exercised during the
six months ended June 30, 2009 and 2008 was approximately
$15,000 and $2.6 million, respectively.
On March 13, 2009, the Compensation Committee of
Basics Board of Directors approved grants of
performance-based stock awards to certain members of management.
The performance-based awards are tied to the Companys
achievement of certain earnings per share growth and return on
capital employed performance over the performance period from
January 1, 2007 through December 31, 2009, as compared
to other members of a defined peer group. The number of shares
to be issued will range from 0% to 150% of the target number of
shares of 265,000 depending on the performance noted above. Any
shares earned at the end of the performance period will then
remain subject to vesting over a three-year period, with the
first shares vesting March 15, 2011. As of June 30,
2009 it was estimated that none of the performance based awards
will be earned.
A summary of the status of the Companys non-vested share
grants at June 30, 2009 and changes during the six months
ended June 30, 2009 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Fair Value
|
|
Nonvested Shares
|
|
Shares
|
|
|
per Share
|
|
|
Nonvested at beginning of period
|
|
|
599,325
|
|
|
$
|
21.41
|
|
Granted during period
|
|
|
616,324
|
|
|
|
6.50
|
|
Vested during period
|
|
|
(72,375
|
)
|
|
|
20.04
|
|
Forfeited during period
|
|
|
(39,600
|
)
|
|
|
16.86
|
|
Performance based earned(1)
|
|
|
14,025
|
|
|
|
21.17
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of period
|
|
|
1,117,699
|
|
|
$
|
13.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In March 2008 certain members of management were awarded grants
of performance based stock awards. The number of shares to be
earned ranged from 0% to 150% of target depending on the
Companys achievement of certain EPS and return on capital
employed performance compared to a peer group. The performance
period for purposes of these grants was January 1, 2006
through December 31, 2008. As of December 31, 2008 it
was estimated that 85% of the target shares would be earned and
in March 2009 it was determined that 100% of the target shares
had been earned. These shares remain subject to vesting over a
three-year period, with the first shares vesting in March 2010. |
As of June 30, 2009, there was approximately
$12.6 million of total unrecognized compensation related to
non-vested share-based compensation arrangements granted under
the Plan. That cost is expected to be recognized over a
weighted-average period of 3.29 years. The total fair value
of share-based awards vested during the six months ended
June 30, 2009 and 2008 was approximately $3.9 million
and $10.0 million, respectively. The actual tax benefit
realized for the tax deduction from vested share-based awards
was $149,000 and $861,000 for the six months ended June 30,
2009 and 2008, respectively.
Cash received from share option exercises under the Plan was
approximately $35,000 and $795,000 for the six months ended
June 30, 2009 and 2008, respectively. The actual tax
benefit realized for the tax deductions from options exercised
was $6,000 and $1.0 million for the six months ended
June 30, 2009 and 2008, respectively.
The Company has a history of issuing treasury and newly-issued
shares to satisfy share option exercises.
F-56
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
9.
|
Related
Party Transactions
|
Basic had receivables from employees of approximately $138,000
and $148,000 as of June 30, 2009 and December 31,
2008, respectively. During 2006, Basic entered into a lease
agreement with Darle Vuelta Cattle Co., LLC, an affiliate of the
Chief Executive Officer, for approximately $69,000. The term of
the lease is five years and will continue on a
year-to-year
basis unless terminated by either party.
Basic presents earnings per share information in accordance with
the provisions of SFAS No. 128, Earnings per
Share (SFAS No. 128). Under
SFAS No. 128, basic earnings per common share are
determined by dividing net earnings applicable to common stock
by the weighted average number of common shares actually
outstanding during the period. Diluted earnings per common share
is based on the increased number of shares that would be
outstanding assuming conversion of dilutive outstanding
securities using the as if converted method. The
following table sets forth the computation of basic and diluted
earnings per share (in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Numerator (both basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(21,236
|
)
|
|
$
|
18,713
|
|
|
$
|
(204,061
|
)
|
|
$
|
38,369
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
|
|
|
39,574,561
|
|
|
|
40,721,317
|
|
|
|
39,773,857
|
|
|
|
40,649,287
|
|
Stock options
|
|
|
|
|
|
|
827,164
|
|
|
|
|
|
|
|
810,916
|
|
Unvested restricted stock
|
|
|
|
|
|
|
110,114
|
|
|
|
|
|
|
|
197,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share
|
|
|
39,574,561
|
|
|
|
41,658,595
|
|
|
|
39,773,857
|
|
|
|
41,658,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
$
|
(0.54
|
)
|
|
$
|
0.46
|
|
|
$
|
(5.13
|
)
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
$
|
(0.54
|
)
|
|
$
|
0.45
|
|
|
$
|
(5.13
|
)
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and unvested restricted stock shares of
approximately 409,000 and 443,000 were excluded in the
computation of diluted earnings per share for the three months
and six months ended June 30, 2009, respectively as the
effect would have been anti-dilutive due to the net loss in each
of these periods.
|
|
11.
|
Business
Segment Information
|
Basics reportable business segments are Well Servicing,
Fluid Services, Completion and Remedial Services, and Contract
Drilling. The following is a description of the segments:
Well Servicing: This business segment
encompasses a full range of services performed with a mobile
well servicing rig, including the installation and removal of
downhole equipment and elimination of obstructions in the well
bore to facilitate the flow of oil and gas. These services are
performed to establish, maintain and improve production
throughout the productive life of an oil and gas well and to
plug and abandon a well at the end of its productive life. Well
servicing equipment and capabilities such as Basics are
essential to facilitate most other services performed on a well.
Fluid Services: This segment utilizes a fleet
of trucks and related assets, including specialized tank trucks,
storage tanks, water wells, disposal facilities, construction
and other related equipment. Basic employs these assets to
provide, transport, store and dispose of a variety of fluids, as
well as provide well
F-57
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
site construction and maintenance services. These services are
required in most workover, completion and remedial projects and
are routinely used in daily producing well operations.
Completion and Remedial Services: This segment
utilizes a fleet of pressure pumping units, coiled tubing units,
air compressor packages specially configured for underbalanced
drilling operations, cased-hole wireline units and an array of
specialized rental equipment and fishing tools. The largest
portion of this business consists of pressure pumping services
focused on cementing, acidizing and fracturing services in niche
markets.
Contract Drilling: This segment utilizes
shallow and medium depth rigs and associated equipment for
drilling wells to a specified depth for customers on a contract
basis.
Basics management evaluates the performance of its
operating segments based on operating revenues and segment
profits. Corporate expenses include general corporate expenses
associated with managing all reportable operating segments.
Corporate assets consist principally of working capital and debt
financing costs.
The following table sets forth certain financial information
with respect to Basics reportable segments
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion
|
|
|
|
|
|
|
|
|
|
|
|
|
Well
|
|
|
Fluid
|
|
|
and Remedial
|
|
|
Contract
|
|
|
Corporate
|
|
|
|
|
|
|
Servicing
|
|
|
Services
|
|
|
Services
|
|
|
Drilling
|
|
|
and Other
|
|
|
Total
|
|
|
Three Months Ended June 30, 2009 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
36,399
|
|
|
$
|
49,088
|
|
|
$
|
29,373
|
|
|
$
|
3,988
|
|
|
$
|
|
|
|
$
|
118,848
|
|
Direct operating costs
|
|
|
(27,825
|
)
|
|
|
(35,381
|
)
|
|
|
(21,484
|
)
|
|
|
(3,338
|
)
|
|
|
|
|
|
$
|
(88,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits
|
|
$
|
8,574
|
|
|
$
|
13,707
|
|
|
$
|
7,889
|
|
|
$
|
650
|
|
|
$
|
|
|
|
$
|
30,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
12,127
|
|
|
$
|
9,131
|
|
|
$
|
7,653
|
|
|
$
|
1,803
|
|
|
$
|
1,699
|
|
|
$
|
32,413
|
|
Capital expenditures, (excluding acquisitions)
|
|
$
|
4,266
|
|
|
$
|
3,212
|
|
|
$
|
2,693
|
|
|
$
|
634
|
|
|
$
|
598
|
|
|
$
|
11,403
|
|
Three Months Ended June 30, 2008 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
89,018
|
|
|
$
|
72,581
|
|
|
$
|
79,579
|
|
|
$
|
10,344
|
|
|
$
|
|
|
|
$
|
251,522
|
|
Direct operating costs
|
|
|
(55,293
|
)
|
|
|
(48,554
|
)
|
|
|
(42,651
|
)
|
|
|
(7,529
|
)
|
|
|
|
|
|
|
(154,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits
|
|
$
|
33,725
|
|
|
$
|
24,027
|
|
|
$
|
36,928
|
|
|
$
|
2,815
|
|
|
$
|
|
|
|
$
|
97,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
11,492
|
|
|
$
|
7,046
|
|
|
$
|
7,041
|
|
|
$
|
1,853
|
|
|
$
|
1,300
|
|
|
$
|
28,732
|
|
Capital expenditures, (excluding acquisitions)
|
|
$
|
10,638
|
|
|
$
|
6,522
|
|
|
$
|
6,518
|
|
|
$
|
1,715
|
|
|
$
|
1,203
|
|
|
$
|
26,596
|
|
Six Months Ended June 30, 2009 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
85,213
|
|
|
$
|
114,065
|
|
|
$
|
66,632
|
|
|
$
|
7,626
|
|
|
$
|
|
|
|
$
|
273,536
|
|
Direct operating costs
|
|
|
(64,742
|
)
|
|
|
(79,968
|
)
|
|
|
(47,378
|
)
|
|
|
(6,607
|
)
|
|
|
|
|
|
$
|
(198,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits
|
|
$
|
20,471
|
|
|
$
|
34,097
|
|
|
$
|
19,254
|
|
|
$
|
1,019
|
|
|
$
|
|
|
|
$
|
74,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
24,375
|
|
|
$
|
18,353
|
|
|
$
|
15,383
|
|
|
$
|
3,624
|
|
|
$
|
3,415
|
|
|
$
|
65,150
|
|
Capital expenditures, (excluding acquisitions)
|
|
$
|
9,423
|
|
|
$
|
7,095
|
|
|
$
|
5,947
|
|
|
$
|
1,401
|
|
|
$
|
1,321
|
|
|
$
|
25,187
|
|
Identifiable assets
|
|
$
|
268,207
|
|
|
$
|
205,577
|
|
|
$
|
202,563
|
|
|
$
|
44,544
|
|
|
$
|
347,502
|
|
|
$
|
1,068,393
|
|
F-58
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion
|
|
|
|
|
|
|
|
|
|
|
|
|
Well
|
|
|
Fluid
|
|
|
and Remedial
|
|
|
Contract
|
|
|
Corporate
|
|
|
|
|
|
|
Servicing
|
|
|
Services
|
|
|
Services
|
|
|
Drilling
|
|
|
and Other
|
|
|
Total
|
|
|
Six Months Ended June 30, 2008 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
169,537
|
|
|
$
|
143,980
|
|
|
$
|
148,037
|
|
|
$
|
19,841
|
|
|
$
|
|
|
|
$
|
481,395
|
|
Direct operating costs
|
|
|
(103,759
|
)
|
|
|
(94,987
|
)
|
|
|
(78,439
|
)
|
|
|
(14,589
|
)
|
|
|
|
|
|
|
(291,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits
|
|
$
|
65,778
|
|
|
$
|
48,993
|
|
|
$
|
69,598
|
|
|
$
|
5,252
|
|
|
$
|
|
|
|
$
|
189,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
22,704
|
|
|
$
|
13,921
|
|
|
$
|
13,911
|
|
|
$
|
3,661
|
|
|
$
|
2,567
|
|
|
$
|
56,764
|
|
Capital expenditures, (excluding acquisitions)
|
|
$
|
18,008
|
|
|
$
|
11,041
|
|
|
$
|
11,033
|
|
|
$
|
2,904
|
|
|
$
|
2,037
|
|
|
$
|
45,023
|
|
Identifiable assets
|
|
$
|
301,669
|
|
|
$
|
209,397
|
|
|
$
|
322,623
|
|
|
$
|
70,984
|
|
|
$
|
305,103
|
|
|
$
|
1,209,776
|
|
The following table reconciles the segment profits reported
above to the operating income as reported in the consolidated
statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Segment profits
|
|
$
|
30,820
|
|
|
$
|
97,495
|
|
|
$
|
74,841
|
|
|
$
|
189,621
|
|
General and administrative expenses
|
|
|
(27,424
|
)
|
|
|
(26,811
|
)
|
|
|
(56,503
|
)
|
|
|
(52,663
|
)
|
Depreciation and amortization
|
|
|
(32,413
|
)
|
|
|
(28,732
|
)
|
|
|
(65,150
|
)
|
|
|
(56,764
|
)
|
Loss on disposal of assets
|
|
|
(474
|
)
|
|
|
809
|
|
|
|
(1,339
|
)
|
|
|
584
|
|
Goodwill impairment
|
|
|
82
|
|
|
|
|
|
|
|
(204,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(29,409
|
)
|
|
$
|
42,761
|
|
|
$
|
(252,165
|
)
|
|
$
|
80,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Supplemental
Schedule of Cash Flow Information
|
The following table reflects non-cash financing and investing
activity during the following periods:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Capital leases issued for equipment
|
|
$
|
15,426
|
|
|
$
|
20,522
|
|
Contingent earnout accrual
|
|
$
|
909
|
|
|
$
|
1,158
|
|
Asset retirement obligation additions
|
|
$
|
12
|
|
|
$
|
34
|
|
Basic paid no income taxes during the six months ended
June 30, 2009. Basic paid income taxes of approximately
$13.2 million during the six months ended June 30,
2008. Basic paid interest of approximately $12.3 million
and $12.9 million during the six months ended June 30,
2009 and 2008, respectively.
|
|
13.
|
Fair
Value Measurements
|
SFAS No. 157 was issued by the FASB in September 2006
and became effective for financial assets and liabilities of the
Company on January 1, 2008 and became effective for
non-financial assets and liabilities of the Company on
January 1, 2009. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value under GAAP and
expands disclosures about fair value measurements. Fair value is
the price that would be received to sell an asset or the amount
paid to transfer a liability in an orderly transaction between
market participants (an exit price) at the measurement date.
Fair value is a market based measurement considered
F-59
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
from the perspective of a market participant. The Company uses
market data or assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk
and the risks inherent in the inputs to the valuation. These
inputs can be readily observable, market corroborated, or
unobservable. If observable prices or inputs are not available,
unobservable prices or inputs are used to estimate the current
fair value, often using an internal valuation model. These
valuation techniques involve some level of management estimation
and judgment, the degree of which is dependent on the item being
valued. The Company primarily applies a market approach for
recurring fair value measurements using the best available
information while utilizing valuation techniques that maximize
the use of observable inputs and minimize the use of
unobservable inputs.
SFAS No. 157 establishes a fair value hierarchy that
prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to quoted prices in active markets
for identical assets or liabilities (Level 1 measurement)
and the lowest priority to unobservable inputs (Level 3
measurement). The Company classifies fair value balances based
on the observability of those inputs. The three levels of the
fair value hierarchy are as follows:
Level 1 Quoted prices in active markets
for identical assets or liabilities that the Company has the
ability to access. Active markets are those in which
transactions for the asset or liability occur in sufficient
frequency and volume to provide pricing information on an
ongoing basis.
Level 2 Inputs are other than quoted
prices in active markets included in Level 1, which are
either directly or indirectly observable. These inputs are
either directly observable in the marketplace or indirectly
observable through corroboration with market data for
substantially the full contractual term of the asset or
liability being measured.
Level 3 Inputs reflect managements
best estimate of what market participants would use in pricing
the asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the
risk inherent in the inputs to the model.
In valuing certain assets and liabilities, the inputs used to
measure fair value may fall into different levels of the fair
value hierarchy. For disclosure purposes, assets and liabilities
are classified in their entirety in the fair value hierarchy
level based on the lowest level of input that is significant to
the overall fair value measurement. The Companys
assessment of the significance of a particular input to the fair
value measurement requires judgment and may affect the placement
within the fair value hierarchy levels.
The Companys asset retirement obligation related to its
salt water disposal sites, brine water wells, gravel pits and
land farm sites, each of which is subject to rules and
regulations regarding usage and eventual closure, is measured
using primarily Level 3 inputs. The significant
unobservable inputs to this fair value measurement include
estimates of plugging, abandonment and remediation costs,
inflation rate and well life. The inputs are calculated based on
historical data as well as current estimated costs. The fair
value is calculated by taking the present value of the expected
cash flow at the time of the closure of the site. The following
table reflects the changes in the fair value of the liability
during the six months ended June 30, 2009 (in thousands):
|
|
|
|
|
|
|
Asset
|
|
|
|
Retirement
|
|
|
|
Obligation
|
|
|
Balance, December 31, 2008
|
|
$
|
1,796
|
|
Additional asset retirement obligation
|
|
|
12
|
|
Accretion expense
|
|
|
73
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
$
|
1,881
|
|
|
|
|
|
|
F-60
BASIC
ENERGY SERVICES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Management performed an evaluation of the Companys
activity through July 31, 2009, the date these financial
statements were issued, noting the following subsequent event.
On July 23, 2009, we announced that we had priced a private
offering of $225 million of Senior Secured Notes due 2014,
which will bear interest at a rate of 11.625% per annum. The
notes are being sold at 94.621% of their face amount. We closed
the sale of the notes July 31, 2009, and used the net
proceeds from the offering to repay all outstanding indebtedness
under our revolving credit facility.
F-61
Appendix A
Glossary
of Terms
Acidizing: The process of pumping solvent into
the well as a means of dissolving unwanted material.
Brine water: Water, which is heavily saturated
with salt, that is used in various well completion and workover
activities.
Cased-hole: A wellbore lined with a string of
casing or liner (generally metal casing placed and cemented) to
protect the open hole from fluids, pressures, wellbore stability
problems or a combination of these. Although the term can apply
to any hole section, it is often used to describe techniques and
practices applied after a casing or liner has been set across
the reservoir zone, such as cased-hole logging or cased-hole
testing.
Casing: Steel pipe placed in an oil or gas
well as drilling progresses to prevent the wall of the hole from
caving in, to prevent seepage of fluids, and to provide a means
of extracting petroleum if the well is productive.
Drilling mud: The fluid pumped down the
drilling string and up the well bore to bring debris from the
drilling and workover operators to the surface. Drilling muds
also cool and lubricate the bit, protect against blowouts by
holding back underground pressures and, in new well drilling,
deposit a mud cake on the wall of the borehole to minimize loss
of fluid to the formation.
Electric wireline: Wireline that contains an
electrical conduit, thereby enabling the use of downhole
electrical sensors to measure pressures and temperatures.
Fishing: The process of recovering lost or
stuck equipment in the wellbore.
Frac job or fracturing operations: A procedure
to stimulate production of oil or gas from a well by pumping
fluids from the surface under high pressure into the wellbore to
induce fractures in the formation.
Frac tank: A steel tank used to store fluids
at the well location to facilitate completion and workover
operations. The largest demand is related to the storage of
fluid used in fracturing operations.
Hot oil truck: A truck mounted pump, tank and
heating element used to melt paraffin accumulated in the well
bore by pumping heated oil or water through the well.
Newbuild: A newly built rig, as compared to a
refurbished rig that may contain substantially all new
components or new derrick but utilizes an older frame.
Plugging and abandonment
activities: Activities to remove production
equipment and seal off a well at the end of a wells
economic life.
Slickline. A form of wireline that lacks an
electrical conduit and is used only to perform mechanical tasks
such as setting or retrieving various tools.
Stimulation: The general process of improving
well productivity through fracturing or acidizing operations.
Swab rig: Truck mounted equipment consisting
of a hoist and mast used to remove, or swab,
wellbore fluids by alternatively lowering and raising tools in a
wells tubing or casing.
Underbalanced drilling: A technique that
involves maintaining the pressure in a well at or slightly below
that of the surrounding formation using air, nitrogen, mist,
foam or lightweight drilling fluids instead of conventional
drilling fluid.
Water cut: The volume of water produced by a
well as a percentage of all fluids produced.
Wellbore: The drilled hole of a well, which
may include open hole or uncased portions, and which may also
refer to the rock face that bounds the inside diameter of the
wall of the drilled hole.
A-1
Well completion: The activities and procedures
necessary to prepare a well for the production of oil and gas
after the well has been drilled to its targeted depth. Well
completions establish a flow path for hydrocarbons between the
reservoir and the surface.
Well servicing: The maintenance work performed
on an oil or gas well to improve or maintain the production from
a formation already producing. It usually involves repairs to
the downhole pump, rods, tubing, and so forth or removal of
sand, paraffin or other debris which is preventing or
restricting production of oil or gas.
Well workover: Refers to a broad category of
procedures preformed on an existing well to correct a major
downhole problem, such as collapsed casing, or to establish
production from a formation not previously produced, including
deepening the well from its originally completed depth.
Wireline: A general term used to describe
well-intervention operations conducted using single-strand or
multistrand wire or cable for intervention in oil or gas wells.
Although applied inconsistently, the term is used commonly in
association with electric logging and cables incorporating
electrical conductors See slickline and
electric wireline for specific types of wireline
services.
A-2
PROSPECTUS
,
2009
Until ,
2009 (25 days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
PART II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
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ITEM 20.
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Indemnification
of Directors and Officers.
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Delaware
Corporation Guarantors
Basic Energy Services, Inc., Basic Marine Services, Inc., First
Energy Services Company and JetStar Holdings, Inc. are
incorporated under the laws of the State of Delaware.
Section 145 of the Delaware General Corporation Law
(DGCL) provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. Section 145
further provides that a corporation similarly may indemnify any
such person serving in any such capacity who was or is a party
or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys fees)
actually and reasonably incurred in connection with the defense
or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or such other court in which such
action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all
of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the
Delaware Court of Chancery or such other court shall deem proper.
Basic Energy Services certificate of incorporation and
bylaws provide that indemnification shall be to the fullest
extent permitted by the DGCL for all current or former directors
or officers of Basic Energy Services. As permitted by the DGCL,
the certificate of incorporation provides that directors of
Basic Energy Services shall have no personal liability to Basic
Energy Services or its stockholders for monetary damages for
breach of fiduciary duty as a director, except (1) for any
breach of the directors duty of loyalty to Basic Energy
Services or its stockholders, (2) for acts or omissions not
in good faith or which involve intentional misconduct or knowing
violation of law, (3) under Section 174 of the DGCL or
(4) for any transaction from which a director derived an
improper personal benefit.
We have also entered into indemnification agreements with all of
our directors and some of our executive officers (including each
of our named executive officers). These indemnification
agreements are intended to permit indemnification to the fullest
extent now or hereafter permitted by the General Corporation Law
of the State of Delaware. It is possible that the applicable law
could change the degree to which indemnification is expressly
permitted.
The indemnification agreements cover expenses (including
attorneys fees), judgments, fines and amounts paid in
settlement incurred as a result of the fact that such person, in
his or her capacity as a director or officer, is made or
threatened to be made a party to any suit or proceeding. The
indemnification agreements generally cover claims relating to
the fact that the indemnified party is or was an officer,
director, employee or agent of us or any of our affiliates, or
is or was serving at our request in such a position for another
entity. The indemnification agreements also obligate us to
promptly advance all reasonable expenses incurred in connection
with any claim. The indemnitee is, in turn, obligated to
reimburse us for all amounts so advanced
II-1
if it is later determined that the indemnitee is not entitled to
indemnification. The indemnification provided under the
indemnification agreements is not exclusive of any other
indemnity rights; however, double payment to the indemnitee is
prohibited.
We are not obligated to indemnify the indemnitee with respect to
claims brought by the indemnitee against:
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claims regarding the indemnitees rights under the
indemnification agreement;
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claims to enforce a right to indemnification under any statute
or law; and
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counter-claims against us in a proceeding brought by us against
the indemnitee; or
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any other person, except for claims approved by our board of
directors.
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We have also agreed to obtain and maintain director and officer
liability insurance for the benefit of each of the above
indemnitees. These policies will include coverage for losses for
wrongful acts and omissions and to ensure our performance under
the indemnification agreements. Each of the indemnitees will be
named as an insured under such policies and provided with the
same rights and benefits as are accorded to the most favorably
insured of our directors and officers.
Delaware
Limited Liability Company Guarantors
Basic Energy Services GP, LLC, Basic Energy Services LP, LLC and
JS Acquisition LLC are organized under the laws of the State of
Delaware. Under the Delaware Limited Liability Company Act, a
limited liability company may, and shall have the power to,
indemnify and hold harmless any member or manager or other
person from and against any and all claims and demands
whatsoever.
Each of the Agreements of Limited Liability Company of these
subsidiaries provides that a member shall not be liable to such
subsidiary for any act or omission based upon errors of judgment
or other fault in connection with the business or affairs of
such subsidiary if such members conduct does not
constitute gross negligence or willful misconduct. Furthermore,
a member shall be indemnified and held harmless by such
subsidiary to the fullest extent permitted by law, from and
against any and all losses, claims, damages and settlements
arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or
investigative, in which the member is involved, as a party or
otherwise, by reason of the management of the affairs of such
subsidiary, provided that no member shall be entitled to
indemnification for such losses, claims, damages and settlements
arising as a result of the gross negligence or willful
misconduct of such member.
Texas
Corporation Guarantors
Basic ESA, Inc., LeBus Oil Field Service Co., Globe Well
Service, Inc., JetStar Energy Services, Inc., Sledge Drilling
Corp. and Xterra Fishing and Rental Tools Co. are incorporated
under the laws of the State of Texas.
Article 2.02-1
of the Texas Business Corporation Act provides that any director
or officer of a Texas corporation may be indemnified against
judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the person in connection with or in
defending any action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, in which
he was, is, or is threatened to be made a named defendant by
reason of his position as a director or officer of the
corporation, provided that (i) he conducted himself in good
faith, (ii) he reasonably believed that, in the case of
conduct in his official capacity as a director or officer of the
corporation, such conduct was in the corporations best
interests; and, in all other cases, that such conduct was at
least not opposed to the corporations best interests, and
(iii) in the case of a criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful. If a
director or officer is wholly successful, on the merits or
otherwise, in connection with such a proceeding, such
indemnification is mandatory. In connection with any action,
suit or proceeding in which a director or officer is
(x) found liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted
from an action taken in his official capacity, or (y) found
liable to the corporation, the indemnification is limited to
II-2
reasonable expenses actually incurred by him in connection with
the proceeding and will not be made in respect of any proceeding
in which he is found liable for willful or intentional
misconduct in the performance of his duty to the corporation.
Texas
Limited Liability Company Guarantors
SCH Disposal, L.L.C. and Permian Plaza, LLC are organized under
the laws of the State of Texas.
Section 2.20 of the Texas Limited Liability Company Act,
which governs SCH Disposal, L.L.C., provides that, subject to
such standards and restrictions, if any, as are set forth in its
articles of organization or in its regulations, a limited
liability company shall have the power to indemnify members and
managers, officers and other persons and purchase and maintain
liability insurance for such persons.
The Texas Business Organizations Code (TBOC) governs
Permian Plaza, LLC. Section 8.051 of the TBOC states that:
(a) An enterprise shall indemnify a governing person,
former governing person, or delegate against reasonable expenses
actually incurred by the person in connection with a proceeding
in which the person is a respondent because the person is or was
a governing person or delegate if the person is wholly
successful, on the merits or otherwise, in the defense of the
proceeding. (b) A court that determines, in a suit for
indemnification, that a governing person, former governing
person, or delegate is entitled to indemnification under this
section shall order indemnification and award to the person the
expenses incurred in securing the indemnification.
Section 8.052 of the TBOC states that: (a) On
application of a governing person, former governing person, or
delegate and after notice is provided as required by the court,
a court may order an enterprise to indemnify the person to the
extent the court determines that the person is fairly and
reasonably entitled to indemnification in view of all the
relevant circumstances. (b) This section applies without
regard to whether the governing person, former governing person,
or delegate applying to the court satisfies the requirements of
Section 8.101 or has been found liable: (1) to the
enterprise; or (2) because the person improperly received a
personal benefit, without regard to whether the benefit resulted
from an action taken in the persons official capacity.
(c) The indemnification ordered by the court under this
section is limited to reasonable expenses if the governing
person, former governing person, or delegate is found liable:
(1) to the enterprise; or (2) because the person
improperly received a personal benefit, without regard to
whether the benefit resulted from an action taken in the
persons official capacity.
Section 8.101 of the TBOC states that: (a) An
enterprise may indemnify a governing person, former governing
person, or delegate who was, is, or is threatened to be made a
respondent in a proceeding to the extent permitted by
Section 8.102 if it is determined in accordance with
Section 8.103 that: (1) the person: (A) acted in
good faith;(B) reasonably believed: (i) in the case of
conduct in the persons official capacity, that the
persons conduct was in the enterprises best
interests; and (ii) in any other case, that the
persons conduct was not opposed to the enterprises
best interests; and (C) in the case of a criminal
proceeding, did not have a reasonable cause to believe the
persons conduct was unlawful; (2) with respect to
expenses, the amount of expenses other than a judgment is
reasonable; and (3) indemnification should be paid.
(b) Action taken or omitted by a governing person or
delegate with respect to an employee benefit plan in the
performance of the persons duties for a purpose reasonably
believed by the person to be in the interest of the participants
and beneficiaries of the plan is for a purpose that is not
opposed to the best interests of the enterprise. (c) Action
taken or omitted by a delegate to another enterprise for a
purpose reasonably believed by the delegate to be in the
interest of the other enterprise or its owners or members is for
a purpose that is not opposed to the best interests of the
enterprise. (d) A person does not fail to meet the standard
under Subsection (a)(1) solely because of the termination of a
proceeding by: (1) judgment; (2) order;
(3) settlement; (4) conviction; or (5) a plea of
nolo contendere or its equivalent.
Section 8.102 of the TBOC states that: (a) Subject to
Subsection (b), an enterprise may indemnify a governing person,
former governing person, or delegate against: (1) a
judgment; and (2) expenses, other than a judgment, that are
reasonable and actually incurred by the person in connection
with a proceeding. (b) Indemnification under this
subchapter of a person who is found liable to the enterprise or
is found liable because the person improperly received a
personal benefit: (1) is limited to reasonable expenses
actually
II-3
incurred by the person in connection with the proceeding;
(2) does not include a judgment, a penalty, a fine, and an
excise or similar tax, including an excise tax assessed against
the person with respect to an employee benefit plan; and
(3) may not be made in relation to a proceeding in which
the person has been found liable for: (A) willful or
intentional misconduct in the performance of the persons
duty to the enterprise; (B) breach of the persons
duty of loyalty owed to the enterprise; or (C) an act or
omission not committed in good faith that constitutes a breach
of a duty owed by the person to the enterprise. (c) A
governing person, former governing person, or delegate is
considered to have been found liable in relation to a claim,
issue, or matter only if the liability is established by an
order, including a judgment or decree of a court, and all
appeals of the order are exhausted or foreclosed by law.
Section 8.105(b) of the TBOC states that: An enterprise
shall indemnify an officer to the same extent that
indemnification is required under this chapter for a governing
person.
Oklahoma
Guarantors
Oilwell Fracturing Services, Inc., Hennessey Rental Tools, Inc.
and Wildhorse Services, Inc. are incorporated under the laws of
the State of Oklahoma. Section 1031 of the Oklahoma General
Corporation Act authorizes a court to award, or a
corporations board of directors to grant, indemnity under
certain circumstances to directors, officers employees or agents
in connection with actions, suits or proceedings, by reason of
the fact that the person is or was a director, officer, employee
or agent, against expenses and liabilities incurred in such
actions, suits or proceedings so long as they acted in good
faith and in a manner the person reasonable believed to be in,
or not opposed to, the best interests of the company, and with
respect to any criminal action if they had no reasonable cause
to believe their conduct was unlawful. With respect to suits by
or in the right of such corporation, however, indemnification is
generally limited to attorneys fees and other expenses and
is not available if such person is adjudged to be liable to such
corporation unless the court determines that indemnification is
appropriate.
Kansas
Guarantor
Acid Services, LLC is organized under the laws of the State of
Kansas.
Section 17-7670
of the Kansas General Corporation Law provides that a limited
liability company may indemnify and hold harmless any member or
manager or other person from and against any and all claims and
demands whatsoever. Furthermore, if a member, manager, officer,
employee or agent has been successful on the merits or otherwise
or the defenses of any action, suits or proceeding, or in
defense of any issue or matter therein, such person shall be
indemnified against expenses actually and reasonably incurred in
connection therewith, including attorney fees.
New
Mexico Guarantor
Chaparral Service, Inc. is incorporated under the laws of the
State of New Mexico. Under
Section 53-11-4.1
of New Mexico Business Corporation Act, a corporation shall have
power to indemnify any person made a party to any proceeding by
reason of the fact that the person is or was a director if:
(i) the person acted in good faith; (ii) the person
reasonably believed: (x) in the case of conduct in the
persons official capacity with the corporation, that the
persons conduct was in its best interests; and (y) in
all other cases, that the persons conduct was at least not
opposed to its best interests; and (iii) in the case of any
criminal proceeding, the person had no reasonable cause to
believe the persons conduct was unlawful. Indemnification
may be made against judgments, penalties, fines, settlements and
reasonable expenses, actually incurred by the person in
connection with the proceeding; except that if the proceeding
was by or in the right of the corporation, indemnification may
be made only against such reasonable expenses and shall not be
made in respect of any proceeding in which the person shall have
been adjudged to be liable to the corporation. However, a
director shall not be indemnified in respect of any proceeding
charging improper personal benefit to the director, whether or
not involving action in the directors official capacity,
in which the director shall have been adjudged to be liable on
the basis that personal benefit was improperly received by the
director. The indemnification authorized by
Section 53-11-4.1
is not exclusive of any other rights to which an officer or
director may be entitled under the articles of incorporation,
the bylaws, an agreement, a resolution of shareholders or
directors or otherwise.
II-4
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ITEM 21.
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Exhibit
and Financial Statement Schedules.
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(a) Exhibits.
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Exhibit
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Number
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Description
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1
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.1
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Purchase Agreement dated July 23, 2009, by and among Basic
Energy Services, Inc., the guarantors party thereto and the
initial purchasers party thereto. (Incorporated by reference to
Exhibit 10.1 of the Companys Current Report on
Form 8-K
(SEC File
No. 001-32693),
filed on July 29, 2009)
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2
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.1
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Agreement and Plan of Merger, dated as of January 8, 2007,
by and among Basic Energy Services, Inc. (the
Company), JS Acquisition LLC and JetStar
Consolidated Holdings, Inc. (Incorporated by reference to
Exhibit 2.1 of the Companys Current Report on
Form 8-K
(SEC File
No. 001-32693),
filed on March 8, 2007)
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2
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.2
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Amendment to Merger Agreement, dated as of March 5, 2007,
by and among Basic Energy Services, Inc., JS Acquisition LLC and
JetStar Consolidated Holdings, Inc. (Incorporated by reference
to Exhibit 2.2 of the Companys Current Report on
Form 8-K
(SEC File
No. 001-32693),
filed on March 8, 2007)
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3
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.1
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Amended and Restated Certificate of Incorporation of the
Company, dated September 22, 2005. (Incorporated by
reference to Exhibit 3.1 of the Companys Registration
Statement on
Form S-1
(SEC File
No. 333-127517),
filed on September 28, 2005)
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3
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.2
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Amended and Restated Bylaws of the Company, effective as of
December 17, 2007. (Incorporated by reference to
Exhibit 3.1 of the Companys Current Report on
Form 8-K
(SEC File
No. 001-32693),
filed on December 18, 2007)
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3
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.3
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Certificate of Formation of Basic Energy Services GP, LLC, dated
as of January 7, 2003. (Incorporated by reference to
Exhibit 3.3 of the Companys Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.4
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Limited Liability Company Agreement of Basic Energy Services GP,
LLC, dated as of January 7, 2003. (Incorporated by
reference to Exhibit 3.4 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.5
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Certificate of Formation of Basic Energy Services LP, LLC, dated
as of January 7, 2003. (Incorporated by reference to
Exhibit 3.5 of the Companys Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.6
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Limited Liability Company Agreement of Basic Energy Services LP,
LLC, dated as of January 7, 2003. (Incorporated by
reference to Exhibit 3.6 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.7
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Certificate of Limited Partnership of Basic Energy Services,
L.P., dated as of January 24, 2003. (Incorporated by
reference to Exhibit 3.7 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.8
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Agreement of Limited Partnership of Basic Energy Services, L.P.,
dated as of January 24, 2003. (Incorporated by reference to
Exhibit 3.8 of the Companys Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.9
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Articles of Incorporation of Basic ESA, Inc., dated
July 10, 1981. (Incorporated by reference to
Exhibit 3.9 of the Companys Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.10*
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Bylaws of Basic ESA, Inc., as amended.
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3
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.11*
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Certificate of Formation of JS Acquisition LLC, dated as of
January 4, 2007.
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3
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.12*
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Limited Liability Company Agreement of JS Acquisition LLC.
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3
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.13*
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Amended and Restated Articles of Organization of Acid Services,
LLC, filed April 24, 2006.
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3
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.14*
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Second Amended and Restated Operating Agreement of Acid
Services, LLC.
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3
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.15*
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Second Amended and Restated Certificate of Incorporation of
JetStar Holdings, Inc., dated April 24, 2006.
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3
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.16*
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Bylaws of JetStar Holdings, Inc.
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3
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.17*
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Articles of Incorporation of JetStar Energy Services, Inc.,
dated April 18, 2005.
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3
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.18*
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Bylaws of JetStar Energy Services, Inc.
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3
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.19
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Certificate of Incorporation of Basic Marine Services, Inc., as
amended, dated January 28, 2005. (Incorporated by reference
to Exhibit 3.15 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.20
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Bylaws of Basic Marine Services, Inc. (Incorporated by reference
to Exhibit 3.16 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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II-5
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Exhibit
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Number
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Description
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3
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.21
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Amended and Restated Certificate of Incorporation of First
Energy Services Company, dated October 24, 2003.
(Incorporated by reference to Exhibit 3.17 of the
Companys Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.22
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Bylaws of First Energy Services Company. (Incorporated by
reference to Exhibit 3.18 of the Companys
Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.23
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Articles of Incorporation of Oilwell Fracturing Services, Inc.,
dated November 20, 1981. (Incorporated by reference to
Exhibit 3.19 of the Companys Registration Statement
on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.24*
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Bylaws of Oilwell Fracturing Services, Inc., as amended.
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3
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.25
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Articles of Incorporation of LeBus Oil Field Service Co., dated
December 19, 1985. (Incorporated by reference to
Exhibit 3.27 of the Companys Registration Statement
on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.26
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Bylaws of LeBus Oil Field Service Co. (Incorporated by reference
to Exhibit 3.28 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
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.27
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Articles of Incorporation of Globe Well Service, Inc., as
amended, dated February 6, 1979. (Incorporated by reference
to Exhibit 3.29 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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3
|
.28
|
|
Bylaws of Globe Well Service, Inc. (Incorporated by reference to
Exhibit 3.30 of the Companys Registration Statement
on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.29
|
|
Articles of Organization of SCH Disposal, L.L.C., dated
October 30, 1998. (Incorporated by reference to
Exhibit 3.31 of the Companys Registration Statement
on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.30
|
|
Regulations of SCH Disposal, L.L.C., dated as of
November 2, 1998. (Incorporated by reference to
Exhibit 3.32 of the Companys Registration Statement
on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.31*
|
|
Articles of Incorporation of Sledge Drilling Corp., dated
November 22, 2005.
|
|
3
|
.32*
|
|
Bylaws of Sledge Drilling Corp.
|
|
3
|
.33*
|
|
Certificate of Incorporation of Wildhorse Services, Inc., dated
as of July 30, 2002.
|
|
3
|
.34*
|
|
Bylaws of Wildhorse Services, Inc.
|
|
3
|
.35*
|
|
Articles of Incorporation of Xterra Fishing & Rental
Tools Co., as amended, dated June 1, 2000.
|
|
3
|
.36*
|
|
Bylaws of Xterra Fishing & Rental Tools Co.
|
|
3
|
.37*
|
|
Articles of Incorporation of Chaparral Service, Inc., dated
July 18, 1969.
|
|
3
|
.38*
|
|
Amended and Restated Bylaws of Chaparral Service, Inc.
|
|
3
|
.39*
|
|
Certificate of Incorporation of Hennessey Rental Tools, Inc.,
dated September 29, 1993.
|
|
3
|
.40*
|
|
Bylaws of Hennessey Rental Tools, Inc.
|
|
3
|
.41*
|
|
Certificate of Formation of Permian Plaza, LLC, dated
August 20, 2007.
|
|
3
|
.42*
|
|
Company Agreement of Permian Plaza, LLC.
|
|
4
|
.1
|
|
Specimen Stock Certificate representing common stock of the
Company. (Incorporated by reference to Exhibit 3.1 of the
Companys Registration Statement on
Form S-1
(SEC File
No. 333-127517),
filed on November 4, 2005)
|
|
4
|
.2
|
|
Indenture dated April 12, 2006, among Basic Energy
Services, Inc., the guarantors party thereto, and The Bank of
New York Trust Company, N.A., as trustee. (Incorporated by
reference to Exhibit 4.1 of the Companys Current
Report on
Form 8-K
(SEC File
No. 001-32693),
filed on April 13, 2006)
|
|
4
|
.3
|
|
Form of 7.125% Senior Note due 2016. (Included in the
Indenture filed as Exhibit 4.1 of the Companys
Current Report on
Form 8-K
(SEC File
No. 001-32693),
filed on April 13, 2006)
|
|
4
|
.4
|
|
First Supplemental Indenture dated as of July 14, 2006 to
Indenture dated as of April 12, 2006 among the Company, as
Issuer, the Subsidiary Guarantors named therein and The Bank of
New York Trust Company, N.A., as trustee. (Incorporated by
reference to Exhibit 4.1 of the Companys Current
Report on
Form 8-K
(SEC File
No. 001-32693),
filed on July 20, 2006)
|
|
4
|
.5
|
|
Second Supplemental Indenture dated as of April 26, 2007
and effective as of March 7, 2007 to Indenture dated as of
April 12, 2006 among the Company as Issuer, the Subsidiary
Guarantors named therein and the Bank of New York
Trust Company, N.A., as trustee. (Incorporated by reference
to Exhibit 4.1 of the Companys Current Report on
Form 8-K
(SEC File
No. 001-32693),
filed on May 1, 2007)
|
II-6
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
4
|
.6
|
|
Third Supplement Indenture dated as of April 26, 2007 to
Indenture dated as of April 12, 2006 among the Company as
Issuer, the Subsidiary Guarantors named therein and the Bank of
New York Trust Company, N.A., as trustee. (Incorporated by
reference to Exhibit 4.2 of the Companys Current
Report on
Form 8-K
(SEC File
No. 001-32693),
filed on May 1, 2007)
|
|
4
|
.7
|
|
Fourth Supplemental Indenture dated as of February 9, 2009
to Indenture dated as of April 12, 2006 among the Company
as Issuer, the Subsidiary Guarantors named therein and the Bank
of New York Mellon Trust Company, N.A., as Trustee.
(Incorporated by reference to Exhibit 4.7 of the
Companys Annual Report on
Form 10-K
(SEC File
No. 001-32693),
filed March 9, 2009)
|
|
4
|
.8
|
|
Indenture dated as of July 31, 2009, by and among Basic,
the Guarantors named therein and The Bank of New York Mellon
Trust Company, N.A., as Trustee. (Incorporated by reference
to Exhibit 4.1 of the Companys Current Report on
Form 8-K
(SEC File
No. 001-32693),
filed on August 4, 2009)
|
|
4
|
.9
|
|
Form of 11.625% Senior Secured Note due 2014 (included as
Exhibit A to Exhibit 4.1 of the Companys Current
Report on
Form 8-K
(SEC File
No. 001-32693),
filed on August 4, 2009)
|
|
4
|
.10
|
|
Security Agreement dated as of July 31, 2009, by and
between Basic and each of the other Grantors party thereto in
favor of The Bank of New York Mellon Trust Company, N.A.,
as Trustee. (Incorporated by reference to Exhibit 4.3 of
the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on August 4, 2009)
|
|
5
|
.1*
|
|
Opinion of Andrews Kurth LLP regarding the validity of the new
notes
|
|
8
|
.1*
|
|
Opinion of Andrews Kurth LLP regarding certain tax matters
|
|
10
|
.1
|
|
Form of Indemnification Agreement. (Incorporated by reference to
Exhibit 10.1 of the Companys Registration Statement
on
Form S-1
(SEC File
No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.2
|
|
Second Amended and Restated Stockholders Agreement dated
as of April 2, 2004 among the Company and the stockholders
listed therein. (Incorporated by reference to Exhibit 10.7
of the Companys Registration Statement on
Form S-1
(SEC File
No. 333-127517),
filed on August 12, 2005)
|
|
10
|
.3
|
|
Stock Purchase Agreement dated as of September 18, 2003, as
amended on October 1, 2003, among the Company, FESCO
Holdings, Inc. and the sellers named therein. (Incorporated by
reference to Exhibit 10.8 of the Companys
Registration Statement on
Form S-1
(SEC File
No. 333-127517),
filed on August 12, 2005)
|
|
10
|
.4
|
|
Asset Purchase Agreement dated as of August 14, 2003 among
the Company and PWI, Inc. (Incorporated by reference to
Exhibit 10.9 of the Companys Registration Statement
on
Form S-1
(SEC File
No. 333-127517),
filed on August 12, 2005)
|
|
10
|
.5
|
|
Fourth Amended and Restated Credit Agreement dated as of
October 3, 2003, amended and restated as of
February 6, 2007, among Basic Energy Services, Inc., the
subsidiary guarantors party thereto, Bank of America, N.A., as
syndication agent, Capital One, National Association, as
documentation agent, BNP Paribas, as documentation agent, UBS
AG, Stamford Branch, as issuing bank, administrative agent and
collateral agent, and the lenders party thereto. (Incorporated
by reference to Exhibit 10.1 to the Companys Current
Report on
Form 8-K
(SEC File
No. 001-32693),
filed on February 12, 2007)
|
|
10
|
.6
|
|
Amendment and Consent No. 1 to Fourth Amended and Restated
Credit Agreement dated May 4, 2009. (Incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
(SEC File
No. 001-32693),
filed on May 7, 2009)
|
|
10
|
.7
|
|
Fourth Amended and Restated Basic Energy Services, Inc. 2003
Incentive Plan. (Incorporated by reference to Exhibit 10.1
of the Companys Current Report on
Form 8-K
(SEC File
No. 001-32693),
filed on June 1, 2009)
|
|
10
|
.8
|
|
Form of Non-Qualified Option Grant Agreement (Executive
Officer Pre-March 1, 2005). (Incorporated by
reference to Exhibit 10.12 of the Companys
Registration Statement on
Form S-1
(SEC File
No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.9
|
|
Form of Non-Qualified Option Grant Agreement (Executive
Officer Post-March 1, 2005). (Incorporated by
reference to Exhibit 10.13 of the Companys
Registration Statement on
Form S-1
(SEC File
No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.10
|
|
Form of Non-Qualified Option Grant Agreement (Non-Employee
Director Pre-March 1, 2005). (Incorporated by
reference to Exhibit 10.14 of the Companys
Registration Statement on
Form S-1
(SEC File
No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.11
|
|
Form of Non-Qualified Option Grant Agreement (Non-Employee
Director Post-March 1, 2005). (Incorporated by
reference to Exhibit 10.15 of the Companys
Registration Statement on
Form S-1
(SEC File
No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.12
|
|
Form of Restricted Stock Grant Agreement. (Incorporated by
reference to Exhibit 10.16 of the Companys
Registration Statement on
Form S-1
(SEC File
No. 333-127517),
filed on September 28, 2005)
|
II-7
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.13
|
|
Form of Amendment to Nonqualified Stock Option Agreement, dated
as of December 31, 2005, by and between the Company and the
optionees party thereto. (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
(SEC File
No. 001-32693),
filed on January 4, 2006)
|
|
10
|
.14
|
|
Form of Nonqualified Stock Option Agreement (Director form
effective March 2006). (Incorporated by reference to
Exhibit 10.13 of the Companys Annual Report on
Form 10-K
(SEC File
No. 001-32693),
filed on March 7, 2008)
|
|
10
|
.15
|
|
Form of Nonqualified Stock Option Agreement (Employee form
effective March 2006). (Incorporated by reference to
Exhibit 10.14 of the Companys Annual Report on
Form 10-K
(SEC File No. 001-32693),
filed on March 7, 2008)
|
|
10
|
.16
|
|
Form of Restricted Stock Grant Agreement (Officers and
Employees Post-March 1, 2007). (Incorporated by
reference to Exhibit 10.5 to the Companys Quarterly
Report on
Form 10-Q
(SEC File No. 001-32693),
filed on May 10, 2007)
|
|
10
|
.17
|
|
Form of Restricted Stock Grant Agreement (Non-Employee
Directors Post-March 1, 2007). (Incorporated by
reference to Exhibit 10.6 to the Companys Quarterly
Report on
Form 10-Q
(SEC File No. 001-32693),
filed on May 10, 2007)
|
|
10
|
.18
|
|
Form of Non-Qualified Stock Option Grant Agreement
(Post-March 1, 2007). (Incorporated by reference to
Exhibit 10.7 to the Companys Quarterly Report on
Form 10-Q
(SEC File No. 001-32693),
filed on May 10, 2007)
|
|
10
|
.19
|
|
Form of Performance-Based Award Agreement (Officers and
Employees). (Incorporated by reference to Exhibit 10.1 of
the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on March 17,2008)
|
|
10
|
.20
|
|
Form of Restricted Stock Grant Agreement (Officers and
Employees). (Incorporated by reference to Exhibit 10.2 of
the Companys Quarterly Report on
Form 10-Q
(SEC File No. 001-32693),
filed on May 8, 2008)
|
|
10
|
.21
|
|
Form of Restricted Stock Grant Agreement (Non-Employee
Directors). (Incorporated by reference to Exhibit 10.3 of
the Companys Quarterly Report on
Form 10-Q
(SEC File No. 001-32693),
filed on May 8. 2008)
|
|
10
|
.22
|
|
Form of Performance-Based Award Agreement (effective March 2009)
(Incorporated by reference to Exhibit 10.1 of the
Companys Current Report on
Form 8-K
(SEC File No. 001-32963),
filed March 19, 2009)
|
|
10
|
.23
|
|
Workover Unit Package Contract and Acceptance Agreement, dated
as of May 17, 2005, between Basic Energy Services, L.P. and
Taylor Rigs, LLC. (Incorporated by reference to
Exhibit 10.17 of the Companys Registration Statement
on
Form S-1
(SEC File No. 333-127517),
filed on November 4, 2005)
|
|
10
|
.24
|
|
Share Exchange Agreement, dated as of September 22, 2003,
among BES Holding Co. and the Stockholders named therein.
(Incorporated by reference to Exhibit 10.18 of the
Companys Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.25
|
|
Form of Share Tender and Repurchase Agreement. (Incorporated by
reference to Exhibit 10.19 of the Companys
Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on November 4, 2005)
|
|
10
|
.26
|
|
Workover Unit Package Contract and Acceptance Agreement, dated
as of November 10, 2005, between Basic Energy Services,
L.P. and Taylor Rigs, LLC. (Incorporated by reference to
Exhibit 10.20 of the Companys Registration Statement
on
Form S-1
(SEC File No. 333-127517),
filed on November 16, 2005)
|
|
10
|
.27
|
|
Asset Purchase Agreement dated as of February 21, 2006
among Basic Energy Services, LP, Basic Energy Services GP, LLC,
G&L Tool, Ltd., DLH Management, LLC and LJH, Ltd.
(Incorporated by reference to Exhibit 10.1 of the
Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on March 2, 2006)
|
|
10
|
.28
|
|
Contingent Earn Out Agreement dated as of February 28, 2006
among Basic Energy Services, LP and G&L Tool, Ltd.
(Incorporated by reference to Exhibit 10.2 of the
Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on March 2, 2006)
|
|
10
|
.29
|
|
Fee Reimbursement Agreement, dated as of July 24, 2006, by
and among the Company, Southwest Partners II, L.P., Southwest
Partners, III, L.P. and Fortress Holdings, LLC.
(Incorporated by reference to Exhibit 10.23 of the
Companys Registration Statement on
Form S-1
(SEC File No. 333-136019),
filed on July 25, 2006)
|
|
10
|
.30
|
|
Employment Agreement of Kenneth V. Huseman, effective as of
December 31, 2006. (Incorporated by reference to
Exhibit 10.1 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 4, 2007)
|
II-8
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.31
|
|
Employment Agreement of Alan Krenek, effective as of
December 31, 2006. (Incorporated by reference to
Exhibit 10.2 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 4, 2007)
|
|
10
|
.32
|
|
Amended and Restated Employment Agreement of Charles W. Swift,
effective as of November 21, 2008. (Incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on November 24, 2008)
|
|
10
|
.33
|
|
Employment Agreement of Dub William Harrison, effective as of
December 31, 2006. (Incorporated by reference to
Exhibit 10.4 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 4, 2007)
|
|
10
|
.34
|
|
Employment Agreement of James E. Tyner, effective as of
December 31, 2006. (Incorporated by reference to
Exhibit 10.5 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 4, 2007)
|
|
10
|
.35
|
|
Amended and Restated Employment Agreement of Thomas Monroe
Patterson, effective as of November 21, 2008. (Incorporated
by reference to Exhibit 10.2 of the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on November 24, 2008)
|
|
10
|
.36
|
|
Employment Agreement of Mark David Rankin, effective as of
December 31, 2006. (Incorporated by reference to
Exhibit 10.7 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 4, 2007)
|
|
10
|
.37
|
|
First Amendment to Employment Agreement of Kenneth V. Huseman,
effective as of January 23, 2007. (Incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 29, 2007)
|
|
10
|
.38
|
|
Registration Rights Agreement, dated as of March 6, 2007,
by and among Basic Energy Services, Inc. and the JetStar
Stockholders Representative. (Incorporated by reference to
Exhibit 10.1 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on March 8, 2007)
|
|
10
|
.39
|
|
Registration Rights Agreement, dated as of April 2, 2007,
by and among the Company and the Holders named therein.
(Incorporated by reference to Exhibit 10.1 of the
Companys current Report on
Form 8-K
(SEC File No. 001-32693),
filed on April 5, 2007)
|
|
10
|
.40
|
|
Registration Rights Agreement dated as of July 31, 2009, by
and among Basic, the Guarantors named therein and the initial
purchasers party thereto. (Incorporated by reference to
Exhibit 4.4 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on August 4, 2009)
|
|
10
|
.41
|
|
Purchase Agreement, dated April 7, 2006, by and among Basic
Energy Services, Inc. (the Company), UBS Securities
LLC as representative for the Initial Purchasers listed therein,
and the Subsidiary Guarantors party thereto (Incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
filed on April 13, 2006)
|
|
12
|
.1*
|
|
Statement regarding computation of ratio of earnings to fixed
charges
|
|
21
|
.1*
|
|
Subsidiaries of the Company
|
|
23
|
.1*
|
|
Consent of KPMG LLP
|
|
23
|
.2*
|
|
Consent of Andrews Kurth LLP (included in Exhibit 5.1)
|
|
24
|
.1*
|
|
Powers of Attorney (included on signature pages).
|
|
25
|
.1*
|
|
Form T-1
Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 of The Bank of New York Mellon
Trust Company, N.A. to act as trustee under the Indenture
|
|
99
|
.1*
|
|
Form of Letter of Transmittal
|
|
99
|
.2*
|
|
Guidelines for Certification of Taxpayer Identification Number
on Substitute
Form W-9
|
|
99
|
.3*
|
|
Form of Notice of Guaranteed Delivery
|
|
99
|
.4*
|
|
Form of Letter to Brokers
|
|
99
|
.5*
|
|
Form of Letter to Clients
|
|
|
|
* |
|
Indicates exhibits filed herewith. |
|
|
|
Management contract or compensatory plan or arrangement. |
(b) With the exception of Schedule II
Valuation and Qualifying Accounts, all other consolidated
financial statement schedules have been omitted because they are
not required, are not applicable, or the required information
has been included elsewhere in this
Form S-4.
II-9
(a) Each undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate
offering price set forth in the Calculation of
Registration Fee table in the effective registration
statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) of this section do not apply if the registration
statement is on
Form S-8,
and the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with
or furnished to the Commission by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the
registration statement; and
Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section
do not apply if the registration statement is on
Form S-3
or
Form F-3
and the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with
or furnished to the Commission by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the registration
statement, or is contained in a form of prospectus filed
pursuant to Rule 424(b) that is part of the registration
statement.
(2) That, for the purpose 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.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under
the Securities Act of 1933 to any purchaser, each prospectus
filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part
of and included in the registration statement as of the date it
is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made
in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the
registrant under the Securities Act of 1933 to any purchaser in
the initial distribution of the securities, in a primary
offering of securities of the undersigned registrant pursuant to
this registration statement, regardless of the underwriting
method used
II-10
to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell
such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
(6) 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 Act 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 Act and will be
governed by the final adjudication of such issue.
(b) Each 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 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.
(c) Each 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.
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant has duly caused this registration statement on
Form S-4
to be signed on its behalf by the undersigned, thereunder duly
authorized, in the City of Midland, State of Texas on
September 2, 2009.
BASIC ENERGY SERVICES, INC.
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By:
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/s/ Kenneth
V. Huseman
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Name: Kenneth V. Huseman
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Title:
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President and Chief Executive Officer
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POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
officers and directors of the Registrant hereby constitutes and
appoints Alan Krenek and John Cody Bissett his true and lawful
attorney-in-fact and agent, with full power of substitution, for
him and on his behalf and in his name, place and stead, in any
and all capacities, to sign, execute and file this registration
statement under the Securities Act of 1933, as amended, and any
or all amendments (including, without limitation, post-effective
amendments), with all exhibits and any and all documents
required to be filed with respect thereto, with the Securities
and Exchange Commission or any regulatory authority, granting
unto such attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he
himself might or could do, if personally present, hereby
ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or
cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Kenneth
V. Huseman
Kenneth
V. Huseman
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President, Chief Executive Officer
and Director
(Principal Executive Officer)
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September 2, 2009
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/s/ Alan
Krenek
Alan
Krenek
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Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
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September 2, 2009
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/s/ Steven
A. Webster
Steven
A. Webster
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Chairman of the Board
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September 2, 2009
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/s/ James
S. DAgostino, Jr.
James
S. DAgostino, Jr.
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Director
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September 2, 2009
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/s/ William
E. Chiles
William
E. Chiles
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Director
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September 2, 2009
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/s/ Robert
F. Fulton
Robert
F. Fulton
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Director
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September 2, 2009
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II-12
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Signature
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Title
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Date
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/s/ Sylvester
P. Johnson, IV
Sylvester
P. Johnson, IV
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Director
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September 2, 2009
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/s/ Thomas
P. Moore, Jr.
Thomas
P. Moore, Jr.
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Director
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September 2, 2009
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/s/ Antonio
O. Garza, Jr.
Antonio
O. Garza, Jr.
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Director
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September 2, 2009
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II-13
SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant has duly caused this registration statement on
Form S-4
to be signed on its behalf by the undersigned, thereunder duly
authorized, in the City of Midland, State of Texas on
September 2, 2009.
Each of the Guarantors Named on
Schedule A-1
Hereto (the Guarantors)
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By:
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/s/ Kenneth
V. Huseman
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Name: Kenneth V. Huseman
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
officers and directors of the Registrant hereby constitutes and
appoints Alan Krenek and John Cody Bissett his true and lawful
attorney-in-fact and agent, with full power of substitution, for
him and on his behalf and in his name, place and stead, in any
and all capacities, to sign, execute and file this registration
statement under the Securities Act of 1933, as amended, and any
or all amendments (including, without limitation, post-effective
amendments), with all exhibits and any and all documents
required to be filed with respect thereto, with the Securities
and Exchange Commission or any regulatory authority, granting
unto such attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he
himself might or could do, if personally present, hereby
ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or
cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Kenneth
V. Huseman
Kenneth
V. Huseman
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President and Director
(Principal Executive Officer)
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September 2, 2009
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/s/ Alan
Krenek
Alan
Krenek
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Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
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September 2, 2009
|
II-14
Schedule A-1
GUARANTORS
Basic Energy Services GP, LLC
Basic Energy Services, L.P.
Basic ESA, Inc.
Chaparral Service, Inc.
Basic Marine Services, Inc.
First Energy Services Company
Hennessey Rental Tools, Inc.
Oilwell Fracturing Services, Inc.
Wildhorse Services, Inc.
LeBus Oil Field Service Co.
Globe Well Service, Inc.
SCH Disposal, L.L.C.
JS Acquisition LLC
JetStar Holdings, Inc.
Acid Services, LLC
JetStar Energy Services, Inc.
Sledge Drilling Corp.
Permian Plaza, LLC
Xterra Fishing & Rental Tools Co.
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant has duly caused this registration statement on
Form S-4
to be signed on its behalf by the undersigned, thereunder duly
authorized, in the City of Midland, State of Texas on
September 2, 2009.
BASIC ENERGY SERVICES LP, LLC
Name: Jerry Tufly
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Signature
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Title
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Date
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/s/ Jerry
Tufly
Jerry
Tufly
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President, Secretary, Treasurer and Sole Manager (Principal
Executive Officer, Principal Financial Officer and Principal
Accounting Officer)
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September 2, 2009
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II-16
EXHIBIT INDEX
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Exhibit
|
|
|
Number
|
|
Description
|
|
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1
|
.1
|
|
Purchase Agreement dated July 23, 2009, by and among Basic
Energy Services, Inc., the guarantors party thereto and the
initial purchasers party thereto. (Incorporated by reference to
Exhibit 10.1 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on July 29, 2009)
|
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2
|
.1
|
|
Agreement and Plan of Merger, dated as of January 8, 2007,
by and among Basic Energy Services, Inc. (the
Company), JS Acquisition LLC and JetStar
Consolidated Holdings, Inc. (Incorporated by reference to
Exhibit 2.1 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on March 8, 2007)
|
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2
|
.2
|
|
Amendment to Merger Agreement, dated as of March 5, 2007,
by and among Basic Energy Services, Inc., JS Acquisition LLC and
JetStar Consolidated Holdings, Inc. (Incorporated by reference
to Exhibit 2.2 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on March 8, 2007)
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of the
Company, dated September 22, 2005. (Incorporated by
reference to Exhibit 3.1 of the Companys Registration
Statement on
Form S-1
(SEC File No. 333-127517),
filed on September 28, 2005)
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the Company, effective as of
December 17, 2007. (Incorporated by reference to
Exhibit 3.1 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on December 18, 2007)
|
|
3
|
.3
|
|
Certificate of Formation of Basic Energy Services GP, LLC, dated
as of January 7, 2003. (Incorporated by reference to
Exhibit 3.3 of the Companys Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.4
|
|
Limited Liability Company Agreement of Basic Energy Services GP,
LLC, dated as of January 7, 2003. (Incorporated by
reference to Exhibit 3.4 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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|
3
|
.5
|
|
Certificate of Formation of Basic Energy Services LP, LLC, dated
as of January 7, 2003. (Incorporated by reference to
Exhibit 3.5 of the Companys Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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|
3
|
.6
|
|
Limited Liability Company Agreement of Basic Energy Services LP,
LLC, dated as of January 7, 2003. (Incorporated by
reference to Exhibit 3.6 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.7
|
|
Certificate of Limited Partnership of Basic Energy Services,
L.P., dated as of January 24, 2003. (Incorporated by
reference to Exhibit 3.7 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.8
|
|
Agreement of Limited Partnership of Basic Energy Services, L.P.,
dated as of January 24, 2003. (Incorporated by reference to
Exhibit 3.8 of the Companys Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.9
|
|
Articles of Incorporation of Basic ESA, Inc., dated
July 10, 1981. (Incorporated by reference to
Exhibit 3.9 of the Companys Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.10*
|
|
Bylaws of Basic ESA, Inc., as amended.
|
|
3
|
.11*
|
|
Certificate of Formation of JS Acquisition LLC, dated as of
January 4, 2007.
|
|
3
|
.12*
|
|
Limited Liability Company Agreement of JS Acquisition LLC.
|
|
3
|
.13*
|
|
Amended and Restated Articles of Organization of Acid Services,
LLC, filed April 24, 2006.
|
|
3
|
.14*
|
|
Second Amended and Restated Operating Agreement of Acid
Services, LLC.
|
|
3
|
.15*
|
|
Second Amended and Restated Certificate of Incorporation of
JetStar Holdings, Inc., dated April 24, 2006.
|
|
3
|
.16*
|
|
Bylaws of JetStar Holdings, Inc.
|
|
3
|
.17*
|
|
Articles of Incorporation of JetStar Energy Services, Inc.,
dated April 18, 2005.
|
|
3
|
.18*
|
|
Bylaws of JetStar Energy Services, Inc.
|
|
3
|
.19
|
|
Certificate of Incorporation of Basic Marine Services, Inc., as
amended, dated January 28, 2005. (Incorporated by reference
to Exhibit 3.15 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.20
|
|
Bylaws of Basic Marine Services, Inc. (Incorporated by reference
to Exhibit 3.16 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.21
|
|
Amended and Restated Certificate of Incorporation of First
Energy Services Company, dated October 24, 2003.
(Incorporated by reference to Exhibit 3.17 of the
Companys Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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|
3
|
.22
|
|
Bylaws of First Energy Services Company. (Incorporated by
reference to Exhibit 3.18 of the Companys
Registration Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
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|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.23
|
|
Articles of Incorporation of Oilwell Fracturing Services, Inc.,
dated November 20, 1981. (Incorporated by reference to
Exhibit 3.19 of the Companys Registration Statement
on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.24*
|
|
Bylaws of Oilwell Fracturing Services, Inc., as amended.
|
|
3
|
.25
|
|
Articles of Incorporation of LeBus Oil Field Service Co., dated
December 19, 1985. (Incorporated by reference to
Exhibit 3.27 of the Companys Registration Statement
on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.26
|
|
Bylaws of LeBus Oil Field Service Co. (Incorporated by reference
to Exhibit 3.28 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.27
|
|
Articles of Incorporation of Globe Well Service, Inc., as
amended, dated February 6, 1979. (Incorporated by reference
to Exhibit 3.29 of the Companys Registration
Statement on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.28
|
|
Bylaws of Globe Well Service, Inc. (Incorporated by reference to
Exhibit 3.30 of the Companys Registration Statement
on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.29
|
|
Articles of Organization of SCH Disposal, L.L.C., dated
October 30, 1998. (Incorporated by reference to
Exhibit 3.31 of the Companys Registration Statement
on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.30
|
|
Regulations of SCH Disposal, L.L.C., dated as of
November 2, 1998. (Incorporated by reference to
Exhibit 3.32 of the Companys Registration Statement
on
Form S-4
(SEC File
No. 333-135807),
filed on July 17, 2006)
|
|
3
|
.31*
|
|
Articles of Incorporation of Sledge Drilling Corp., dated
November 22, 2005.
|
|
3
|
.32*
|
|
Bylaws of Sledge Drilling Corp.
|
|
3
|
.33*
|
|
Certificate of Incorporation of Wildhorse Services, Inc., dated
as of July 30, 2002.
|
|
3
|
.34*
|
|
Bylaws of Wildhorse Services, Inc.
|
|
3
|
.35*
|
|
Articles of Incorporation of Xterra Fishing & Rental
Tools Co., as amended, dated June 1, 2000.
|
|
3
|
.36*
|
|
Bylaws of Xterra Fishing & Rental Tools Co.
|
|
3
|
.37*
|
|
Articles of Incorporation of Chaparral Service, Inc., dated
July 18, 1969.
|
|
3
|
.38*
|
|
Amended and Restated Bylaws of Chaparral Service, Inc.
|
|
3
|
.39*
|
|
Certificate of Incorporation of Hennessey Rental Tools, Inc.,
dated September 29, 1993.
|
|
3
|
.40*
|
|
Bylaws of Hennessey Rental Tools, Inc.
|
|
3
|
.41*
|
|
Certificate of Formation of Permian Plaza, LLC, dated
August 20, 2007.
|
|
3
|
.42*
|
|
Company Agreement of Permian Plaza, LLC.
|
|
4
|
.1
|
|
Specimen Stock Certificate representing common stock of the
Company. (Incorporated by reference to Exhibit 3.1 of the
Companys Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on November 4, 2005)
|
|
4
|
.2
|
|
Indenture dated April 12, 2006, among Basic Energy
Services, Inc., the guarantors party thereto, and The Bank of
New York Trust Company, N.A., as trustee. (Incorporated by
reference to Exhibit 4.1 of the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on April 13, 2006)
|
|
4
|
.3
|
|
Form of 7.125% Senior Note due 2016. (Included in the
Indenture filed as Exhibit 4.1 of the Companys
Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on April 13, 2006)
|
|
4
|
.4
|
|
First Supplemental Indenture dated as of July 14, 2006 to
Indenture dated as of April 12, 2006 among the Company, as
Issuer, the Subsidiary Guarantors named therein and The Bank of
New York Trust Company, N.A., as trustee. (Incorporated by
reference to Exhibit 4.1 of the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on July 20, 2006)
|
|
4
|
.5
|
|
Second Supplemental Indenture dated as of April 26, 2007
and effective as of March 7, 2007 to Indenture dated as of
April 12, 2006 among the Company as Issuer, the Subsidiary
Guarantors named therein and the Bank of New York
Trust Company, N.A., as trustee. (Incorporated by reference
to Exhibit 4.1 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on May 1, 2007)
|
|
4
|
.6
|
|
Third Supplement Indenture dated as of April 26, 2007 to
Indenture dated as of April 12, 2006 among the Company as
Issuer, the Subsidiary Guarantors named therein and the Bank of
New York Trust Company, N.A., as trustee. (Incorporated by
reference to Exhibit 4.2 of the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on May 1, 2007)
|
|
4
|
.7
|
|
Fourth Supplemental Indenture dated as of February 9, 2009
to Indenture dated as of April 12, 2006 among the Company
as Issuer, the Subsidiary Guarantors named therein and the Bank
of New York Mellon Trust Company, N.A., as Trustee.
(Incorporated by reference to Exhibit 4.7 of the
Companys Annual Report on
Form 10-K
(SEC File No. 001-32693),
filed March 9, 2009)
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
4
|
.8
|
|
Indenture dated as of July 31, 2009, by and among Basic,
the Guarantors named therein and The Bank of New York Mellon
Trust Company, N.A., as Trustee. (Incorporated by reference
to Exhibit 4.1 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on August 4, 2009)
|
|
4
|
.9
|
|
Form of 11.625% Senior Secured Note due 2014 (included as
Exhibit A to Exhibit 4.1 of the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on August 4, 2009)
|
|
4
|
.10
|
|
Security Agreement dated as of July 31, 2009, by and
between Basic and each of the other Grantors party thereto in
favor of The Bank of New York Mellon Trust Company, N.A.,
as Trustee. (Incorporated by reference to Exhibit 4.3 of
the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on August 4, 2009)
|
|
5
|
.1*
|
|
Opinion of Andrews Kurth LLP regarding the validity of the new
notes
|
|
8
|
.1*
|
|
Opinion of Andrews Kurth LLP regarding certain tax matters
|
|
10
|
.1
|
|
Form of Indemnification Agreement. (Incorporated by reference to
Exhibit 10.1 of the Companys Registration Statement
on
Form S-1
(SEC File No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.2
|
|
Second Amended and Restated Stockholders Agreement dated
as of April 2, 2004 among the Company and the stockholders
listed therein. (Incorporated by reference to Exhibit 10.7
of the Companys Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on August 12, 2005)
|
|
10
|
.3
|
|
Stock Purchase Agreement dated as of September 18, 2003, as
amended on October 1, 2003, among the Company, FESCO
Holdings, Inc. and the sellers named therein. (Incorporated by
reference to Exhibit 10.8 of the Companys
Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on August 12, 2005)
|
|
10
|
.4
|
|
Asset Purchase Agreement dated as of August 14, 2003 among
the Company and PWI, Inc. (Incorporated by reference to
Exhibit 10.9 of the Companys Registration Statement
on
Form S-1
(SEC File No. 333-127517),
filed on August 12, 2005)
|
|
10
|
.5
|
|
Fourth Amended and Restated Credit Agreement dated as of
October 3, 2003, amended and restated as of
February 6, 2007, among Basic Energy Services, Inc., the
subsidiary guarantors party thereto, Bank of America, N.A., as
syndication agent, Capital One, National Association, as
documentation agent, BNP Paribas, as documentation agent, UBS
AG, Stamford Branch, as issuing bank, administrative agent and
collateral agent, and the lenders party thereto. (Incorporated
by reference to Exhibit 10.1 to the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on February 12, 2007)
|
|
10
|
.6
|
|
Amendment and Consent No. 1 to Fourth Amended and Restated
Credit Agreement dated May 4, 2009. (Incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on May 7, 2009)
|
|
10
|
.7
|
|
Fourth Amended and Restated Basic Energy Services, Inc. 2003
Incentive Plan. (Incorporated by reference to Exhibit 10.1
of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on June 1, 2009)
|
|
10
|
.8
|
|
Form of Non-Qualified Option Grant Agreement (Executive
Officer Pre-March 1, 2005). (Incorporated by
reference to Exhibit 10.12 of the Companys
Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.9
|
|
Form of Non-Qualified Option Grant Agreement (Executive
Officer Post-March 1, 2005). (Incorporated by
reference to Exhibit 10.13 of the Companys
Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.10
|
|
Form of Non-Qualified Option Grant Agreement (Non-Employee
Director Pre-March 1, 2005). (Incorporated by
reference to Exhibit 10.14 of the Companys
Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.11
|
|
Form of Non-Qualified Option Grant Agreement (Non-Employee
Director Post-March 1, 2005). (Incorporated by
reference to Exhibit 10.15 of the Companys
Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.12
|
|
Form of Restricted Stock Grant Agreement. (Incorporated by
reference to Exhibit 10.16 of the Companys
Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.13
|
|
Form of Amendment to Nonqualified Stock Option Agreement, dated
as of December 31, 2005, by and between the Company and the
optionees party thereto. (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 4, 2006)
|
|
10
|
.14
|
|
Form of Nonqualified Stock Option Agreement (Director form
effective March 2006). (Incorporated by reference to
Exhibit 10.13 of the Companys Annual Report on
Form 10-K
(SEC File No. 001-32693),
filed on March 7, 2008)
|
|
10
|
.15
|
|
Form of Nonqualified Stock Option Agreement (Employee form
effective March 2006). (Incorporated by reference to
Exhibit 10.14 of the Companys Annual Report on
Form 10-K
(SEC File No. 001-32693),
filed on March 7, 2008)
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.16
|
|
Form of Restricted Stock Grant Agreement (Officers and
Employees Post-March 1, 2007). (Incorporated by
reference to Exhibit 10.5 to the Companys Quarterly
Report on
Form 10-Q
(SEC File No. 001-32693),
filed on May 10, 2007)
|
|
10
|
.17
|
|
Form of Restricted Stock Grant Agreement (Non-Employee
Directors Post-March 1, 2007). (Incorporated by
reference to Exhibit 10.6 to the Companys Quarterly
Report on
Form 10-Q
(SEC File No. 001-32693),
filed on May 10, 2007)
|
|
10
|
.18
|
|
Form of Non-Qualified Stock Option Grant Agreement
(Post-March 1, 2007). (Incorporated by reference to
Exhibit 10.7 to the Companys Quarterly Report on
Form 10-Q
(SEC File No. 001-32693),
filed on May 10, 2007)
|
|
10
|
.19
|
|
Form of Performance-Based Award Agreement (Officers and
Employees). (Incorporated by reference to Exhibit 10.1 of
the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on March 17,2008)
|
|
10
|
.20
|
|
Form of Restricted Stock Grant Agreement (Officers and
Employees). (Incorporated by reference to Exhibit 10.2 of
the Companys Quarterly Report on
Form 10-Q
(SEC File No. 001-32693),
filed on May 8, 2008)
|
|
10
|
.21
|
|
Form of Restricted Stock Grant Agreement (Non-Employee
Directors). (Incorporated by reference to Exhibit 10.3 of
the Companys Quarterly Report on
Form 10-Q
(SEC File No. 001-32693),
filed on May 8. 2008)
|
|
10
|
.22
|
|
Form of Performance-Based Award Agreement (effective March 2009)
(Incorporated by reference to Exhibit 10.1 of the
Companys Current Report on
Form 8-K
(SEC File No. 001-32963),
filed March 19, 2009)
|
|
10
|
.23
|
|
Workover Unit Package Contract and Acceptance Agreement, dated
as of May 17, 2005, between Basic Energy Services, L.P. and
Taylor Rigs, LLC. (Incorporated by reference to
Exhibit 10.17 of the Companys Registration Statement
on
Form S-1
(SEC File No. 333-127517),
filed on November 4, 2005)
|
|
10
|
.24
|
|
Share Exchange Agreement, dated as of September 22, 2003,
among BES Holding Co. and the Stockholders named therein.
(Incorporated by reference to Exhibit 10.18 of the
Companys Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on September 28, 2005)
|
|
10
|
.25
|
|
Form of Share Tender and Repurchase Agreement. (Incorporated by
reference to Exhibit 10.19 of the Companys
Registration Statement on
Form S-1
(SEC File No. 333-127517),
filed on November 4, 2005)
|
|
10
|
.26
|
|
Workover Unit Package Contract and Acceptance Agreement, dated
as of November 10, 2005, between Basic Energy Services,
L.P. and Taylor Rigs, LLC. (Incorporated by reference to
Exhibit 10.20 of the Companys Registration Statement
on
Form S-1
(SEC File No. 333-127517),
filed on November 16, 2005)
|
|
10
|
.27
|
|
Asset Purchase Agreement dated as of February 21, 2006
among Basic Energy Services, LP, Basic Energy Services GP, LLC,
G&L Tool, Ltd., DLH Management, LLC and LJH, Ltd.
(Incorporated by reference to Exhibit 10.1 of the
Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on March 2, 2006)
|
|
10
|
.28
|
|
Contingent Earn Out Agreement dated as of February 28, 2006
among Basic Energy Services, LP and G&L Tool, Ltd.
(Incorporated by reference to Exhibit 10.2 of the
Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on March 2, 2006)
|
|
10
|
.29
|
|
Fee Reimbursement Agreement, dated as of July 24, 2006, by
and among the Company, Southwest Partners II, L.P., Southwest
Partners, III, L.P. and Fortress Holdings, LLC.
(Incorporated by reference to Exhibit 10.23 of the
Companys Registration Statement on
Form S-1
(SEC File No. 333-136019),
filed on July 25, 2006)
|
|
10
|
.30
|
|
Employment Agreement of Kenneth V. Huseman, effective as of
December 31, 2006. (Incorporated by reference to
Exhibit 10.1 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 4, 2007)
|
|
10
|
.31
|
|
Employment Agreement of Alan Krenek, effective as of
December 31, 2006. (Incorporated by reference to
Exhibit 10.2 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 4, 2007)
|
|
10
|
.32
|
|
Amended and Restated Employment Agreement of Charles W. Swift,
effective as of November 21, 2008. (Incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on November 24, 2008)
|
|
10
|
.33
|
|
Employment Agreement of Dub William Harrison, effective as of
December 31, 2006. (Incorporated by reference to
Exhibit 10.4 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 4, 2007)
|
|
10
|
.34
|
|
Employment Agreement of James E. Tyner, effective as of
December 31, 2006. (Incorporated by reference to
Exhibit 10.5 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 4, 2007)
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.35
|
|
Amended and Restated Employment Agreement of Thomas Monroe
Patterson, effective as of November 21, 2008. (Incorporated
by reference to Exhibit 10.2 of the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on November 24, 2008)
|
|
10
|
.36
|
|
Employment Agreement of Mark David Rankin, effective as of
December 31, 2006. (Incorporated by reference to
Exhibit 10.7 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 4, 2007)
|
|
10
|
.37
|
|
First Amendment to Employment Agreement of Kenneth V. Huseman,
effective as of January 23, 2007. (Incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
(SEC File No. 001-32693),
filed on January 29, 2007)
|
|
10
|
.38
|
|
Registration Rights Agreement, dated as of March 6, 2007,
by and among Basic Energy Services, Inc. and the JetStar
Stockholders Representative. (Incorporated by reference to
Exhibit 10.1 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on March 8, 2007)
|
|
10
|
.39
|
|
Registration Rights Agreement, dated as of April 2, 2007,
by and among the Company and the Holders named therein.
(Incorporated by reference to Exhibit 10.1 of the
Companys current Report on
Form 8-K
(SEC File No. 001-32693),
filed on April 5, 2007)
|
|
10
|
.40
|
|
Registration Rights Agreement dated as of July 31, 2009, by
and among Basic, the Guarantors named therein and the initial
purchasers party thereto. (Incorporated by reference to
Exhibit 4.4 of the Companys Current Report on
Form 8-K
(SEC File No. 001-32693),
filed on August 4, 2009)
|
|
10
|
.41
|
|
Purchase Agreement, dated April 7, 2006, by and among Basic
Energy Services, Inc. (the Company), UBS Securities
LLC as representative for the Initial Purchasers listed therein,
and the Subsidiary Guarantors party thereto (Incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
filed on April 13, 2006)
|
|
12
|
.1*
|
|
Statement regarding computation of ratio of earnings to fixed
charges
|
|
21
|
.1*
|
|
Subsidiaries of the Company
|
|
23
|
.1*
|
|
Consent of KPMG LLP
|
|
23
|
.2*
|
|
Consent of Andrews Kurth LLP (included in Exhibit 5.1)
|
|
24
|
.1*
|
|
Powers of Attorney (included on signature pages).
|
|
25
|
.1*
|
|
Form T-1
Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 of The Bank of New York Mellon
Trust Company, N.A. to act as trustee under the Indenture
|
|
99
|
.1*
|
|
Form of Letter of Transmittal
|
|
99
|
.2*
|
|
Guidelines for Certification of Taxpayer Identification Number
on Substitute
Form W-9
|
|
99
|
.3*
|
|
Form of Notice of Guaranteed Delivery
|
|
99
|
.4*
|
|
Form of Letter to Brokers
|
|
99
|
.5*
|
|
Form of Letter to Clients
|
|
|
|
* |
|
Indicates exhibits filed herewith. |
|
|
|
Management contract or compensatory plan or arrangement |