(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Basic Energy Services, Inc.

500 W. Illinois, Suite 100

Midland, Texas 79701

 

 

 

 

NOTICE OF THE 2011

ANNUAL MEETING OF STOCKHOLDERS

 

 

 

 

The 2011 Annual Meeting of Stockholders of Basic Energy Services, Inc. will be held on Tuesday, May 24, 2011, 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 III directors to serve a three-year term;

 

2. To approve an amendment to the Fourth Amended and Restated Basic Energy Services, Inc. 2003 Incentive Plan to increase the number of shares of our common stock authorized for issuance thereunder from 7,100,000 shares to 8,350,000 shares;

 

3. To approve an advisory vote on executive compensation;

 

4. To approve an advisory vote on the frequency of future advisory votes on executive compensation;

 

5. To ratify the appointment of KPMG LLP as our independent auditor for fiscal year 2011; and

 

6. 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 8, 2011 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 2011 Annual Meeting of Stockholders to Be Held on May 24, 2011: This notice, the proxy statement for the 2011 Annual Meeting of the Stockholders and our annual report on Form 10-K for the fiscal year ended December 31, 2010 are available at https://www.proxydocs.com/BAS.

 

By Order of the Board of Directors,

 

Alan Krenek,

Secretary

 

Midland, Texas

April 21, 2011

 

 

 

 

TABLE OF CONTENTS

 

 

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 24, 2011

 

 

 

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors in connection with the 2011 Annual Meeting of Stockholders (the “2011 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 24, 2011, at 10:00 a.m. local time. Stockholders of record at the close of business on April 8, 2011, 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 2011 Annual Meeting, other than (i) the election of directors, (ii) the approval of an amendment to the Fourth Amended and Restated Basic Energy Services, Inc. 2003 Incentive Plan to increase the number of shares of our common stock authorized for issuance thereunder, (iii) the approval of an advisory vote on executive compensation, (iv) the approval of an advisory vote on the frequency of future advisory votes on executive compensation and (v) the ratification of KPMG LLP as the Company’s independent auditor for fiscal year 2011. Unless stockholders specify otherwise in voting instructions to their broker, their shares (i) will not be voted in (a) the election of the nominees listed in this proxy statement, (b) the approval of an amendment to the Fourth Amended and Restated Basic Energy Services, Inc. 2003 Incentive Plan (the “2003 Incentive Plan”) to increase the number of shares of our common stock authorized for issuance thereunder, (c) the approval of an advisory vote on executive compensation or (d) the approval of an advisory vote on the frequency of future advisory votes on executive compensation, and (ii) will be voted 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 21, 2011.

 

A majority of the outstanding shares of our common stock present or represented by proxy at the 2011 Annual Meeting will constitute a quorum for the transaction of business. Broadridge Financial Solutions, Inc. 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. Under Delaware law, a broker non-vote or an abstention is not considered to be a vote cast for any proposal and will not have any impact on the outcome of such proposal. “Broker non-votes” occur when brokers, banks or other nominees that hold shares on behalf of beneficial owners do not receive voting instructions from the beneficial owners prior to the meeting and do not have discretionary voting authority to vote those shares. Brokers that have not received instructions from the beneficial owners are permitted to vote on discretionary items, but they are not permitted to vote (a “broker non-vote”) on non-discretionary items absent instructions from the beneficial owner. Brokers no longer have

discretionary voting authority with respect to the election of directors. Abstentions and broker non-votes will count in determining whether a quorum is present at the 2011 Annual Meeting. As a result, both abstentions and broker non-votes will not have any effect on the outcome of voting on director elections.

 

For (i) approval of an amendment to the Fourth Amended and Restated Basic Energy Services, Inc. 2003 Incentive Plan to increase the number of shares of our common stock authorized for issuance thereunder, (ii) approval of an advisory vote on executive compensation, (iii) approval of an advisory vote on the frequency of future advisory votes on executive compensation, (iv) ratification of the independent auditor and (v) 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. As a result, abstentions and broker non-votes will have the same practical effect as votes against these proposals. Because brokers generally have discretionary authority to vote on the ratification of our independent auditors, broker non-votes are generally not expected to result from the vote on this proposal.

 

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 8, 2011, the record date, there were outstanding 42,187,282 shares of our common stock held of record by approximately 322 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 III directors will be elected at the 2011 Annual Meeting to serve for a three-year term expiring at the Annual Meeting of Stockholders in 2014. 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 I and Class II directors, whose terms will expire at the Annual Meetings of Stockholders in 2012 and 2013, respectively.

 

 

Director Experience, Qualifications, Attributes and Skills.  The following is a brief discussion of the experience, qualifications, attributes or skills that led to the conclusion that the following persons should serve as a director of the Company. Only one of our directors, Mr. Huseman, is an officer of the Company. Mr. Huseman, our Chief Executive Officer, has over 30 years of experience in our industry. The relevant experience, qualifications, attributes and skills of our outside directors include: for Mr. Chiles, oil and gas drilling and other oilfield services; for Mr. D’Agostino, banking, investment management and insurance; for Mr. Fulton, oil and gas drilling; for Mr. Garza, political, regulatory and foreign (Mexico); for Mr. Johnson, oil and gas (including as a Registered Petroleum Engineer); for Mr. Moore, investment management (including as a Chartered Financial Analyst), oilfield service and audit committee financial expertise; and for Mr. Webster, oil and gas, oilfield service and private equity.

 

Meetings.  During fiscal 2010, the Board of Directors held nine meetings of the full Board and 16 meetings of committees. The Nominating and Corporate Governance Committee held four meetings, the Compensation Committee held five meetings and the Audit Committee held seven meetings during fiscal 2010. 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. All of our directors attended our 2010 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 2010, 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, either (1) a stock option to purchase 37,500 shares of our common stock at the market price on the date of grant, which option vested ratably over three years, or (2) since our 2005 initial public offering, 37,500 shares of restricted stock that vest ratably over three years.

 

During March 2010, based in part on a review and recommendations by Pearl Meyer & Partners, our independent compensation consultants, and our Compensation Committee, due to the lower stock price per share of our common stock, the Board increased the number of restricted shares issued as an annual retainer from 4,000 shares to 7,000 shares of restricted stock that vest ratably over four years. Our Chairman was also granted an additional 3,000 shares of restricted stock that vest ratably over four years and an additional $30,000 in cash as consideration for services in his capacity as Chairman. The annual fees for committee chairmen and per meeting fees of directors were held the same as for 2009.

 

For additional information regarding fees earned for services as a director effective in 2010, 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 seven members determined by our Board to be independent — Messrs. Chiles, D’Agostino, Fulton, Garza, Johnson, Moore and Webster.

 

The Board has determined that Messrs. Chiles, D’Agostino, Fulton, Garza, Johnson, Moore and Webster 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 (“SEC”). 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 one of the directors serves as an executive officer and director. In particular, Carrizo Oil & Gas, Inc., a company for which Mr. Johnson serves as President and Chief Executive Officer and a director and Mr. Webster serves as Chairman of the Board, uses the services of the Company, but such services represented less than 2% of Carrizo’s revenues in the past three years. Mr. Garza is

counsel to a law firm that was engaged by the Company to perform services, but the fees for such services were less than $120,000 during 2010. In each case, these transactions 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. The Board also considered the prior roles of Mr. Webster and Mr. Fulton as executives of affiliates of Credit Suisse, our largest stockholder. Based upon its review, the Board of Directors has affirmatively determined that each of these directors is independent and that none of these directors has a material relationship with the Company.

 

Stockholder and Interested Party Communications with the Board of Directors.  Stockholders 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. Stockholder communications must contain a clear notation on the mailing envelope indicating that the enclosed letter is a “Stockholder-Board Communication” or “Stockholder-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 stockholder 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), Fulton 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 director nominees. Among the many factors considered in identifying and evaluating nominees, the Nominating and Corporate Governance Committee first considers the Board’s needs. Candidates will first be interviewed by the Nominating and Corporate Governance Committee. If approved by the Nominating and Corporate Governance 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 Nominating and Corporate Governance 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.

 

While the Nominating and Corporate Governance Committee may consider diversity among other factors when considering director nominees, it does not have any specific policy with regard to diversity in identifying

director nominees. In practice, however, the Nominating and Governance Committee has considered diversity as a significant factor, including in connection with the appointment of Mr. Garza to the Board during 2009.

 

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 (i) the stockholder giving notice and (ii) if any, (A) the beneficial owner on whose behalf the nomination is made, (B) any affiliates or associates of such stockholder or any beneficial owner described in clause (A), and (C) each other person with whom any of the foregoing persons either is acting in concert with respect to the Company or has any agreement, arrangement or understanding (whether written or oral) for purpose of acquiring, holding, voting (except pursuant to a revocable proxy given in certain specified circumstances) or disposing of any capital stock of the Company or to cooperate in obtaining, changing or influencing the control of the Company (except independent financial, legal and other advisors acting in the ordinary course of their respective businesses) (each such person in clauses (A), (B) and (C) referred to as a “Stockholder Associated Person”): (1) a description of each agreement, arrangement or understanding with any Stockholder Associated Person; (2) the name and record address, as they appear on the Company’s books, of the stockholder proposing such business, such stockholder’s principal occupation and the name and address of any Stockholder Associated Person; (3) the class or series and number of equity and other securities of the Company which are, directly or indirectly, held of record or beneficially owned by such stockholder or by any Stockholder Associated Person, the dates on which such stockholder or any Stockholder Associated Person acquired such shares and documentary evidence of such record or beneficial ownership; (4) a list of all Derivative Interests (as defined in the Bylaws) held of record or beneficially owned by the stockholder or any Stockholder Associated Person; (5) the name of each person with whom the stockholder or any Stockholder Associated Person has a Voting Agreement (as defined in the Bylaws); (6) details of all other material interests of each stockholder or any Stockholder Associated Person in the proposal of the nominee or any security of the Company (collectively, “Other Interests”); (7) a description of all economic terms of all such Derivative Interests, Voting Agreements or Other Interests and copies of all agreements and other documents relating to each such Derivate Interest, Voting Agreement or Other Interest; and (8) a list of all transactions by such stockholder and any stockholder Associated Person involving any securities of the Company or any Derivative Interests, Voting Agreements or Other Interests within the six-month period prior to the date of the notice.

 

To be timely, a stockholder’s notice given in the context of an annual meeting of stockholders shall be delivered to or mailed and received at the principal executive office of the Company not less than 90 days nor more than 120 days in advance of the first anniversary of the date of the Company’s previous year’s annual meeting of stockholders; provided, however, that if no annual meeting was held in the previous year or the date of the annual meeting of stockholders has been changed by more than 30 calendar days from the date of the previous year’s annual meeting, the notice must be received by the Company not less than 90 days nor more than 120 days prior to such annual meeting date or, if the first public announcement of such annual meeting is less than 100 days prior to the date of such annual meeting, the tenth (10th) day following the day on which the public announcement of the date of such meeting is first made by the Company.

 

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 Nominating and Corporate Governance 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 Garza, 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 8, 2011 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, 2010:

 

 

 

 

The following discussion and analysis addresses compensation with respect to our named executive officers, including the actions and decisions of the Compensation Committee of our Board of Directors, which oversees our compensation policies and sets or recommends executive officer compensation, with respect to 2010-related compensation. For 2010, our named executive officers consisted of Kenneth V. Huseman, Alan Krenek, T.M. “Roe” Patterson, James F. Newman and James E. Tyner.

 

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.

 

2010 Elements of Compensation.  The executive compensation program for our named executive officers and other senior executive officers included five 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 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 officer’s compensation to performance because this aligns the executive officers’ compensation to stockholder interests. Under the PB Incentive Program, executive compensation is based on the Company performing ahead of members of its selected peer group for TSR during the year-to-year period.

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 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 executive officers by the Company not for cause, termination by executive officers for good reason, the death or disability of the executive officers, or, under certain agreements and with additional limitations, the retirement of the executive officers. These time-based awards also provide an opportunity for increased equity ownership by the executive officers to further the link between the executive officers’ interests, stockholder interests and the short-term and long-term goals of the Company.

 

In addition, at the beginning of 2010, the Company used market survey data from comparable companies to set base salary and total compensation levels that were competitive within the market. Based on the compensation consultant’s view that industry salary structures had been generally frozen, if not reduced, during late 2008 and into 2009, and that a new survey would unlikely yield meaningful new information until later in 2010, the Company did not request a survey for setting compensation levels for 2010.

 

Selection of Elements to Provide Competitive Levels of Compensation.  The Compensation Committee generally attempts to provide the Company’s senior executive officers 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 Compensation Committee has determined a competitive level of compensation for each executive officer 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.

 

During 2010, 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. During February and March 2010, the Company used survey data from 2008 compensation and assumed that executive-level salaries had been rolled back in 2009 by 12-15% from 2008 year levels. These reviews were used by the Compensation Committee in establishing 2010 executive base salaries, the range for potential cash incentive bonuses, and aggregate long-term incentive plan payouts and equity awards. During August 2010, the consultant completed a new full executive compensation review, based upon 2010 proxies and updated market compensation survey data, which would be used for the determination of any needs for current compensation adjustments and also for making adjustments in 2011.

 

During March 2010, the Company continued to make equity grant levels higher than what it believes is the median, particularly with respect to its CEO, as part of its objective to weight compensation generally toward long-term incentives. For 2009 bonuses paid in 2010 and new salaries and equity grants made in 2010, Pearl Meyer noted certain salary decreases and wage freezes 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 2010. While the targeted value of an executive officer’s compensation package may be competitive, its actual value may exceed or fall below market average levels depending on performance, as discussed below. For 2010 cash bonuses paid in 2011 and equity grants made in 2011 based in part on 2010 performance, Pearl Meyer noted that industry peers were paying bonuses and making equity grants either during the 2010 calendar year or were making them in early 2011.

 

The employment agreements of our executive officers generally contain streamlined severance and non-competition provisions among our executive officers in three tiers, with our CEO in one tier, our Senior Vice

Presidents (two during 2010 — our CFO and our current Senior Vice President and Chief Operating Officer) and our current Group Vice President — Permian Basin Unit in a second tier, and our Vice President — Human Resources 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 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 officer. The following general percentage mix would apply to the typical approach in establishing the total compensation for the Company’s executive officers at 2010 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 March 2010, our Compensation Committee, based on its discussion with its compensation consultant, approved base salaries for each of our named executive officers that returned the officers to their initially approved 2009 base salary levels. In March 2011, out Compensation Committee, based on its discussion with its compensation consultant, approved increased base salaries for each of our named executive officers.

 

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 2009, corporate-level bonuses were tied to the Company’s region and division-level bonuses.

 

Messrs. Huseman and Krenek did not participate in any of the Quarterly Incentive Bonus Plans during 2010. Messrs. Patterson, Newman and Tyner, each participated in the corporate-level Quarterly Incentive Bonus Plans in 2010, which payments were factored into annual cash bonuses received by them in early 2011. There was no annual cash bonus paid to the named executive officers in early 2010 relating to 2009 performance.

 

Annual Cash Bonuses (Non-Equity Incentive Plan Compensation).  The purpose of annual cash bonuses under our 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 2010 paid in the first quarter of 2011 were paid as non-equity incentive plan compensation based upon the achievement of corporate performance objectives.

 

2010 Annual Cash Bonuses.  During 2010 and March 2011, the Compensation Committee established and considered a set of metrics, which we refer to as our 2010 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 2010 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 2010 for our CEO ranged from zero to 90% of base salary, with a target level of 60%. Potential annual cash awards for 2010 for our Tier II named executive officers (Messrs. Krenek, Patterson and Newman) ranged from zero to 75% of base salary, with a target level of 50%. Potential annual cash awards for 2010 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 (loss) per share factor used by the Compensation Committee in 2010 had actual result of $(1.14) compared to a target of $(1.69). The actual result for three-year average ROCE was (2.4%) compared to an (6.7%) target. The total reportable incident rate and preventable motor vehicle accident rate were 14% and 20% above (i.e., worse than) target levels, thus resulting in lower-than-target factor allocations. Based on these 2010 Company performance factors together with personal performance evaluations, the Compensation Committee awarded cash bonuses to each of our officers, including payments to Messrs. Patterson, Newman and Tyner under the Quarterly Incentive Bonus Plan during 2010. Payments under these metrics were not “qualified performance based compensation” within the meaning of Section 162(m) of the Code.

 

2010 Long-Term Incentive Program.  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. This long-term incentive program initially consisted of: (i) a performance-based plan looking at a three-year performance period, which we refer to as our Three-Year PB Incentive Program, that is based on performance factors contained in the 2003 Incentive Plan; and (ii) discretionary, time-based restricted stock awards. The Compensation Committee and the Board continued this performance-based Three-Year PB Incentive Program in 2009 along with discretionary, time-based restricted stock awards as part of its long-term incentive program.

 

In March 2010, the Compensation Committee and the Board changed the performance-based Three-Year PB Incentive Program to a One-Year PB Incentive Program consisting of:

 

 

The changes of both metrics and period of time for awards granted in 2010 were made due to market conditions, the Company’s historical performance and a desire to focus management on more current metrics relative to its peers during 2010. Each of the incentive programs was 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 executive officers, 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 officer 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 2009 and 2010, the Compensation Committee made grants of restricted stock, which vest ratably over a four-year period beginning in 2011 and 2012, respectively. During March 2011, the Compensation Committee made grants of restricted stock which vest ratably over a three-year period beginning in March 2012. Management recommended the shorter vesting period, and the Compensation Committee deemed the shorter vesting period for grants of restricted stock as appropriate, based on such periods serving as a better incentive for participants and being more customary based on industry norms.

 

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. While options are available under the 2003 Incentive Plan, the Company has not awarded options in the past three years.

 

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.

 

In March 2010, the Compensation Committee recommended, and the Board approved, a One-Year PB Incentive Program for executive officers and certain middle management personnel (a total of 19 participants for awards issued in 2010). Under this plan, award recipients may earn restricted stock at the end of a one-year period, based on the Company’s performance over that one-year period. The performance measure is based on the Company achieving a pre-established target relative to its selected peer group (the “PB Peer Group”) based on one factor, total shareholder return, subject to forfeiture or a negative adjustment of 100% if the Company ranks the worst or second worst when included with the PB Peer Group.

 

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 officer over a period of 4 years from the initial award date.

 

Achievement of the maximum goals will require superior performance of the executive officers 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 executive officers, including risk factors disclosed in the Company’s Form 10-K and other periodic filings.

Target award levels in 2010 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 an estimated $10 price applicable on the dates the proposed grant schedule was prepared, compared to an actual lower price on the date of the Compensation Committee’s March 9, 2010 meeting at which the awards were actually approved. In determining the number of shares of restricted stock to award, the Compensation Committee used this same price.

 

For awards in 2010, 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.; (9) Superior Energy Services, Inc.; and (10) Key Energy Services, Inc. The Compensation Committee excluded Superior Well Services, Inc. from the PB Peer Group because it was acquired during 2010. The total maximum number of shares for all participants for the One-Year PB Incentive Program awards granted in March 2010 (150% of target) was 285,281 shares, all of which were earned shares that remain subject to time-based vesting in increments over a three-year period.

 

LTIP Payout Grids — Percentage of Equity Compensation

 

that may be Retained Based on Relative Total Stockholder Return

 

 

The 2010 awards under the One-Year PB Incentive Program, other than performance-based awards based on stockholder-approved performance objectives, do not comply with the provisions of Internal Revenue Code Section 162(m).

 

Similar to the Quarterly Incentive Bonus Plan, the One-Year PB Incentive Program is consistent with the Company’s philosophy of tying a significant portion of each executive officer’s compensation to performance because this aligns the executive officers’ compensation to stockholder 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 executive officers 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 Compensation Committee has used traditional discretionary grants of restricted stock to supplement the 2010 PB Incentive Program for approximately two-thirds of total potential awards. These time-based awards also provide an opportunity for increased equity ownership by the executive officers to further the link between the creation of stockholder value and long term incentive compensation. The restricted stock awards granted in 2010 based on 2009 company and personal performance vest in four equal portions from the date of the grant. The restricted stock awards granted in 2011 based on 2010 company and personal performance vest in three equal portions from the date of the grant.

All restricted stock earned under the One-Year PB Incentive Program and the special non-performance based restricted stock grant 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 executive officers 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 2010 and current 2011 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, 2010 is discussed below under “— Severance Benefits.”

 

CEO Compensation.  A separate process of evaluating Mr. Huseman was conducted for purposes of determining his 2010 annual cash bonus paid during February 2011. Specifically, the Compensation 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 2010. Based on these considerations, Mr. Huseman was granted an annual cash bonus for 2010 performance of $390,000.

 

Compensation of Other Named Executive Officers.  The Compensation Committee reviewed the recommendations of the CEO regarding 2010 bonuses and awards. The Compensation Committee’s considerations included the same general Company performance-based factors as well as the individual performance of each of the officers. The other named executive officers were granted an annual cash bonus for 2010 performance as follows: (1) Alan Krenek — $180,000; (2) Roe Patterson — $180,000; (3) Jim Newman — $125,000; and (4) Jim Tyner — $90,000.

 

During 2010 and 2011, the Compensation Committee elected to use restricted stock awards as the primary component of long-term compensation for our executive officers. 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 stockholders. 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 2010, the Compensation Committee approved and implemented a continued long-term incentive program, including a One-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 officer’s compensation to performance, because this aligns the executive officers’ compensation to stockholder interests, while maintaining an opportunity for increased equity ownership by the executive officers to further the link between the creation of stockholder value and long term incentive compensation.

 

Perquisites.  The Company provides limited perquisites to its senior executive officers. Perquisites may include vehicle allowances, club memberships and long-term disability insurance. During 2010, 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.  Pursuant to our employment agreements with each of the named executive officers, the named executive officers are entitled to severance payments in the event the executive officer is terminated at any time by us without “Cause” as defined in the agreements or by the executive 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 executive 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, Patterson and Newman— 1.5 times; and for Mr. Tyner— 0.75 times) of the sum of the executive 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, Patterson and Newman — 2.0 times; and for Mr. Tyner — 1.0 times) of the sum of the executive 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.

 

Messrs. Krenek and Tyner’s employment agreements were initially effective through December 31, 2008 while Messrs. Huseman, Patterson, and Newman’s were effective through December 31, 2009, and each officer’s agreement automatically renews for subsequent one-year periods unless notice of termination is properly given by us or the executive officer. In the event that the employment agreement of Messrs. Huseman, Krenek or Patterson is not renewed by us and a new employment agreement has not been entered into, the executive 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 executive 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 executive 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 stockholders’ interests before and after a transaction.

 

The employment agreements for Messrs. Huseman, Krenek, Patterson and Newman 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 our 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, 2010, 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 2010:

 

 

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 in effect for 2010 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.
Antonio O. Garza, Jr.

 

The following information relates to compensation paid by the Company for fiscal 2010, 2009 and 2008 to the Company’s Chief Executive Officer, Chief Financial Officer and each of the other three most highly compensated executive officers in fiscal 2010, 2009 and 2008:

 

 

 

 

The following table sets forth information concerning grants of awards to each of our named executive officers under our 2003 Incentive Plan during fiscal 2010:

 

 

 

 

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 annual 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 annual 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, 2011 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, Thomas Monroe Patterson, our current Senior Vice President and Chief Operating Officer and James F. Newman, our current Group Vice President — Permian Basin Unit. Pursuant to their agreements, Messrs. Krenek, Patterson and Newman are entitled to initial annual base salaries of $240,000, $275,000 and $210,000, respectively. Each of Messrs. Krenek, Patterson and Newman is also entitled to an annual performance bonus if certain performance criteria are met. In addition, each of Messrs. Krenek, Patterson and Newman 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 were 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 annual 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 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 two times the sum of his annual 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, 2011 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.

 

The employment agreements for Messrs. Huseman, Krenek, Patterson and Newman 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 Mr. Tyner does not contain these provisions.

 

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 annual 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 were 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 annual 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 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 1.0 times the sum of his annual 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, 2011 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, Patterson, Newman and Tyner has agreed in his employment agreement that, for a period of six 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 twelve 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 six months following the termination of his employment by us without cause or by him for good reason, and for a period of two years from such officer’s termination of employment for retirement or any other reason.

 

During 2009, in connection with salary and wage reductions for employees throughout the Company that were effective March 30, 2009, the Board reduced base salaries from previously determined levels for our named executive officers for 2009. In March 2010, our Compensation Committee, based on its discussion with its compensation consultant, approved base salaries for each of our named executive officers that returned the officers for 2010 to their initially approved 2009 base salary levels as follows: Mr. Huseman — $550,000; Mr. Krenek — $300,000; Mr. Patterson — $275,000; Mr. Newman — $210,000; and Mr. Tyner — $190,000. In March 2011, our Compensation Committee, based on its discussion with its compensation consultant, increased 2011 base salaries for each of our named executive officers as follows: Mr. Huseman — $700,000; Mr. Krenek — $350,000; Mr. Patterson — $325,000; Mr. Newman — $250,000; and Mr. Tyner — $225,000.

 

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, 2010:

 

Outstanding Equity Awards at Fiscal Year-End — 2010