Basic Energy Services, Inc.

500 W. Illinois, Suite 100

Midland, Texas 79701

 

 

 

 

NOTICE OF THE 2009

ANNUAL MEETING OF STOCKHOLDERS

 

 

 

 

The 2009 Annual Meeting of Stockholders of Basic Energy Services, Inc. will be held on Tuesday, May 26, 2009, at 10:00 a.m. local time, at the Petroleum Club of Midland, located at 501 W. Wall, Midland, Texas 79701, for the following purposes:

 

1. To elect three Class I directors to serve a three-year term;

 

2. To approve the Fourth Amended and Restated Basic Energy Services, Inc. 2003 Incentive Plan;

 

3. To ratify the appointment of KPMG LLP as our independent auditor for fiscal year 2009; and

 

4. To transact such other business as may properly come before the meeting, or any adjournment of it.

 

Stockholders of record at the close of business on April 23, 2009 are entitled to vote at the meeting or any adjournment. A list of such stockholders will be available for examination by a stockholder for any purpose germane to the meeting during ordinary business hours at our offices at 500 W. Illinois, Suite 100, Midland, Texas 79701 during the ten days prior to the meeting. Stockholders holding at least a majority of the outstanding shares of our common stock are required to be present or represented by proxy at the meeting to constitute a quorum.

 

Please note that space limitations make it necessary to limit attendance at the meeting to stockholders, though each stockholder may be accompanied by one guest. Admission to the meeting will be on a first-come, first-served basis. Registration will begin at 9:30 a.m. and seating will begin at 9:45 a.m. Each stockholder may be asked to present valid picture identification, such as a driver’s license or passport. Stockholders holding stock in brokerage accounts must bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the meeting. You may obtain directions to the Petroleum Club of Midland by calling (432) 682-2557.

 

Important Notice Regarding the Availability of Proxy Materials for the 2009 Annual Meeting of Stockholders to Be Held on May 26, 2009: This notice, the proxy statement for the 2009 Annual Meeting of the Stockholders and our annual report on Form 10-K for the fiscal year ended December 31, 2008 are available at https://www.proxydocs.com/BAS.

 

By Order of the Board of Directors,

 

Alan Krenek,

Secretary

 

Midland, Texas

April 24, 2009

 

 

 

 

TABLE OF CONTENTS

 

 

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 26, 2009

 

 

 

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors in connection with the 2009 Annual Meeting of Stockholders (the “2009 Annual Meeting”) of Basic Energy Services, Inc., a Delaware corporation (the “Company”), to be held at the Petroleum Club of Midland, located at 501 W. Wall, Midland, Texas 79701, on Tuesday, May 26, 2009, at 10:00 a.m. local time. Stockholders of record at the close of business on April 23, 2009, are entitled to notice of, and to vote at, the meeting and at any postponement or adjournment.

 

When a properly executed proxy is received prior to the meeting, the shares represented will be voted at the meeting in accordance with the directions noted on the proxy. A proxy may be revoked at any time before it is exercised by submitting a written revocation or a later-dated proxy to the Secretary of the Company at the mailing address provided below or by attending the meeting in person and so notifying the inspector of elections.

 

Management does not intend to present any business for a vote at the 2009 Annual Meeting, other than (i) the election of directors, (ii) approval of the Fourth Amended and Restated Basic Energy Services, Inc. 2003 Incentive Plan (the “Restated Incentive Plan”) and (iii) the ratification of KPMG LLP as the Company’s independent auditor for fiscal year 2009. Unless stockholders specify otherwise in their proxy, their shares will be voted FOR the election of the nominees listed in this proxy statement, FOR the approval of the Restated Incentive Plan and FOR the ratification of the independent auditor. If other matters requiring the vote of stockholders properly come before the meeting, it is the intention of the persons named in the enclosed proxy card to vote proxies held by them in accordance with their judgment.

 

The complete mailing address of the Company’s executive offices is 500 W. Illinois, Suite 100, Midland, Texas 79701. The approximate date on which this proxy statement and the accompanying proxy card are first being sent or given to the stockholders of the Company is April 24, 2009.

 

 

A majority of the outstanding shares of our common stock present or represented by proxy at the 2009 Annual Meeting will constitute a quorum for the transaction of business. ADP Investor Communication Services will tabulate all votes cast, in person or by submission of a properly executed proxy, before the closing of the polls at the meeting. The Company will appoint an inspector of elections at the meeting.

 

The affirmative vote of holders of a plurality of our common stock present or represented by proxy at the meeting and entitled to vote is required for the election of each nominee for director. Therefore, abstentions and broker non-votes will not be taken into account in determining the outcome of the election of directors.

 

For approval of the Restated Incentive Plan, ratification of the independent auditor and any other matters presented for a vote of stockholders, the affirmative vote of holders of a majority of our common stock present or represented by proxy at the meeting and entitled to vote is required. Therefore, on any such matters, abstentions have the effect of a negative vote, and broker non-votes will not be taken into account.

 

Stockholders who send in proxies but attend the meeting in person may vote directly if they prefer and withdraw their proxies or may allow their proxies to be voted with the similar proxies sent in by other stockholders.

 

 

On April 23, 2009, the record date, there were outstanding 40,682,672 shares of our common stock held of record by approximately 298 persons. Stockholders are entitled to one vote, exercisable in person or by proxy, for each share of our common stock held on the record date. Stockholders do not have cumulative voting rights.

 

Board of Directors.  The Company’s Bylaws provide for the Board of Directors to serve in three classes having staggered terms of three years each. Three Class I directors will be elected at the 2009 Annual Meeting to serve for a three-year term expiring at the Annual Meeting of Stockholders in 2012. Pursuant to Delaware law, in the event of a vacancy on the Board of Directors, a majority of the remaining directors will be empowered to elect a successor, and the person so elected will hold office for the remainder of the full term of the director whose death, retirement, resignation, removal, disqualification or other cause created the vacancy and thereafter until the election of a successor director.

 

Recommendation; Proxies.  The Board of Directors recommends a vote FOR each of the nominees named below. The persons named in the enclosed proxy card will vote all shares over which they have discretionary authority FOR the election of the nominees named below. Although the Board of Directors of the Company does not anticipate that any of the nominees will be unable to serve, if such a situation should arise prior to the meeting, the appointed persons will use their discretionary authority pursuant to the proxy and vote in accordance with their best judgment.

 

Nominees.  The following table sets forth information for each nominee. Each nominee has consented to be named in this proxy statement and to serve as a director, if elected.

 

 

Other Directors.  The following table sets forth certain information for the Class II and Class III directors, whose terms will expire at the Annual Meetings of Stockholders in 2010 and 2011, respectively.

 

 

Meetings.  During fiscal 2008, the Board of Directors held eight meetings of the full Board and 18 meetings of committees. The Nominating and Corporate Governance Committee held four meetings, the Compensation Committee held seven meetings and the Audit Committee held seven meetings during fiscal 2008. In addition, the Company’s independent auditors and management meet with the Audit Committee Chairman prior to the issuance of earnings press releases, and the other members of the Audit Committee are invited to attend these meetings. Each director attended at least 75% of the aggregate of (1) the total number of meetings of the Board of Directors (held during the period for which he has been a director) and (2) the total number of meetings of committees of the Board on which he served (during the periods that he served). Our non-management directors meet at regularly scheduled executive sessions presided over by our Chairman, Mr. Webster. Additionally, our independent directors meet at least once a year without members of management or non-independent directors present. Messrs. Huseman, D’Agostino, Webster and Johnson attended our 2008 annual meeting of stockholders.

 

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 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. D’Agostino, Chiles, Johnson, Moore and Wommack.

 

The Board has determined that Messrs. D’Agostino, Chiles, Johnson, Moore and Wommack are 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 is 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, uses the services of the Company, but such services represented less than 2% of Carrizo’s revenues in 2007 and 2008. Affiliates of Mr. Wommack also have 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 has affirmatively determined that each of these directors are independent and that none of these independent directors has a material relationship with the Company.

Shareholder and Interested Party Communications with the Board of Directors.  Shareholders and interested parties may communicate directly with the Board or a particular director by sending a letter to the attention of the Board or the particular director(s), as applicable, c/o Secretary, Basic Energy Services, Inc., 500 W. Illinois, Suite 100, Midland, Texas 79701. Shareholder communications must contain a clear notation on the mailing envelope indicating that the enclosed letter is a “Shareholder-Board Communication” or “Shareholder-Director Communication.” Additionally, if the enclosed letter is from an interested party, the mailing envelope must contain a clear notation indicating that it is an “Interested Party-Board Communication” or an “Interested Party-Director Communication,” as applicable. All such letters must identify the author as a shareholder and/or interested party and clearly state whether the intended recipients are all members of the Board, certain specified individual directors or a group of directors, such as the non-management directors. The Secretary will make copies of all such letters and circulate them to the appropriate director or directors.

 

All of the directors on our Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee are currently independent in compliance with the requirements of the Sarbanes Oxley Act of 2002, the NYSE listing standards and SEC rules and regulations. The following table shows the committees on which each director serves:

 

 

Audit Committee.  The responsibilities of the Audit Committee, composed of Messrs. Moore (Chairman), D’Agostino and Chiles, include:

 

 

To promote the independence of the audit, the Audit Committee consults separately and jointly with the independent auditors, the internal auditors and management. The Board of Directors has determined that

Messrs. Moore and D’Agostino are “audit committee financial experts.” The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is available in the “Investor Relations — Corporate Governance” section of the Company’s website (www.basicenergyservices.com).

 

Nominating and Corporate Governance Committee.  The responsibilities of the Nominating and Corporate Governance Committee, composed of Messrs. Johnson (Chairman) and Moore include:

 

 

The Board of Directors has adopted a written charter for the Nominating and Corporate Governance Committee, a copy of which is available on the Company’s website (www.basicenergyservices.com).

 

The Nominating and Corporate Governance Committee has not established any minimum qualifications for non-employee director candidates that it recommends for nomination.

 

The Nominating and Corporate Governance Committee has established procedures for identifying and evaluating nominees. First, the Committee considers the Board’s needs. Candidates will first be interviewed by the Committee. If approved by the Committee, candidates will then be interviewed by all other members of the Board. The full Board, with such interested directors recusing themselves as appropriate, will approve all final nominations after considering the recommendations of the Committee. The Chairman of the Board, acting on behalf of the other members of the Board, will extend the formal invitation to an approved candidate to stand for election to the Board.

 

Stockholders may nominate director candidates in accordance with the Company’s Bylaws. To summarize, such nominations must be made in writing to the Company’s Secretary at the Company’s principal executive offices. The recommendation must set forth certain information about both the nominee and the nominating stockholder(s). The foregoing is a summary, and the specific requirements and procedures of the Bylaws, including timing of proposals, control.

 

The stockholder’s notice must set forth as to each nominee all information relating to the nominee that may be required under United States securities laws to be disclosed in solicitations of proxies for the election of directors, including the written consent of the person being recommended as a director candidate to being named in the proxy statement as a nominee and to serving as a director if elected. The stockholder’s notice must also set forth as to the stockholder giving notice and the beneficial owner, if any, on whose behalf the nomination is made: (i) the name and address of such stockholder, as they appear on the Company’s books, and of any such beneficial owner, (ii) the class and number of shares of the Company that are owned beneficially and of record by such stockholder and any such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement

and form of proxy to holders of a sufficient number of holders of the Corporation’s voting shares to elect such nominee or nominees.

 

If the information supplied by the stockholder is deficient in any material aspect or if the foregoing procedures are not followed, the Board or the chairman of the meeting may determine that the stockholder’s nomination should not be brought before the meeting and that the nominee is ineligible for election as a director of the Company. The Committee will not alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether or not the candidate was recommended by a stockholder.

 

Compensation Committee.  The responsibilities of the Compensation Committee, composed of Messrs. Chiles (Chairman), D’Agostino and Wommack, include:

 

 

The Board of Directors has adopted a written charter for the Compensation Committee, a copy of which is available on the Company’s website (www.basicenergyservices.com).

 

The Board of Directors has adopted Corporate Governance Guidelines, which present a flexible framework within which the Board, supported by its committees, directs the affairs of the Company. The Board of Directors has also adopted a Code of Ethics that applies to the Company’s directors and executive officers, including its Chief Executive Officer and Chief Financial Officer. The Corporate Governance Guidelines and Code of Ethics are available in the “Investor Relations — Corporate Governance” section of the Company’s website (www.basicenergyservices.com).

 

If the Company amends or waives the Code of Ethics with respect to the chief executive officer, principal financial officer or principal accounting officer, it will post the amendment or waiver at this location on its website.

 

The following table sets forth the number of shares of common stock beneficially owned as of April 23, 2009 by (1) all persons who beneficially own more than 5% of the outstanding voting securities of the Company, to the knowledge of the Company’s 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.

 

 

 

 

 

The following table sets forth information regarding shares of our common stock authorized for issuance under our equity compensation plans as of December 31, 2008:

 

 

 

 

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 Company’s overall philosophy on compensation of the Company’s executive officers is to provide competitive salary levels and compensation incentives that:

 

 

We also have the following compensation objectives when setting the compensation programs for our executive officers:

 

 

In addition, the Compensation Committee considers the anticipated tax treatment of the Company’s 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:

 

 

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 Company’s executive compensation 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. 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 corporate-level bonuses

to the Company’s 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 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 the periods covered by the Summary Compensation Table included in this proxy statement, 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 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, 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 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.” In November 2008, in connection with the promotion of Thomas M. Patterson to Senior Vice President — Rig and Truck Operations, Mr. Patterson’s employment agreement was amended to make his terms consistent with the second tier described above. Mr. Swift, the 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 Company’s 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:

 

 

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. 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 Company’s 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 proxy statement. 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 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):

 

 

Target bonus award levels for the Company’s 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 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 Company’s business and caused the

Company’s 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:

 

 

The Company’s 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 CEO’s 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:

 

 

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 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 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 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.

 

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 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 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 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 disclosed in the Company’s 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 Committee’s 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 Company’s 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.

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 Company’s EPS growth and ROCE performance measures in light of the Company’s 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.

 

Similar to the Quarterly Incentive Bonus Plan, the Three-Year PB 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 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 Committee’s 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. Huseman’s personal performance, including Mr. Huseman’s 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 Committee’s 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.

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 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.

 

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 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 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 Patterson — 1.5 times; and for Mr. Tyner and (currently) Mr. Swift — 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 Patterson — 2.0 times; and for Mr. Tyner and (currently) Mr. Swift — 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 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 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 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 received in 2008 and continue to receive as of March 2009:

 

 

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.

 

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

 

The following information relates to compensation paid by the Company for fiscal 2008, 2007 and 2006 to the Company’s 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

 

 

 

 

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:

 

 

 

 

 

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. Huseman’s employment were to be 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 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. 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 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. Swift’s 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. Tyner’s 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. Tyner’s 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. Tyner’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. Tyner. In the event that within the six months preceding or the twelve months following a change in control of our company, Mr. Tyner’s 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. 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 officer’s 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.

 

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

 

 

 

 

 

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