UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

 

Form 10-K/A

(Amendment No. 1)

 

 

Commission file no. 001-32693

 

 

 

 

Basic Energy Services, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code:

(432) 620-5500

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o     No þ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  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):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

 

The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $550,036,398 as of June 29, 2007, the last business day of the registrant’s most recently completed second fiscal quarter (based on a closing price of $25.57 per share and 21,511,005 shares held by non-affiliates).

 

40,925,530 shares of the registrant’s Common Stock were outstanding as of March 4, 2008.

 

Documents incorporated by reference: None.

 

 

EXPLANATORY NOTE

 

The purpose of this Amendment No. 1 on Form 10-K/A (the “Amendment”) is to amend and restate Part III, Items 10 through 14 of our previously filed Annual Report on Form 10-K for the year ended December 31, 2007, filed with the Securities Exchange Commission on March 7, 2008 (the “Original Form 10-K”), to include information previously omitted in reliance on General Instruction G to Form 10-K, which provides that registrants may incorporate by reference certain information from a definitive proxy statement prepared in connection with the election of directors. Basic Energy Services, Inc. (“Basic” or the “Company”) has determined to include such Part III information by amendment of the Original Form 10-K rather than by incorporation by reference to the proxy statement. Accordingly, Part III of the Original Form 10-K is hereby amended and restated as set forth below.

 

Also included in this Amendment are the certifications required by Rule 12b-15 of the Securities Exchange Act of 1934, as amended.

 

There are no other changes to the Original Form 10-K other than those outlined above. This Amendment does not reflect events occurring after the filing of the Original Form 10-K, nor does it modify or update disclosures therein in any way other than as required to reflect the amendment set forth below. Among other things, forward-looking statements made in the Original Form 10-K have not been revised to reflect events that occurred or facts that became known to us after the filing of the Original Form 10-K, and such forward looking statements should be read in their historical context.

 

BASIC ENERGY SERVICES, INC.

 

Index to Form 10-K

 

 

CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS

 

This annual report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among other things, the risk factors discussed in this annual report and other factors, most of which are beyond our control.

 

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 annual report are forward looking-statements. Although we believe that the forward-looking statements contained in this annual report are based upon reasonable assumptions, the forward-looking events and circumstances discussed in this annual report 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:

 

 

Our forward-looking statements speak only as of the date of this annual report. 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 annual report includes market share, 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 World Oil magazine, Baker Hughes Incorporated, the Association of Energy Service Companies, and the Energy Information Administration of the U.S. Department of Energy. Industry surveys, 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 management’s 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.

 

 

Directors

 

The following table sets forth certain information regarding our directors as of March 31, 2008. The Class I directors’ term will expire at the annual meeting of stockholders in 2011, the Class II directors’ term will expire at the annual meeting of stockholders in 2010 and the Class III directors’ term will expire at the annual meeting of stockholders in 2008.

 

 

Set forth below is a description of the backgrounds of our directors.

 

James S. D’Agostino.  Mr. D’Agostino 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 of its subsidiary, Encore Bank, N.A., since November 1999. From 1998 to 1999, Mr. D’Agostino served as Vice Chairman and Group Executive and from 1997 until 1998, he served as President, Member of the Office of Chairman and Director of American General Corporation. Mr. D’Agostino graduated with an economics degree from Villanova University and a J.D. from Seton Hall University School of Law.

 

William E. Chiles.  Mr. Chiles has served as the Chief Executive Officer, 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.  Mr. Fulton has served as President and Chief Executive Officer of Frontier Drilling ASA since September 2002. From December 2001 to August 2002, Mr. Fulton managed personal investments. 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 and 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.

 

Kenneth V. Huseman (President — Chief Executive Officer and Director) has 29 years of well servicing experience. He has been our President, Chief Executive Officer and a director of Basic Energy Services 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 1982 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.

Sylvester P. Johnson, IV.  Mr. Johnson has served as President, 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.

 

Thomas P. Moore, Jr.  Mr. Moore has served as a director of Basic 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.

 

Steven A. Webster.  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 Suisse’s 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 of 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 Grey Wolf, Inc., SEACOR Holdings Inc., Hercules Offshore, Inc., Camden Property Trust, Geokinetics, Inc., Pinnacle Gas Resources, Inc., Encore Bancshares, 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.

 

H. H. Wommack, III.  Mr. Wommack was our founder and our Chairman of the Board from 1992 until January 2001. Mr. Wommack is currently a principal of and Chief Executive Officer of Saber Resources, LLC, a privately held oil and gas company that he founded in May 2004. Mr. Wommack served as Chairman of the Board, President, Chief Executive Officer and a Director of Southwest Royalties Holdings, Inc. from its formation in July 1997 until April 2005 and of Southwest Royalties, Inc. from its formation in 1983 until its sale in May 2004. Prior to the formation of Southwest Royalties, Mr. Wommack was a self-employed independent oil and gas producer. Mr. Wommack is currently Chairman of the Board of Midland Red Oak Realty, a commercial real estate company involved in investments in the Southwest. He graduated with a B.A. from the University of North Carolina and a J.D. from the University of Texas School of Law.

 

Executive Officers

 

Our executive officers as of March 31, 2008 and their respective ages and positions are as follows:

 

Set forth below is a description of the backgrounds of our executive officers, other than Mr. Huseman, whose biography is included above in the biographies of our directors.

 

Alan Krenek (Senior Vice President, Chief Financial Officer, Treasurer and Secretary) has 20 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. From March 2002 to August 2002, he was a consultant involved in management, assessment of operational and financial internal controls, cost recovery and cash flow management. Mr. Krenek pursued personal interests from November 2001 to March 2002. 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.

 

Charles W. Swift (Senior Vice President — Rig and Truck Operations) has 35 years of related industry experience including 27 years specifically in the domestic well service business. He was named Senior Vice President — Rig and Truck Operations in July 2006, 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 30 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 Energy’s 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.

 

T. M. “Roe” Patterson (Group Vice President — Completion and Remedial Services) has 13 years of related industry experience. He has been our Vice President of Rental and Fishing Tool Operations since July 2006, and also became our Group Vice President of Completion and Remedial Services in April 2007. He was our Vice President of Corporate Development from February 2006 through April 2007. 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.

 

Spencer D. Armour III (Vice President — Corporate Development) has 29 years of related industry experience. He has been our Vice President of Corporate Development since April 2007. Prior to joining us, he served as CEO of Sledge Drilling Corporation from March 2006 to March 2007. He served as Executive Vice President — Sales and Contracts for Patterson — UTI from January 2002 through February 2006 and served on the Board of Directors of Patterson — UTI from 1999 through 2001. He served as President of Ambar Lone Star Fluid Services, a subsidiary of Patterson — UTI from January 1998 to December 2001. Mr. Armour founded Lone Star Mud in October 1986 and served as its President until the Company was acquired by Patterson — UTI in January 1998. He graduated with a B.S. degree in Economics from the University of Houston.

David W. Sledge (Vice President — Contract Drilling) has 28 years of related industry experience. He has been our Vice President of Contract Drilling since April 2007. Prior to joining us he served as President and COO of Sledge Drilling Corporation from March 2006 to March 2007. He served as an Area Manager for Patterson — UTI from 2004 to 2006. He was involved in private investments from 1997 to 2004. He served with Gene Sledge Drilling Corp. in various capacities and was President at the time of its sale to Patterson — UTI in 1996. He presently serves on the Board of Directors for Comstock Resources Inc. and Bois D’Arc Energy Corp. Mr. Sledge graduated with a B.B.A. degree in Management from Baylor University.

 

 

Compensation Discussion and Analysis

 

Overview of Our Compensation Policies and Objectives.  Our intent regarding compensation of its senior executive officers is to provide salary levels and compensation incentives (1) that are competitive within the market in which positions are located, (2) that attract and retain individuals of outstanding ability in these key positions and (3) that are designed to align the executives’ incentives with the Company’s short and long-term goals, including strong pay-for-performance recognition for both individual performance and the Company’s performance relative to the performance of other companies of comparable size, complexity and quality. In addition, the Compensation Committee considers the anticipated tax treatment of the Company’s executive compensation program.

 

Elements of Compensation.  During 2006 and 2007, the executive compensation program for our named executive officers and other senior executives included four principal elements that, taken together, constitute a flexible and balanced method of establishing total compensation. These elements are:

 

 

The compensation program for our named executive officers during 2006 and 2007 included only very limited additional perquisites not offered to employees generally.

 

Selection of Elements to Provide Competitive Levels of Compensation.  The Compensation Committee generally attempts to provide the Company’s 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 Company’s peers. During 2006, the Compensation Committee attempted to weight compensation generally toward long-term incentives, with base compensation targeted in the range of the 25th to 50th percentile of the compensation peer group considered by the Committee. The Committee 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 engaged Pearl Meyer & Partners during 2005 to perform an executive compensation review. This review was completed in December 2005. The peer group was comprised of a combination of the Company’s 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. This review was used by the Compensation Committee in establishing 2006 executive base salaries, the range for potential 2006 cash incentive bonuses to be paid in 2007, and aggregate long-term incentive plan payouts and equity awards. During 2006, the Company elected to make equity grant levels somewhat higher than the median in order to address certain retention pressures in the market. Total cash compensation levels were found near the norm, and increased generally to move executives closer to the median where applicable and in accordance with anticipated normal industry increases (which increases were higher than prior-year normal increases due to competition and activity in the sector). While the targeted value of an executive’s 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.”

 

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 target-level performances 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 general approach in establishing the total compensation for the Company’s executives at 2007 target 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:

 

 

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 incumbent’s competency level based on overall experience and past performance. All of the executives employed by the Company during 2005 who were expected to continue service during 2006 received salary increases for fiscal 2006, including Mr. Huseman. The base salaries of Messrs. Huseman, Krenek and Tyner were also increased by the Compensation Committee for 2007 based on the Compensation Committee’s review of its peer group and anticipated design for the overall 2007 compensation program for executive officers.

 

Quarterly Incentive Bonus Plans.  During 2006 and 2007, the Company maintained three individual Quarterly Incentive Bonus Plans for management and administrative personnel. These plans address (1) area-level personnel, (2) region- and division-level personnel and (3) corporate-level personnel, except for the CEO and CFO. During 2006 and 2007, 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 2006 and 2007, corporate-level bonuses were tied to the Company’s net income.

 

Messrs. Huseman and Krenek did not participate in any of the Quarterly Incentive Bonus Plans during 2006 or 2007 and received only an annual cash bonus in early 2007 and 2008, 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 he participated in the Quarterly Incentive Bonus Plan in the third and fourth quarters of 2007 and received an annual cash bonus in early 2008. Messrs. Patterson and Tyner each participated in the Quarterly Incentive Bonus Plans in 2006 and 2007 and received annual cash bonuses in early 2007 and 2008.

 

Annual Cash Bonuses and Non-Equity Incentive Plan Compensation.  The purpose of annual cash bonuses under our Second 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 cash bonus awards to our named

executive officers for 2006 and 2007 were paid as non-equity incentive plan compensation based upon the achievement of corporate performance objectives.

 

During 2006, the Compensation Committee of the Company utilized a set of metrics, which we refer to as our 2006 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):

 

 

Target bonus award levels for the Company’s executive officers during 2006 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 2006 ranged from zero to 100% of base salary, with a target level of 75% based on the Company’s annual budgeted revenue, plus 10%, plus acquisition-related revenue at budgeted performance. Payments made under our Quarterly Incentive Bonus Plans offset the annual bonus awards. The maximum target bonus is granted if total points for the metrics equal or exceed 2.4 out of a maximum of 3.0 points. The greatest weight is given to EBITDA return on capital employed. The threshold level for the maximum bonus level on this metric was below our 2005 and 2006 actual performance, which actual performance continued to exceed historical levels. During 2006, the Company exceeded the maximum threshold level for targeted return on equity, but it did not exceed the maximum threshold level for either accident record or revenue growth. All of the executive officers received the maximum annual cash bonus for 2006, equal to 100% of their base salary as of December 31, 2006, which cash bonuses were paid during the first quarter of 2007. Payments under these metrics were not “qualified performance based compensation” within the meaning of Section 162(m) of the Code.

 

In addition to the foregoing cash awards, the Compensation Committee used these metrics to determine the potential value of equity incentive rewards in the form of options or restricted stock, which targeted a range from zero to 250% for our CEO, 200% for our CFO and Senior Vice President — Rig and Truck Operations, and 100% for other executive officers. These awards were issued in March 2007 based on 2006 performance.

 

During 2007, the Compensation Committee of the Company utilized a set of metrics as guidelines for determining aggregate annual bonuses for our senior executive officers, including each of our named executive officers, consisting of:

 

 

Target bonus award levels for the Company’s executive officers during 2007 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 2007 ranged from zero to 100% of base salary, with target levels as follows based on the Company’s annual budgeted revenue, plus 5%, plus acquisition-related revenue at budgeted performance: Messrs. Huseman and Krenek, 100%; Messrs. Swift and Patterson, 80%; and Mr. Tyner, 50%. Payments made under our Quarterly Incentive Bonus Plans offset the annual bonus awards. The executive officers received annual cash bonuses for 2007 equal to between approximately 96% to 50% of their base salary as of December 31, 2007,

which cash bonuses were paid during the first quarter of 2008. Payments under these metrics were not “qualified performance based compensation” within the meaning of Section 162(m) of the Code.

 

In addition to the foregoing cash awards, the Compensation Committee used these metrics to determine the potential value of equity incentive rewards in the form of performance-based restricted 2007 stock or restricted stock, which targeted a range from zero to 250% for our CEO, 200% for our CFO and Senior Vice President — Rig and Truck Operations, and 100% for other executive officers. These awards were issued in March 2008 based on 2007 performance.

 

The Company’s annual performance measures for officers during 2006 and 2007 were recommended by the Chief Executive Officer and approved by the Compensation Committee. The Compensation Committee also requested and received a recommendation from the CEO, based on the report from Pearl Meyer, regarding the CEO’s compensation. Annual cash bonuses for fiscal 2006 and 2007 were paid to each of our executive officers during 2007 and 2008, respectively. The Company’s annual performance measures for officers for 2008 other than the Chief Executive Officer have been recommended by the Chief Executive Officer and are expected to be approved by the Compensation Committee. The Compensation Committee will base its determination of CEO levels of performance measures on the report from Pearl Meyer.

 

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 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:

 

 

The performance-based Three-Year LT 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.

 

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 Company’s executives, including Mr. Huseman, with a total compensation 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 Company’s 2003 Incentive Plan, which was adopted by the board and has been approved by the Company’s stockholders as amended, covers stock awards issued under the Company’s 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 in one-fourth increments on January 1, 2008, 2009, 2010 and 2011.

 

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 Company’s 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 Company’s “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 Company’s initial public offering in December 2005 and ending not later than the Company’s 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.

 

2008 Long-Term Incentive Program.  In March 2008, the Compensation Committee, pursuant to its authorization under the 2003 Incentive Plan, approved and recommended to the Board, and the Board approved and implemented, the 2008 Long-Term Incentive Program consisting of:

 

 

The performance-based Three-Year LT 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.

 

Three-Year LT Incentive Program.  Under the Three-Year LT Incentive Program implemented during March 2008, the executive officers and certain middle management personnel (total of 178 participants for 2008 awards) may earn restricted stock at the end of a one-year period, based on the Company’s 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:

 

 

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 3.75 years from the initial award date.

Achievement of the maximum goals will require superior performance of the executives and the Company relative to the Company’s 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 disclosures in this Form 10-K and other periodic filings.

 

Target award levels were set for each participant based on a multiple of the recommended 2008 base salary of each executive officer. In determining the number of restricted shares to award, the Compensation Committee used a 30-day average of closing prices prior to the date of the Committee’s March 11, 2008 meeting at which the awards were approved. In determining the number of shares of restricted stock to award, the Committee used this same 30-day average of closing prices and a Black-Scholes option valuation methodology.

 

The PB Peer Group consists 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) W-H Energy Services, Inc.; (9) Superior Energy Services, Inc.; and (10) Key Energy Services, Inc.

 

The total maximum number of shares for all participants for the Three-Year LT Incentive Program awards granted in March 2008 (150% of target) was 272,450 shares, which earned shares will then time-vest after the end of 2008 over a three-year period. Of these shares, 93,250 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 pre-established performance goals of the Company in light of the Company’s actual performance for the year.

 

The 2008 awards under the Three-Year LT 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.

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 forfeiture and maximum limits, our executive officers may earn the percentage of restricted shares set forth in the following LTIP payout grid (which shows the effect of 2005-2007 as an example of where the Company would have been if these awards were earned as of the end of 2007), which percentage earned will be based on our ranking within the PB Peer Group (including ourselves):

 

LTIP Payout Grid — Percentage of Equity Compensation
that may be Retained Based on Relative EPS growth/ ROCE Ranking

 

 

Peer EPS Changes

(Sample of 2005-2007)

 

Peer ROCE Performance

(Sample 2005-2007 Average)

 

 

The Compensation Committee will determine how many, if any, of the contingent restricted shares granted in 2008 will be retained or forfeited and restricted shares awarded in 2008 will be received by each of our named executive officers on the basis of our EPS change and ROCE performance relative to the applicable peer group in accordance with the LTIP payout grid set forth above. For the two-year performance period ended December 31, 2007, we ranked eighth within our PB Peer Group (including ourselves) with respect to EPS growth and fourth within our PB Peer Group (including ourselves) with respect to ROCE performance. Assuming these levels are maintained as of the end of 2008, each of our named executive officers would earn approximately 100% of his target restricted shares underlying the 2008 awards

 

Similar to the Quarterly Incentive Bonus Plan for non-executive officers, the Three-Year LT Incentive Program is consistent with the Company’s philosophy of tying a significant portion of each executive’s 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 throughout the vesting period of four years from inception 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.  It is the intent of the Committee that traditional discretionary grants of restricted stock will be used to supplement the Three-Year LT Incentive Program for approximately 50% of total potential awards in future years. Because any awards of restricted stock earned under the Three-Year LT 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 one year from the date of the grant.

 

All restricted stock earned under the Three-Year LT 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 2006, 2007 and current 2008 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, 2007 is discussed below under “— Severance Benefits.”

 

CEO Compensation.  A separate, formal process of evaluating Mr. Huseman was conducted for purposes of determining his 2006 annual bonus paid during March 2007. Specifically, the Committee’s considerations included: (1) our EBITDA return on capital employed (EBITDA/net debt and equity); (2) our accident frequency rates; (3) our revenue growth; (4) our return on equity; and (5) whether Mr. Huseman achieved his individual goals for fiscal 2006. The Committee did not base its considerations on any single factor but assigned the greatest relative weight to our EBITDA return on capital employed. Based on these considerations, Mr. Huseman was granted an annual cash bonus for 2006 performance of $400,000, equal to 100% of his base salary in effect on December 31, 2006, which bonus was paid during the first quarter of 2007.

 

A separate, formal process of evaluating Mr. Huseman was conducted for purposes of determining his 2007 annual bonus paid during March 2008. Specifically, the Committee’s considerations included: (1) our EBITDA return on capital employed (EBITDA/net debt and equity); (2) our accident record, including both the overall frequency rates and levels of preventable accidents; (3) our revenue growth; (4) our return on equity; and (5) whether Mr. Huseman achieved his individual goals for fiscal 2007. The Committee did not base its considerations on any single factor but assigned the greatest relative weight to our EBITDA return on capital employed. Based on these considerations, Mr. Huseman was granted an annual cash bonus for 2007 performance of $400,000, equal to approximately 76% of his base salary in effect on December 31, 2007, which bonus was paid during the first quarter of 2008.

 

Compensation of Other Named Executive Officers.  The Committee reviewed the recommendations of the CEO regarding 2006 and 2007 bonuses and awards. The Committee’s considerations included the same general Company performance-based factors as well as the individual performance of each of the officers. As noted above, the annual cash bonuses paid to each of the other named executive officers for 2007 performance was equal to between approximately 96% to 50% of his base salary in effect on December 31, 2007.

 

During 2006 and in prior years, long-term incentive awards to our executive officers have consisted primarily of grants of options to purchase our common stock. In 2007, the Committee elected to use restricted stock awards as the primary component of long-term compensation for our executive officers, with certain of our executive officers also receiving grants of options to purchase our common stock. The rationale behind this shift towards increased 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 closer 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 is increasing among our peer group.

 

In 2008, the Committee approved and implemented the 2008 Long-Term Incentive Program consisting of the Three-Year LT Incentive Program and discretionary, time-based restricted stock awards. The rationale behind this was to create a program consistent with the Company’s philosophy of tying a significant portion of each executive’s 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.

 

Perquisites.  The Company provides limited perquisites to its senior executives. Perquisites may include vehicle allowances, club memberships and long-term disability insurance. During 2006 and 2007, those perquisites were provided to senior management based on individual employment agreements.

 

Severance Benefits.  We entered into amended and restated employment agreements with each of our named executive officers as of December 31, 2006. 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 officer’s 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 Swift — 1.5 times; and for Messrs. Patterson and Tyner — 0.75 times) of the sum of the officer’s 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 Swift — 2.0 times; and for Messrs. Patterson and Tyner — 1.0 times) of the sum of the officer’s 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. Huseman’s 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 are currently effective through December 31, 2008 (other than Mr. Huseman’s, which 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 the employment agreement of Messrs. Huseman, Krenek or Swift 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 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 and Swift 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 agreements for the other executive officers do 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, 2007, see “Executive Compensation 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 Company’s 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 Committee’s objective with respect to director compensation is to provide compensation incentives that attract and retain individuals of outstanding ability.

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 receive, as of March 2007:

 

 

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 2008 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 this Proxy Statement.

 

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. D’Agostino, Jr.
H. H. Wommack, III

 

Summary Compensation Table

 

The following information relates to compensation paid by the Company for fiscal 2006 and 2007 to the Company’s Chief Executive Officer, Chief Financial Officer and each of the other three most highly compensated executive officers in fiscal 2006 and 2007:

 

Summary Compensation Table

 

 

 

 

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 2007:

 

Grants of Plan-Based Awards — 2007

 

 

Shares of restricted stock and options to purchase shares of our common stock were granted by our Compensation Committee to certain of our employees, including our named executive officers, on March 15, 2007. The shares of restricted stock vest in one-fourth increments on each of March 15, 2009, 2010, 2011 and 2012. The options have an exercise price of $22.66, vest in one-fourth increments on each of January 1, 2009, 2010, 2011 and 2012, and expire on March 15, 2017. The shares of restricted stock and options were granted pursuant to our 2003 Incentive Plan.

 

Employment Agreements

 

On December 29, 2006, we entered into new employment agreements with certain of our executive officers, each effective as of December 31, 2006. These new agreements contain the current base salaries being paid to the executive officers but amend certain provisions relating to severance and non-competition matters. Pursuant to our employment agreement effective December 31, 2006 with Kenneth V. Huseman, our President and Chief Executive Officer, Mr. Huseman is entitled to an initial annual base salary of $400,000. 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 Second Amended and Restated 2003 Incentive Plan. If Mr. Huseman’s employment is terminated for certain reasons, he 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. Huseman’s employment is 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. Huseman’s 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. Huseman’s employment agreement is not renewed by us and a new employment agreement has not been entered into, Mr. Huseman will be entitled to the same severance benefits described above.

 

We have also entered into employment agreements effective December 31, 2006 with Alan Krenek, our Senior Vice President, Chief Financial Officer, Treasurer and Secretary, and Charles W. Swift, our Senior Vice

President — Rig and Truck Operations. Pursuant to these agreements, Mr. Krenek is entitled to an initial base salary of $240,000 and Mr. Swift is entitled to an initial base salary of $200,000. Each of Messrs. Krenek and Swift will also be entitled to an annual performance bonus if certain performance criteria are met. Under these employment agreements, the officer is eligible from time to time to receive grants of stock options and other long-term equity incentive compensation under our Second Amended and Restated 2003 Incentive Plan. If the officer’s employment is terminated for certain reasons, he would be entitled to a lump sum severance payment equal to 1.50 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 officer’s employment is 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. The officer’s employment agreement is effective through December 31, 2007 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 the officer’s employment agreement 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 have also entered into employment agreements effective December 31, 2006 with the following two other executive officers who were “named executive officer” as of December 31, 2006, Thomas Monroe Patterson, our Group Vice President — Completion and Remedial Services, and James E. Tyner, our Vice President — Human Resources, as well as Mark David Rankin, our Vice President — Risk Management. Pursuant to these agreements, these officers are entitled to the following initial base salaries: Mr. Tyner, $140,000; Mr. Patterson, $140,000; and Mr. Rankin, $130,000. Each of these officers will also be entitled to an annual performance bonus if certain performance criteria are met. Under these employment agreements, the officer is eligible from time to time to receive grants of stock options and other long-term equity incentive compensation under our Second Amended and Restated 2003 Incentive Plan. If the officer’s employment is 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 the officer’s employment is 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. The officer’s employment agreement is effective through December 31, 2007 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 the officer’s employment agreement is not renewed by us and a new employment agreement has not been entered into within the six months preceding or the twelve months following a change in control of our company, the officer will be entitled to the same severance benefits described above.

 

As consideration for us entering into the above employment agreements, Messrs. Huseman, Krenek, Swift, Harrison, Tyner, Patterson and Rankin have each 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 who is competitive with us or solicit business from certain of our customers or potential customers. These non-competition restrictions shall not apply in the event that such termination is within 12 months of a change in control of our business. Additionally, the officer has agreed not to solicit any of our employees to reduce or adversely affect their employment with us for a period of two years from such officer’s date of termination, for whatever reason. The employment agreements for Messrs. Huseman, Krenek and Swift 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 agreements for the other executive officers do not contain these provisions.

 

In March 2008, the Board approved 2008 salaries for each of the named executive officers as follows: Huseman — $550,000; Krenek — $300,000; Swift — $250,000; Patterson — $230,000; and Tyner — $190,000.

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, 2007:

 

Outstanding Equity Awards at Fiscal Year-End — 2007

 

 

 

 

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 2007:

 

Option Exercises and Stock Vested — 2007

 

 

Nonqualified Deferred Compensation Plans

 

Nonqualified Deferred Compensation — 2007

 

 

 

 

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. In addition, the Company makes an annual matching contribution to each executive’s plan account, with the Company matching 100% of the first 3% of the executive’s salary, and 50% of the next 2% of the executive’s salary, up to a plan-year maximum of $8,800. The Company may also make discretionary contributions into each executive’s plan account from time to time as it deems appropriate. Subject to certain exceptions, the Company matching and discretionary contributions vest in one-fourth increments determined by such executive’s years of service with the Company, with vesting beginning after two years of service, and full vesting occurring after five years of service. The executive is always fully vested in his own contributions to his plan account. Earnings on an executive’s plan account for 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 the named executive officers, may not receive distributions before a date six months after the date such executive separates service from the Company 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, the 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, 2007:

 

Potential Post-employment Payments as of December 31, 2007 — Kenneth V. Huseman

 

 

Potential Post-employment Payments as of December 31, 2007 — Alan Krenek

 

Potential Post-employment Payments as of December 31, 2007 — Charles W. Swift