Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
BASIC ENERGY SERVICES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
o
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
Title of each class of securities to which transaction applies:
(2)
Aggregate number of securities to which transaction applies:
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was
determined):
(4)
Proposed maximum aggregate value of transaction:
(5)
Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing.
As we previously announced, the boards of directors of Basic and
Grey Wolf have each approved mergers combining Basic and Grey
Wolf in what we intend to be a “merger of equals.” In
the mergers, Basic and Grey Wolf will be merged into a new
Delaware corporation temporarily named Horsepower Holdings,
Inc., which we call Holdings, that will succeed to the
businesses of Basic and Grey Wolf. Holdings will be renamed
“Grey Wolf, Inc.” We expect its common stock to be
listed on the New York Stock Exchange under the symbol
“GW” upon consummation of the mergers.
If the mergers are consummated, Basic stockholders will receive
0.9195 of a share of the common stock of Holdings and $6.70 in
cash for each share of Basic common stock held, and Grey Wolf
stockholders will receive 0.2500 of a share of the common stock
of Holdings and $1.82 in cash for each share of Grey Wolf common
stock held.
Based on the number of shares of common stock of Basic and Grey
Wolf outstanding on April 18, 2008, the last trading day
prior to the public announcement of the mergers, former Basic
stockholders will own approximately 47% of the common stock of
Holdings and former Grey Wolf stockholders will own
approximately 53% of the common stock of Holdings.
Each of Basic and Grey Wolf will hold a special meeting of its
stockholders to consider and vote on the mergers, among other
matters. Information about these meetings, the mergers and other
matters is contained in this joint proxy statement/prospectus.
We encourage you to read this entire joint proxy
statement/prospectus, as well as the annexes and information
incorporated by reference, carefully.
Each of the boards of directors of Basic and Grey Wolf
recommends that their respective stockholders vote FOR the
proposal to adopt and approve the merger agreement.
In considering the recommendation of your company’s board
of directors, you should be aware that directors and officers of
Basic and Grey Wolf have interests in the mergers that are
different from, or are in addition to, the interests of Basic
and Grey Wolf stockholders generally, and that these directors
and officers will directly benefit if the mergers are
consummated. These interests and benefits are described in this
joint proxy statement/prospectus.
This joint proxy statement/prospectus describes the special
meetings, the proposals to be considered and voted upon at the
special meetings and related matters. Every vote is important.
Whether or not you plan to attend your company’s special
meeting, please take the time to vote by following the
instructions on your proxy card.
We enthusiastically support this combination of our companies
and join with our boards in recommending that you vote FOR the
adoption and approval of the merger agreement. Thank you for
your continued interest in and support for our companies.
Kenneth V. Huseman,
President and
Chief Executive Officer
Basic Energy Services, Inc.
Thomas P. Richards,
Chairman of the Board, President and
Chief Executive Officer
Grey Wolf, Inc.
For a discussion of risk factors you should consider in
evaluating the mergers, see “Risk Factors” beginning
on page 23.
Neither the Securities and Exchange Commission nor any state
securities regulator has approved or disapproved the mergers and
other transactions described in this joint proxy
statement/prospectus nor have they approved or disapproved the
issuance of Holdings’ common stock in connection with the
mergers, or determined if this joint proxy statement/prospectus
is accurate or adequate. Any representation to the contrary is a
criminal offense.
This joint proxy statement/prospectus is dated June 10,2008, and, together with the accompanying proxy card, is first
being mailed to stockholders of Basic and Grey Wolf on or about
June 16, 2008.
To the Stockholders of Basic Energy Services, Inc.:
A special meeting of stockholders will be held on Tuesday,
July 15, 2008, at 9:00 a.m., local time, at the Hyatt
Regency Houston, 1200 Louisiana Street, Houston, Texas. At
the special meeting, you will be asked to:
1. adopt the Agreement and Plan of Merger, dated
April 20, 2008, among Basic Energy Services, Inc., Grey
Wolf, Inc., and Horsepower Holdings, Inc., a copy of which is
attached as Annex A to this joint proxy
statement/prospectus;
2. approve the Horsepower Holdings, Inc. 2008 Equity
Incentive Plan, a copy of which is attached as Annex G to
this joint proxy statement/prospectus, to be used by Holdings
following the consummation of the mergers;
3. approve the adjournment of the Basic special meeting, if
necessary or appropriate, to solicit additional proxies in favor
of the foregoing proposals; and
4. transact such other business as may properly come before
the Basic special meeting or any adjournment or postponement
thereof.
Proposal number 2 will be implemented only if it and proposal
number 1, adoption of the Agreement and Plan of Merger, are
approved by stockholders. For more information about the
proposals and the special meeting, please review the
accompanying joint proxy statement/prospectus.
Only holders of record of shares of Basic common stock at the
close of business on June 6, 2008, the record date for the
special meeting, are entitled to notice of, and a vote at, the
special meeting and any adjournments or postponements of the
special meeting.
Your vote is important. We encourage you to sign and return your
proxy card, or use the telephone or Internet voting procedures,
before the special meeting, so that your shares will be
represented and voted at the special meeting even if you cannot
attend in person.
Please do not send any share certificates at this time. If the
mergers are consummated, we will notify you of the procedures
for exchanging your shares of Basic common stock.
Notice is hereby given that a special meeting of stockholders
will be held on Tuesday, July 15, 2008, at 8:30 a.m.,
local time, at the Hyatt Regency Houston, 1200 Louisiana
Street, Houston, Texas. At the special meeting, you will be
asked to:
1. approve the Agreement and Plan of Merger, dated
April 20, 2008, among Basic Energy Services, Inc., Grey
Wolf, Inc., and Horsepower Holdings, Inc., a copy of which is
attached as Annex A to this joint proxy
statement/prospectus;
2. approve the Horsepower Holdings, Inc. 2008 Equity
Incentive Plan, a copy of which is attached as Annex G to
this joint proxy statement/prospectus, to be used by Holdings
following the consummation of the mergers;
3. approve adjournment of the Grey Wolf special meeting, if
necessary or appropriate, to solicit additional proxies in favor
of the foregoing proposals; and
4. transact such other business as may properly come before
the Grey Wolf special meeting or any adjournment or postponement
thereof.
Proposal number 2 will be implemented only if it and proposal
number 1, approval of the Agreement and Plan of Merger, are
approved by stockholders. For more information about the
proposals and the special meeting, please review the
accompanying joint proxy statement/prospectus.
Only holders of record of shares of Grey Wolf common stock at
the close of business on June 6, 2008, the record date for
the special meeting, are entitled to notice of, and a vote at,
the special meeting and any adjournments or postponements of the
special meeting.
Your vote is important. We encourage you to sign and return your
proxy card, or use the telephone or Internet voting procedures,
before the special meeting, so that your shares will be
represented and voted at the special meeting even if you cannot
attend in person.
Please do not send any share certificates at this time. If the
mergers are consummated, we will notify you of the procedures
for exchanging your shares of Grey Wolf common stock.
This joint proxy statement/prospectus incorporates important
business and financial information about Basic and Grey Wolf
from other documents that are not included in or delivered with
this joint proxy statement/prospectus. See “Where You Can
Find More Information” beginning on page 147 for a
listing of documents incorporated by reference. This information
is available for you to review at the public reference room of
the Securities and Exchange Commission, or SEC, located at
100 F Street, N.E., Room 1580, Washington, DC
20549, and through the SEC’s website, www.sec.gov. You can
also obtain those documents incorporated by reference in this
joint proxy statement/prospectus by requesting them in writing
or by telephone from the appropriate company at the following
addresses and telephone numbers:
Basic Energy Services, Inc. 500 W. Illinois, Suite 100 Midland, Texas79701
(432) 620-5510
Attn: Investor Relations
Grey Wolf, Inc. 10370 Richmond Avenue, Suite 600 Houston, Texas77042
(713) 435-6100
Attn: Investor Relations
You may also obtain documents incorporated by reference in this
joint proxy statement/prospectus by requesting them in writing
or by telephone from the information agent:
This summary highlights selected information contained in
this joint proxy statement/prospectus and may not contain all
the information that is important to you. Basic and Grey Wolf
urge you to read carefully this joint proxy statement/prospectus
in its entirety, including the Risk Factors beginning on
page 23 and the attached annexes. Additional important
information is also contained in the documents incorporated by
reference into this joint proxy statement/prospectus. See
“Where You Can Find More Information” beginning on
page 147. We have included page references parenthetically
to direct you to a more complete description of the topics
presented in this summary.
In this joint proxy statement/prospectus, “Basic”
refers to Basic Energy Services, Inc. and its consolidated
subsidiaries, “Grey Wolf” refers to Grey Wolf, Inc.
and its consolidated subsidiaries, “Holdings” refers
to Horsepower Holdings, Inc., and the “merger
agreement” refers to the Agreement and Plan of Merger,
dated April 20, 2008, by and among Basic, Grey Wolf, and
Holdings, a copy of which is attached as Annex A to this
joint proxy statement/prospectus.
Below are brief answers to questions you may have concerning the
transactions described in this joint proxy statement/prospectus
and the special meetings of Basic and Grey Wolf. These questions
and answers do not, and are not intended to, address all of the
information that may be important to you. You should read
carefully this entire joint proxy statement/prospectus and the
other documents to which we refer you.
General
Q:
Why am I receiving this document?
A:
This is a joint proxy statement being used by both the Basic and
Grey Wolf boards of directors to solicit proxies of Basic and
Grey Wolf stockholders in connection with the proposed mergers
involving Basic and Grey Wolf. In addition, this document is a
prospectus being delivered to Basic and Grey Wolf stockholders
because Holdings is offering shares of its common stock to be
issued in exchange for shares of Basic common stock and Grey
Wolf common stock if the mergers are completed.
Q:
When and where are the meetings of the stockholders?
A:
The special meeting of Basic stockholders will take place at
9:00 a.m., local time, on July 15, 2008, at the Hyatt
Regency Houston, 1200 Louisiana Street, Houston, Texas. The
special meeting of Grey Wolf stockholders will take place at
8:30 a.m., local time, on July 15, 2008, at the Hyatt
Regency Houston, 1200 Louisiana Street, Houston, Texas.
Additional information relating to the Basic and Grey Wolf
special meetings is set forth beginning on pages 116 and
121, respectively.
Q:
Who can answer any questions I may have about the mergers?
A:
Basic and Grey Wolf have retained Georgeson, Inc., which we
refer to as Georgeson, to serve as an information agent in
connection with the mergers. Stockholders of Basic and Grey Wolf
may call Georgeson toll-free at
(800) 561-3540
with any questions they may have. Banks and brokers may call
collect at
(212) 440-9800.
Concerning
The Mergers
Q:
What will happen in the proposed mergers?
A:
Prior to entering into the merger agreement, Basic and Grey Wolf
formed Holdings as a new Delaware corporation. When the
transactions are consummated, Basic and Grey Wolf will merge
simultaneously with and into Holdings and Holdings will be the
surviving corporation in each merger. Holdings will then own the
businesses formerly operated independently by Basic and Grey
Wolf. We refer to these transactions collectively in this joint
proxy statement/prospectus as the “mergers.” After the
mergers, the current stockholders of Basic and Grey Wolf will be
the stockholders of Holdings. Holdings will be renamed
“Grey Wolf, Inc.” Additional information on the
mergers is set forth beginning on page 33.
Why are Basic and Grey Wolf proposing the mergers?
A:
Basic and Grey Wolf each believe that the mergers will enhance
stockholder value by, among other things, enabling Holdings to
capitalize on the following benefits:
• Holdings will be a larger, more operationally
diversified oilfield services company;
• Holdings’ sources of revenue will be derived
from a larger customer base, wider geographic areas and a
greater range of services;
• Holdings is expected to have greater initial
earnings and cash flow, buying power and access to capital
markets than either Grey Wolf or Basic;
• Holdings will have a high quality fleet of
approximately 130 drilling rigs and 395 workover rigs, as well
as a broad range of other oilfield service assets; and
• Holdings will be better positioned to take advantage
of growth opportunities in domestic and foreign markets, both
organically and through acquisitions.
Additional information on the strategic and financial rationale
for the mergers, as well as each of Basic’s and Grey
Wolf’s separate reasons for the mergers, is set forth
beginning on pages 38, 39 and 42, respectively.
Q:
What will I receive for my shares?
A:
As a result of the mergers, each holder of shares of Basic
common stock will have the right to receive 0.9195 of a share of
Holdings common stock and $6.70 in cash in exchange for each
share of Basic common stock such holder owns. Each holder of
shares of Grey Wolf common stock will have the right to receive
0.2500 of a share of Holdings common stock and $1.82 in cash in
exchange for each share of Grey Wolf common stock such holder
owns. Holders of Basic common stock and Grey Wolf common stock
will have the right to receive cash for any fractional shares of
Holdings common stock that they would otherwise be entitled to
receive in the mergers. No fractional shares of Holdings common
stock will be issued as a result of the mergers. The amount of
cash payable for any fractional shares of Holdings common stock
will be determined based on the closing price of a share of
Holdings common stock on the New York Stock Exchange on the
first trading day immediately following the effective time of
the mergers. Based on the number of shares of Basic and Grey
Wolf common stock outstanding on the record date, former Basic
stockholders will own approximately 47% of Holdings and former
Grey Wolf stockholders will own approximately 53% of Holdings.
Additional information on the consideration to be received in
the mergers is set forth beginning on page 33.
Q:
What are my U.S. federal income tax consequences as a result
of the mergers?
A:
Basic and Grey Wolf have structured the mergers to qualify as a
“reorganization” for United States federal income tax
purposes, and it is a condition to their respective obligations
to complete the mergers that each of Basic and Grey Wolf receive
a legal opinion to that effect. However, stockholders of Basic
and Grey Wolf may recognize a gain (but not loss) as a result of
the mergers. Any gain realized from the exchange of the Grey
Wolf common stock or Basic common stock in the mergers will
generally be recognized only to the extent of the cash portion
of the merger consideration received with the remainder of the
gain (or any loss) deferred until the subsequent taxable
disposition of the Holdings common stock received as merger
consideration. You are strongly urged to consult with a tax
advisor to determine the particular U.S. federal, state or local
or foreign tax consequences of the mergers to you.
Additional information regarding tax matters is set forth in
“Material U.S. Federal Income Tax Consequences of the
Mergers” beginning on page 87.
Q:
How will Holdings pay for the cash component of the merger
consideration?
A:
Holdings plans to pay for the cash component of the merger
consideration using loan proceeds from a new, senior secured
credit facility expected to be obtained by Holdings in
connection with the closing of the mergers. The credit facility
is expected to include a $600 million senior secured term
loan and a
$325 million senior secured revolving credit facility. The
cash component of the merger consideration will be paid first
from proceeds of the $600 million term loan facility and
then from borrowings under the revolving credit facility or from
Holdings’ cash on hand. The new credit facility will also
be used to refinance all indebtedness outstanding under
Basic’s existing senior secured credit facility. Obtaining
the new senior secured term loan facility or an alternative
facility is a condition to the closing of the mergers.
Additional information on Holdings’ proposed credit
facility is located on page 87.
Q:
How much will Holdings borrow to pay for the merger
consideration?
A:
The total amount that Holdings will borrow to pay for the cash
component of the merger consideration will depend on the number
of shares of Basic common stock and Grey Wolf common stock
outstanding immediately before the mergers. The number of shares
of Grey Wolf common stock then outstanding will depend, in part,
on whether the holders of Grey Wolf’s outstanding
convertible notes choose to convert their notes into Grey Wolf
common stock prior to the mergers. We expect that the total cash
component of the merger consideration will range from
approximately $600 million, if no conversions of Grey
Wolf’s convertible notes occur, to approximately
$679 million, if all of these notes are converted.
Additional information concerning the effect of conversions of
Grey Wolf’s convertible notes on the total cash merger
consideration, the relative ownership of Holdings by former
stockholders of Basic and Grey Wolf and Holdings’ expected
long-term debt is located on page 81.
Q:
What vote is required to approve the mergers?
A:
For both Basic and Grey Wolf, the affirmative vote of a majority
of their respective shares of common stock outstanding and
entitled to vote as of the respective record dates is required
to adopt and approve the merger agreement and thereby approve
the mergers. At the close of business on June 6, 2008, the
record date for the Basic special meeting, directors and
executive officers of Basic and their respective affiliates had
the right to vote approximately 3.7% of the then outstanding
shares of Basic common stock. DLJ Merchant Banking Partners III,
L.P. and certain affiliated funds beneficially own approximately
44% of the outstanding shares of Basic common stock and have
entered into an agreement with Grey Wolf to vote all of the
shares of Basic common stock that they own in favor of adoption
of the merger agreement. At the close of business on
June 6, 2008, the record date for the Grey Wolf special
meeting, directors and executive officers of Grey Wolf and their
respective affiliates had the right to vote approximately 4.7%
of the then outstanding shares of Grey Wolf common stock. Each
of Basic’s and Grey Wolf’s directors and executive
officers has indicated his present intention to vote, or cause
to be voted, the shares of Basic or Grey Wolf common stock owned
by him for the approval of the merger agreement. Additional
information on the votes required to approve the mergers is
located on page 116 for Basic and on page 121 for Grey
Wolf.
Q:
How do the boards of directors of Basic and Grey Wolf
recommend that I vote with respect to the proposed mergers?
A:
Basic’s board of directors recommends that the stockholders
of Basic vote “FOR” the proposal to adopt the merger
agreement and consummate the mergers. Grey Wolf’s board of
directors recommends that the stockholders of Grey Wolf vote
“FOR” the proposal to approve the merger agreement and
consummate the mergers. Additional information on the
recommendation of Basic’s board of directors and the
recommendation of Grey Wolf’s board of directors is set
forth in “The Mergers — Basic’s Reasons for
the Mergers and Recommendation of Basic’s Board of
Directors” beginning on page 39 and “TheMergers — Grey Wolf’s Reasons for the Mergers and
Recommendation of Grey Wolf’s Board of Directors”
beginning on page 42, respectively.
Q:
Who else must approve the mergers?
A:
Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, which we refer
to as the HSR Act, Basic and Grey Wolf may not complete the
mergers until they have furnished certain information and
materials to the Antitrust Division of the U.S. Department of
Justice and the U.S. Federal Trade Commission and the applicable
waiting period has expired or been early terminated. Basic and
Grey Wolf filed premerger notification forms pursuant to the HSR
Act with the DOJ and the FTC on May 16,
2008 and received notice of early termination on June 6,2008. Additional information regarding regulatory approvals
required for completion of the mergers is set forth in “TheMergers — Regulatory Matters” beginning on
page 82.
Q:
Will Holdings’ shares be traded on an exchange?
A:
It is a condition to the completion of the mergers that the
shares of common stock of Holdings that will be issuable
pursuant to the mergers be approved for listing on the New York
Stock Exchange. We intend to apply to list the shares of
Holdings common stock to be issued or reserved for issuance in
connection with the mergers on the New York Stock Exchange prior
to the consummation of the mergers. We expect that the shares of
Holdings common stock will trade under the symbol “GW.”
Q:
When do you expect to complete the mergers?
A:
We are working to complete the mergers in the third quarter of
2008, although we cannot assure completion by any particular
date.
Q:
Who will serve as the directors and executive officers of
Holdings after the consummation of the mergers?
A:
Upon the consummation of the mergers, the Holdings board of
directors will consist of nine members, five of whom will be
current members of Grey Wolf’s board of directors
designated by Grey Wolf and four of whom will be current members
of Basic’s board of directors designated by Basic. Thomas
P. Richards, Grey Wolf’s Chairman of the Board and Chief
Executive Officer, will be Chairman of the Board of Holdings;
Kenneth V. Huseman, Basic’s President and Chief Executive
Officer, will be Chief Executive Officer of Holdings; David J.
Crowley, Grey Wolf’s Executive Vice President and Chief
Operating Officer, will be President and Chief Operating Officer
of Holdings; and Alan Krenek, Basic’s Senior Vice President
and Chief Financial Officer, will be Executive Vice President
and Chief Financial Officer of Holdings. Additional information
about the directors and executive officers of Holdings after
consummation of the mergers is set forth in “TheMergers — Continuing Board and Management
Positions” beginning on page 80.
Q:
Are there risks associated with the mergers?
A:
Yes, there are important risks associated with the mergers. We
encourage you to read carefully and in their entirety the
sections of this joint proxy statement/prospectus entitled
“Risk Factors” and “Cautionary Information
Regarding Forward-Looking Statements” beginning on pages 23
and 31, respectively.
Concerning
The Basic and Grey Wolf Special Meetings
Q:
In addition to the proposed mergers, what other proposals are
to be considered and voted upon at the Basic special meeting and
the Grey Wolf special meeting?
A:
Basic stockholders are being asked to consider and vote on two
proposals, in addition to the merger agreement. The additional
proposals are as follows:
• the “Holdings incentive plan proposal,”
which is a proposal to approve a new long-term equity incentive
plan to be used by Holdings following the consummation of the
mergers to make awards of equity incentive compensation to
directors, officers and employees of Holdings; and
• the “Basic adjournment proposal,” which is
a proposal to adjourn the Basic special meeting, if necessary or
appropriate, to solicit additional proxies in favor of the Basic
special meeting proposals.
Grey Wolf stockholders are being asked to consider and vote on
two proposals, in addition to the merger agreement. The
additional proposals are as follows:
• the Holdings incentive plan proposal; and
• the “Grey Wolf adjournment proposal,”
which is a proposal to adjourn the Grey Wolf special meeting, if
necessary or appropriate, to solicit additional proxies in favor
of the Grey Wolf special meeting proposals.
Additional information relating to these proposals by Basic and
Grey Wolf is set forth beginning on pages 116 and 121,
respectively.
Q:
What stockholder approvals are required to approve the
Holdings incentive plan proposal?
A:
For Basic, approval of the Holdings incentive plan proposal
requires the affirmative vote of the holders of a majority of
the Basic common stock present in person or by proxy and
entitled to vote at the Basic special meeting, subject also to
the requirement that a quorum exist at the meeting. Accordingly,
“broker non-votes” will have no effect on voting on
the Holdings incentive plan proposal but abstentions will have
the effect of a vote against the Holdings incentive plan
proposal.
For Grey Wolf, approval of the Holdings incentive plan proposal
requires the affirmative vote of the holders of a majority of
all shares of Grey Wolf common stock cast for, against or
expressly abstaining from voting on the Holdings incentive plan
proposal, subject also to the requirement that a quorum exist at
the meeting. Accordingly, “broker non-votes” will have
no effect on voting on the Holdings incentive plan proposal but
abstentions will have the effect of a vote against the Holdings
incentive plan proposal.
Q:
Why are Basic and Grey Wolf stockholders being asked to vote
on the Holdings incentive plan proposal?
A:
Holdings intends to implement a new equity incentive plan so it
can have the ability to make equity incentive compensation
awards to directors, officers and employees of Holdings
following the consummation of the mergers. If the stockholders
of Basic and Grey Wolf approve the Holdings incentive plan
proposal, Holdings will not issue any further equity incentive
awards under the existing Basic and Grey Wolf plans following
the consummation of the mergers. If the stockholders of Basic
and Grey Wolf do not approve the Holdings incentive plan
proposal, Holdings intends to use the remaining availability
under Basic’s and Grey Wolf’s existing equity
incentive plans for additional equity incentive awards following
the consummation of the mergers.
Q:
How will the vote on the proposed mergers impact the Holdings
incentive plan proposal?
A:
The completion of the mergers is not conditioned upon the
approval of the Holdings incentive plan proposal. However, the
implementation of the Holdings incentive plan is subject to
approval of the Holdings incentive plan proposal by the
stockholders of both Basic and Grey Wolf and the consummation of
the mergers. If the proposals to adopt and approve the merger
agreement do not receive the requisite stockholder approvals or,
if for any other reason the merger agreement is terminated, then
the Holdings incentive plan will not be implemented.
Procedures
Q:
What do I need to do now?
A:
After carefully reading and considering the information
contained in this joint proxy statement/prospectus, please
complete and sign your proxy card and return it in the enclosed
postage-paid envelope as soon as possible so that your shares
may be represented at your special meeting. Alternatively, you
may cast your vote by telephone or Internet by following the
instructions on your proxy card. In order to ensure that your
vote is recorded, please vote your proxy as instructed on your
proxy card, or on the voting instruction form provided by the
record holder if your shares are held in the name of your broker
or other nominee, even if you currently plan to attend your
special meeting in person. Additional information on voting
procedures is set forth in “Basic Special
Meeting — How to Vote Your Proxy” beginning on
page 117 for Basic and “Grey Wolf Special
Meeting — General Information about Proxies and
Voting” beginning on page 121 for Grey Wolf.
Q:
What should I do if I receive more than one set of voting
materials?
A:
You may receive more than one set of voting materials, including
multiple copies of this joint proxy statement/prospectus and
multiple proxy cards or voting instruction cards. For example,
if you hold your shares in more than one brokerage account, you
will receive a separate voting instruction card for each
brokerage account in which you hold shares. If you are a holder
of record and your shares are registered in more than one name,
you will receive more than one proxy card. In addition, if you
are a stockholder of both Basic and Grey Wolf, you will receive
one or more separate proxy cards or voting instruction cards for
each company. Please complete, sign, date and return each proxy
card and voting instruction card you receive, or you may cast
your vote by telephone or Internet by following the instructions
on your proxy card.
Q:
Should I send in my share certificates now?
A:
No. If the mergers are completed, after the closing we will
send the former stockholders of both Basic and Grey Wolf written
instructions for exchanging their shares. Additional information
on the procedures for exchanging shares of Basic or Grey Wolf
common stock for shares of Holdings common stock is set forth in
“The Merger Agreement — Procedures for Exchange
of Share Certificates” beginning on page 95.
Q:
If my shares are held in “street name” by a broker
or other nominee, will my broker or nominee vote my shares for
me?
A:
If you do not provide your broker with instructions on how to
vote your “street name” shares, your broker will not
be permitted to vote them at your special meeting on the
proposals related to the adoption of the merger agreement and
the Holdings incentive plan. You should therefore be sure to
provide your broker with instructions on how to vote your
shares. You should check the voting form used by your broker to
see if your broker offers telephone or Internet voting. If you
do not give voting instructions to your broker, your shares will
be counted towards a quorum at your respective special meeting,
but effectively will be treated as voting against the adoption
and approval of the merger agreement unless you appear and vote
in person at your special meeting. If your broker holds your
shares and you plan to attend and vote at your special meeting,
please bring a letter from your broker identifying you as the
beneficial owner of the shares and authorizing you to vote.
Additional information on how to vote if your shares are held in
street name is located beginning on page 117 for Basic and
on page 121 for Grey Wolf.
Q:
What if I do not vote on the matters relating to the
mergers?
A:
Because adoption of the merger agreement requires the
affirmative vote of a majority of the shares of common stock
outstanding and entitled to vote of each of Basic and Grey Wolf
as of the respective record dates, if you abstain or fail to
vote your shares in favor of adoption or approval of the merger
agreement, this will have the same effect as voting your shares
against adoption or approval of the merger agreement. If you
fail to respond with a vote or fail to instruct your broker or
other nominee how to vote on the proposed mergers, it will have
the same effect as a vote against the proposed mergers. If you
respond but do not indicate how you want to vote on the proposed
mergers, your proxy will be counted as a vote in favor of
adoption and approval of the merger agreement.
Q:
What if I want to change my vote?
A:
You may send a later-dated, signed proxy card so that it is
received prior to your special meeting, or you may attend your
special meeting in person and vote. You may also revoke your
proxy card by sending a notice of revocation that is received
prior to your special meeting to your company’s Corporate
Secretary at the address set forth under “The
Companies” beginning on page 106. You may also change
your vote by telephone or Internet. You may change your vote by
using any one of these methods regardless of the procedure used
to cast your previous vote. Additional information on how to
change your vote is located beginning on page 117 for Basic
and on page 121 for Grey Wolf.
Q:
Do I have appraisal or dissenters rights?
A:
Holders of shares of Basic common stock who do not vote in favor
of the mergers will have the right to seek appraisal of the fair
value of their shares, but only if they submit a written demand
for such an appraisal before the vote on the mergers and comply
with other Delaware law procedures and the requirements
described in “The Mergers — Appraisal
Rights,” beginning on page 84. Basic stockholders who
wish to seek appraisal of their shares are in any case urged to
seek the advice of counsel with respect to the availability of
appraisal rights.
Holders of shares of Grey Wolf common stock who do not vote in
favor of the mergers will have the right to dissent, but only if
they submit a written objection to the mergers and comply with
other Texas law procedures and the requirements described in
“The Mergers — Appraisal Rights,” beginning
on page 84. Grey Wolf stockholders who wish to dissent to
the mergers are in any case urged to seek the advice of counsel
with respect to the availability of dissenters rights.
If you hold your shares through a bank, broker, custodian or
other recordholder, please refer to your proxy card or voting
instruction form or the information forwarded by your bank,
broker, custodian or other recordholder to see which options are
available to you.
Basic
stockholders of record may submit their proxies by:
Internet. You can vote over the Internet by
accessing www.voteproxy.com and following the instructions on
the website prior to 11:59 p.m. EDT on July 14,2008. Internet voting is available 24 hours a day. If you
vote over the Internet, do not return your proxy card(s) or
voting instruction card(s).
Telephone. You can vote by telephone by
calling (800) 776-9437 toll-free in the United States, Canada or
Puerto Rico on a touch-tone phone prior to
11:59 p.m. EDT on July 14, 2008. You will then be
prompted to enter the control number printed on your proxy card
and to follow subsequent instructions. Telephone voting is
available 24 hours a day. If you vote by telephone, do not
return your proxy card(s) or voting instruction card(s).
Mail. You can vote by mail by completing,
signing, dating and mailing your proxy card(s) or voting
instruction card(s) in the postage-paid envelope included with
this joint proxy statement/prospectus. If you vote by mail, your
proxy card(s) must be received prior to July 15, 2008, the
date of the special meeting.
Grey Wolf
stockholders of record may submit their proxies by:
Internet. You can vote over the Internet by
accessing www.voteproxy.com and following the instructions on
the website prior to 11:59 p.m. EDT on July 14,2008. Internet voting is available 24 hours a day. If you
vote over the Internet, do not return your proxy card(s) or
voting instruction card(s).
Telephone. You can vote by telephone by
calling (800) 776-9437 toll-free in the United States, Canada or
Puerto Rico on a touch-tone phone prior to
11:59 p.m. EDT on July 14, 2008. You will then be
prompted to enter the control number printed on your proxy card
and to follow subsequent instructions. Telephone voting is
available 24 hours a day. If you vote by telephone, do not
return your proxy card(s) or voting instruction card(s).
Mail. You can vote by mail by completing,
signing, dating and mailing your proxy card(s) or voting
instruction card(s) in the postage-paid envelope included with
this joint proxy statement/prospectus. If you vote by mail, your
proxy card(s) must be received prior to July 15, 2008, the
date of the special meeting.
Basic provides a wide range of well site services to oil and gas
drilling and producing companies, including well servicing,
fluid services, contract drilling, completion and remedial
services and well site construction services. These services are
fundamental to establishing and maintaining the flow of oil and
gas throughout the productive life of a well. Basic’s broad
range of services enables it to meet multiple needs of its
customers at the well site. Basic’s operations are managed
regionally and are concentrated in the major United States
onshore oil and gas producing regions in Texas, New Mexico,
Oklahoma, Arkansas, Kansas, Louisiana and the Rocky Mountain
states. Basic provides its services to a diverse group of over
2,000 oil and gas companies.
Grey Wolf, with a fleet of 121 rigs, is a leading provider of
contract land drilling services in the United States. Grey
Wolf’s customers include independent producers and major
oil and natural gas companies. Grey Wolf currently conducts its
operations primarily in the Ark-La-Tex, Gulf Coast,
Mississippi/Alabama, South Texas, Rocky Mountain and
Mid-Continent domestic drilling markets and in Mexico
internationally.
Holdings is a Delaware corporation formed for the purpose of
succeeding to the businesses of both Basic and Grey Wolf as a
result of the mergers. Upon completion of the mergers, Holdings
will be renamed Grey Wolf, Inc. Holdings is currently owned
one-half by Basic and one-half by Grey Wolf. Holdings has
conducted no business other than in connection with its
formation and the proposed mergers.
Recommendations
of the Basic and Grey Wolf Boards of Directors (Pages 39
and 42)
At its meeting on April 20, 2008, after due consideration,
the Basic board of directors:
•
determined that the merger agreement and the transactions
contemplated thereby are advisable and in the best interests of
the stockholders of Basic;
•
approved, authorized and adopted the merger agreement; and
•
recommended that the stockholders of Basic vote for adoption of
the merger agreement at the special meeting of stockholders of
Basic.
At its meeting on April 20, 2008, after due consideration,
the Grey Wolf board of directors:
•
determined that the form, terms, provisions and conditions of
the merger agreement and the transactions it contemplates are
fair to and in the best interests of Grey Wolf and its
stockholders;
•
approved, adopted, declared advisable, ratified and confirmed
the merger agreement; and
•
recommended that the Grey Wolf stockholders vote for the
adoption and approval of the merger agreement at the special
meeting of stockholders of Grey Wolf.
To review the risks related to the mergers and the combined
company following consummation of the mergers, please see
“Risk Factors” beginning on page 23. To review
the background, strategic and financial rationale and reasons
for the mergers, please see the sections beginning on
pages 33, 38 and 39 and 42, respectively.
Opinions
of Basic’s Financial Advisors (Page 47)
Goldman,
Sachs & Co.
On April 20, 2008, Goldman, Sachs & Co., or Goldman
Sachs, rendered its oral opinion (which was subsequently
confirmed in writing) to the board of directors of Basic to the
effect that, as of such date, and based upon and subject to the
factors and assumptions set forth therein, the Basic merger
consideration, taken in the aggregate, to be received by the
holders of outstanding shares of Basic common stock pursuant to
the merger agreement was fair from a financial point of view to
such holders.
The full text of the written opinion of Goldman Sachs, dated
April 20, 2008, which sets forth assumptions made,
procedures followed, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as
Annex B. You are encouraged to, and should, read the
opinion in its entirety. Goldman Sachs provided its opinion for
the information and assistance of Basic’s board of
directors in connection with its consideration of the mergers.
The Goldman Sachs opinion is not a recommendation as to how any
holder of Basic common stock should vote with respect to the
mergers or any other matter. Basic has agreed to pay Goldman
Sachs a transaction fee of $11.5 million, $8.5 million
of which is contingent upon consummation of the mergers.
Tudor,
Pickering, Holt & Co. Securities, Inc.
Tudor, Pickering, Holt & Co. Securities, Inc., or
TudorPickering, rendered its opinion to the board of directors
of Basic that, as of April 20, 2008, based upon and subject
to the factors and assumptions set forth in the opinion and
based upon such other matters as TudorPickering considered
relevant, the merger consideration to be paid to the holders of
Basic common stock pursuant to the merger agreement was fair
from a financial point of view to such holders. Basic does not
intend to request that TudorPickering render an opinion as of
any date subsequent to April 20, 2008.
The full text of the written opinion of TudorPickering, dated
April 20, 2008, which sets forth assumptions made,
procedures followed, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as
Annex C. You are encouraged to, and should, read the
opinion in its entirety.
TudorPickering’s opinion was provided for the information
and assistance of the board of directors of Basic in connection
with its consideration of the merger agreement and the mergers,
and does not constitute a recommendation to any holder of Basic
common stock, or any other holder of interests in Basic, as to
how such holder should vote with respect to the mergers or any
other matters. Basic paid TudorPickering a fee of
$1.0 million upon delivery of its written opinion.
Opinions
of Grey Wolf’s Financial Advisors (Page 62)
UBS
Securities LLC
In connection with the mergers, the board of directors of Grey
Wolf received an opinion from UBS Securities LLC, or UBS, one of
Grey Wolf’s financial advisors, as to the fairness, from a
financial point of view to Grey Wolf and as of the date of the
opinion, of the Basic merger consideration relative to the Grey
Wolf merger consideration provided for in the mergers. The full
text of the written opinion of UBS, dated April 20, 2008,
is attached as Annex D. We encourage you to read this
opinion carefully in its entirety for a description of the
assumptions made, procedures followed, matters considered and
limitations on the review undertaken. UBS’ opinion was
provided to the board of directors of Grey Wolf in connection
with its evaluation of the mergers, does not address any other
aspect of the mergers other than the Basic merger consideration
relative to the Grey Wolf merger consideration from a financial
point of view and does not constitute a recommendation to any
stockholder as to how such stockholder should vote or act with
respect to the mergers. Grey Wolf paid UBS a fee of
$1.0 million upon delivery of its written opinion and has
also agreed to pay UBS a transaction fee of $6.5 million
contingent upon consummation of the mergers. In addition, Grey
Wolf may pay UBS an additional fee of $1.0 million, solely
in its discretion, upon consummation of the mergers.
Simmons &
Company International
Simmons & Company International, or
Simmons & Company, delivered its opinion to the board
of directors of Grey Wolf to the effect that, as of
April 20, 2008, and based upon and subject to factors and
assumptions set forth in its opinion, the Basic merger
consideration relative to the Grey Wolf merger consideration, as
set forth in the merger agreement, was fair to Grey Wolf from a
financial point of view. Grey Wolf does not intend to request
that Simmons & Company render an opinion as of any
date subsequent to April 20, 2008.
The full text of the written opinion of Simmons &
Company, dated April 20, 2008, which sets forth assumptions
made, procedures followed, matters considered and limitations on
the review undertaken in connection with the opinion, is
attached as Annex E. Grey Wolf paid Simmons &
Company a fee of $100,000 on the date Simmons &
Company was engaged by Grey Wolf, and an additional fee of
$900,000 upon delivery of its written opinion.
Interests
of Directors and Executive Officers in the Mergers
(Page 75)
You should be aware that some Basic and Grey Wolf directors and
executive officers have interests in the mergers as directors or
executive officers that are different from, or in addition to,
the interests of other Basic and Grey Wolf stockholders.
Continuing
Board and Management Positions (Page 80)
The Holdings board of directors will consist of nine members
divided into three classes having three members each. The term
of each class of directors will expire at Holdings’ annual
meeting in the following years: Class I — 2009;
Class II — 2010; and Class III —
2011. Four of the members will be current members of, and
designated by, Basic’s board of directors and five of the
members will be current members of, and designated by, Grey
Wolf’s board of directors. Pursuant to the merger
agreement, Kenneth V. Huseman was deemed a Basic designated
director and Thomas P. Richards was deemed a Grey Wolf
designated director, in each case without further consultation
or designation by the nominating committees or boards of Basic
and Grey Wolf.
Basic intends to designate the following current members of its
board of directors to serve on the Holdings board of directors
in the class of directors indicated:
Name
Class
Kenneth V. Huseman
Class I
James S. D’Agostino
Class II
Robert F. Fulton
Class II
Steven A. Webster
Class III
Grey Wolf intends to designate the following current members of
its board of directors to serve on the Holdings board of
directors in the class of directors indicated:
Name
Class
Thomas P. Richards
Class I
Robert E. Rose
Class I
Frank M. Brown
Class II
William T. Donovan
Class III
William R. Ziegler
Class III
Pursuant to the Holdings restated certificate of incorporation
and bylaws to be effective at the effective time of the mergers,
in the event of the death, removal or resignation of a director
designee of either company prior to the first anniversary of the
effective time of the mergers, the remaining director designees
from that company will be constituted as a committee to
designate an individual to fill that vacancy. In addition,
pursuant to the merger agreement and the Holdings amended and
restated bylaws to be effective at the effective time of the
mergers, until the first anniversary of the effective time of
the mergers, the consent of at least two-thirds of the directors
then in office will be required for (1) the election of any
person other than Kenneth V. Huseman as Chief Executive Officer,
and of any person other than Thomas P. Richards as Chairman, and
(2) the removal, with or without cause, of either
Mr. Huseman as Chief Executive Officer or Mr. Richards
as Chairman. Further, pursuant to the merger agreement, at the
effective time of the mergers Thomas P. Richards will become
Chairman of the Board of Holdings, Kenneth V. Huseman will
become the Chief Executive Officer of Holdings, David J. Crowley
will become the President and Chief Operating Officer of
Holdings and Alan Krenek will become the Executive Vice
President and Chief Financial Officer of Holdings.
Regulatory
Matters (Page 82)
HSR
Act
Under the HSR Act, the mergers may not be consummated until
premerger notifications and required information have been
furnished to the Antitrust Division of the Department of
Justice, or DOJ, and the Federal Trade Commission, or FTC, and
the relevant waiting periods have been early terminated or have
expired. Basic and Grey Wolf filed premerger notification forms
pursuant to the HSR Act with the DOJ and the FTC on May 16,2008 and received notice of early termination on June 6,2008.
At any time before or after consummation of the mergers, the
DOJ, the FTC or any state attorneys general could take any
action under the antitrust laws deemed necessary or desirable in
the public interest, including seeking to enjoin consummation of
the mergers or seeking divestiture of particular assets or
businesses of Basic or Grey Wolf.
Accounting
Treatment (Page 84)
Immediately after the mergers, the financial statements of Grey
Wolf will become the financial statements of Holdings, as
adjusted to account for the mergers under the purchase method of
accounting. For purposes of generally accepted accounting
principles, Grey Wolf has been determined to be the accounting
acquiror of Basic. Accordingly, the purchase price will be
allocated to Basic’s identifiable assets and liabilities
based on
their estimated fair market value at the effective time of the
mergers, and any excess of the purchase price over those fair
values will be accounted for as goodwill on Holdings’
financial statements.
Appraisal
Rights (Page 84)
Stockholders who wish to seek appraisal of their shares of Basic
common stock or Grey Wolf common stock are urged to seek the
advice of counsel with respect to the availability of appraisal
rights.
Shares of Basic common stock outstanding immediately prior to
the effective time of the Basic merger and held by a holder who
has not voted in favor of the adoption of the merger agreement
and who has delivered a written demand for appraisal of the
stockholder’s shares in accordance with Section 262 of
the Delaware General Corporation Law, which we refer to as the
DGCL, will not be converted into the right to receive the Basic
merger consideration. The holder will instead be entitled to
seek an appraisal of the stockholder’s shares under the
DGCL, unless and until the dissenting Basic holder fails to
perfect or withdraws or otherwise loses the stockholder’s
right to appraisal and payment under the DGCL. If, after the
effective time of the Basic merger, a dissenting Basic
stockholder fails to perfect or withdraws or otherwise loses the
stockholder’s right to appraisal, the stockholder’s
shares of Basic common stock will be treated as if they had been
converted as of the effective time of the Basic merger into the
right to receive the Basic merger consideration.
Shares of Grey Wolf common stock outstanding immediately prior
to the time effective of the Grey Wolf merger and held by a
holder who has not voted in favor of the adoption of the merger
agreement and who has delivered a written objection notifying
Grey Wolf of the stockholder’s decision to dissent in
accordance with Article 5.12 of the Texas Business
Corporations Act, which we refer to as the TBCA, will not be
converted into the right to receive the Grey Wolf merger
consideration. The holder will instead be entitled to receive
the fair value of the stockholder’s shares under the TBCA,
unless and until the dissenting Grey Wolf holder fails to
perfect or withdraws or otherwise loses the stockholder’s
right to dissent and payment under the TBCA. If, after the
effective time of the Grey Wolf merger, a dissenting Grey Wolf
stockholder fails to perfect or withdraws or otherwise loses the
stockholder’s right to dissent, the stockholder’s
shares of Grey Wolf common stock will be treated as if they had
been converted as of the effective time of the Grey Wolf merger
into the right to receive the Grey Wolf merger consideration.
The full text of Section 262 of the DGCL is attached to
this joint proxy statement/prospectus as Annex H and the
full text of Article 5.12 of the TBCA is attached to this
joint proxy statement/prospectus as Annex I.
Material
U.S. Federal Income Tax Consequences of the Mergers
(Page 87)
Basic and Grey Wolf have structured the mergers to qualify as a
“reorganization” for United States federal income tax
purposes, and it is a condition to their respective obligations
to complete the merger that each of Basic and Grey Wolf receive
a legal opinion to that effect. Accordingly, neither Holdings,
Grey Wolf nor Basic will recognize a gain or loss in connection
with the mergers. However, stockholders of Basic and Grey Wolf
may recognize a gain (but not loss) as a result of the mergers.
Any gain realized from the exchange of the Grey Wolf common
stock or Basic common stock in the mergers will generally be
recognized only to the extent of the cash portion of the merger
consideration received with the remainder of the gain (or any
loss) deferred until the subsequent taxable disposition of the
Holdings common stock received as merger consideration.
This summary does not address tax consequences that may vary
with, or depend upon, individual circumstances. Accordingly, you
should consult a tax advisor to determine the U.S. federal,
state, local and foreign tax consequences to you of the mergers
taking into account your particular circumstances.
Summary
of Merger Agreement (Page 93)
The merger agreement is attached as Annex A to this joint
proxy statement/prospectus and governs the terms of the mergers.
Basic’s and Grey Wolf’s obligations to consummate the
mergers are subject to the satisfaction or waiver of a number of
conditions, including:
•
adoption and approval of the merger agreement and the mergers by
the stockholders of each of Basic and Grey Wolf;
•
the expiration or early termination of any waiting period
applicable to the consummation of the mergers under the HSR Act;
•
the approval of the shares of Holdings common stock to be issued
in the mergers for listing on the New York Stock Exchange;
•
the availability to Holdings of the contemplated financing or
alternative financing to pay the cash portion of the merger
consideration;
•
the absence of any action taken by any governmental agency or
U.S. court of competent jurisdiction that prohibits the
consummation of the mergers;
•
the effectiveness of a registration statement relating to the
shares of Holdings common stock to be issued in the mergers;
•
the receipt by each of Basic and Grey Wolf of a legal opinion
with respect to certain U.S. federal income tax
consequences of the mergers; and
•
other customary conditions, including the truth and correctness
of the representations and warranties and performance of
covenants by each party, subject to a materiality standard, and
the absence of any occurrence, state of facts or development
that has had or is reasonably likely to have a material adverse
effect on either party.
“No
Solicitation” Provisions (Page 100)
The merger agreement contains “no solicitation”
provisions that prohibit either party from taking any action to
solicit an acquisition proposal. The agreement does not,
however, prohibit either party from furnishing information to or
participating in negotiations with a person making an
unsolicited acquisition proposal if such party’s board of
directors determines in good faith that (1) the proposal
is, or is reasonably likely to result in, a superior proposal,
(2) the person has the financial and legal capacity to
consummate such person’s proposal and (3) the person
enters into a confidentiality agreement no less favorable than
the confidentiality agreement between Basic and Grey Wolf. In
addition, either party may terminate the merger agreement to
enter into a definitive agreement with respect to a superior
proposal.
Termination
of Merger Agreement (Page 103)
The parties may terminate the merger agreement by mutual written
consent. Either party may terminate the merger agreement if:
•
the mergers have not been consummated by November 30, 2008,
through no fault of the terminating party;
•
there is a final and nonappealable legal restraint, injunction
or prohibition of the mergers, as long as the terminating party
has complied with certain covenants in the merger agreement;
•
the stockholders of Basic or Grey Wolf have held a meeting to
consider the merger agreement but have voted not to adopt or
approve the merger agreement;
•
the other party has breached its representations and warranties
or failed to perform its covenants or agreements and such breach
gives rise to a failure of certain closing conditions, unless
the breach is cured within 60 days after notice of the
breach;
the board of directors of the other party has withdrawn or
adversely modified its recommendation of the merger agreement or
the proposed transactions, recommended a takeover proposal or
announced its intention to do either; or
•
the party decides to accept a superior proposal.
Termination
Fees and Expenses (Page 104)
Under the merger agreement, Basic or Grey Wolf may be required
to pay the other a termination fee of $30 million if the
merger agreement is terminated under specified circumstances. In
addition, Basic or Grey Wolf may be required to pay the other an
expense reimbursement fee of $5 million if the merger
agreement is terminated under specified circumstances, but in no
event will a party be required to pay more than
$30 million. See “The Merger Agreement —
Termination of the Merger Agreement and Termination
Fees — Termination Fees and Expenses” beginning
on page 104.
Financing
of the Mergers (Page 87)
Under the commitment letter among Grey Wolf, UBS Loan Finance
LLC, UBS Securities LLC, (collectively, the “UBS
Lenders”) and Goldman Sachs Credit Partners, L.P.
(“GSCP”), dated April 20, 2008, and subject to
the conditions set forth therein, the UBS Lenders and GSCP have
committed to provide financing for the mergers. The commitment
letter provides for a senior secured term loan facility to
Holdings of up to $600 million and a senior secured
revolving credit facility to Holdings of up to
$325 million. The commitments are subject to satisfaction
of certain conditions, including (1) execution of
satisfactory documentation and (2) the absence of a
Material Adverse Effect (as defined in the merger agreement)
with respect to the business of Grey Wolf, Basic and their
respective subsidiaries, taken as a group. The obligation of
both Basic and Grey Wolf to complete the mergers is conditioned
upon Holdings obtaining financing.
Comparison
of Stockholder Rights (Page 135)
Basic and Holdings are incorporated under the laws of the State
of Delaware. Grey Wolf is incorporated under the laws of the
State of Texas. In accordance with the merger agreement, upon
the consummation of the mergers, the holders of Basic common
stock and Grey Wolf common stock will exchange their respective
shares of common stock for Holdings common stock in accordance
with their respective exchange ratios. Your rights as a
stockholder of Holdings will be governed by Delaware law,
Holdings’ restated certificate of incorporation and the
amended and restated bylaws of Holdings. For a comparison of the
material rights of Basic stockholders, Grey Wolf stockholders
and Holdings stockholders under each company’s
organizational documents and the Delaware statutory framework,
please see “Comparison of Stockholder Rights”
beginning on page 135.
Basic stockholders will be asked to vote on the following
proposals:
•
to adopt the merger agreement;
•
to approve the Horsepower Holdings, Inc. 2008 Equity Incentive
Plan, a copy of which is attached as Annex G to this joint
proxy statement/prospectus, to be used by Holdings following the
consummation of the mergers;
•
to approve adjournment of the meeting, if necessary or
appropriate, to solicit additional proxies in favor of approval
of the foregoing Basic special meeting proposals; and
•
to transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Grey Wolf stockholders will be asked to vote on the following
proposals:
•
to approve the merger agreement;
•
to approve the Horsepower Holdings, Inc. 2008 Equity Incentive
Plan, a copy of which is attached as Annex G to this joint
proxy statement/prospectus, to be used by Holdings following the
consummation of the mergers;
•
to approve adjournment of the meeting, if necessary or
appropriate, to solicit additional proxies in favor of approval
of the foregoing Grey Wolf special meeting proposals; and
•
to transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Effectiveness
of Holdings’ Equity Incentive Plan
The Horsepower Holdings, Inc. 2008 Equity Incentive Plan will be
implemented only if it and the merger agreement are approved by
the stockholders of both Basic and Grey Wolf.
Shares of Basic common stock are listed for trading on the New
York Stock Exchange. Shares of Grey Wolf common stock are listed
for trading on the American Stock Exchange. The following
information is presented for comparative purposes only and does
not represent the value of the consideration that Basic and Grey
Wolf stockholders will receive per share as a result of the
mergers. The following table sets forth the closing sales prices
per share of Basic common stock and Grey Wolf common stock, on
an actual and equivalent per share basis, on April 18,2008, the last full trading day prior to the public announcement
of the mergers, and on June 9, 2008, the last trading day
for which this information could be calculated prior to the
mailing of this joint proxy statement/prospectus:
The Basic equivalent price per share is calculated as the sum of
(i) the closing price of Basic common stock on each date
divided by 0.9195, the Basic exchange ratio, plus
(ii) $6.70 in cash, the Basic cash merger consideration.
(2)
The Grey Wolf equivalent price per share is calculated as the
sum of (i) the closing price of Grey Wolf common stock on
each date divided by 0.2500, the Grey Wolf exchange
ratio, plus (ii) $1.82 in cash, the Grey Wolf cash
merger consideration.
Neither Basic nor Grey Wolf has ever declared or paid any cash
dividends on its common stock. The board of directors of
Holdings will determine the dividend policy of Holdings after
consummation of the mergers. Holdings’ payment of dividends
will be restricted by the expected terms of the new Holdings
credit agreement entered into as part of the financing for the
mergers and by the terms of Basic’s 7.125% senior
notes which Holdings will assume.
Basic and Grey Wolf are providing you with the following
financial information to assist you in your analysis of the
financial aspects of the mergers. This information is only a
summary that you should read together with the historical
audited consolidated financial statements of Basic and Grey Wolf
and the related notes, as well as the sections titled
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” contained in the
annual reports on
Form 10-K
for the year ended December 31, 2007 and in the quarterly
reports on
Form 10-Q
for the three-month period ended March 31, 2008 that Basic
and Grey Wolf previously have filed with the SEC and that are
incorporated by reference into this joint proxy
statement/prospectus. Historical results are not necessarily
indicative of any results to be expected in the future. See
“Where You Can Find More Information” beginning on
page 147.
The information below refers to EBITDA of Basic and Grey Wolf.
EBITDA means earnings before interest, income taxes,
depreciation and amortization. EBITDA has limitations as an
analytical tool and should not be considered an alternative to
net income, operating income, cash flow from operating
activities or any other measure of financial performance or
liquidity presented in accordance with generally accepted
accounting principles (GAAP). EBITDA excludes some, but not all,
items that affect net income. Limitations to using EBITDA as an
analytical tool include:
•
EBITDA does not reflect current or future requirements for
capital expenditures or capital commitments;
•
EBITDA does not reflect changes in, or cash requirements
necessary to service interest or principal payments on
indebtedness;
•
EBITDA does not reflect income taxes;
•
although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and EBITDA does not reflect any cash
requirements for such replacements;
•
an improving trend in EBITDA may not be indicative of an
improvement in profitability; and
•
other companies in Basic’s and Grey Wolf’s industries
may calculate EBITDA differently than do Basic and Grey Wolf,
limiting its usefulness as a comparative measure.
Please see the reconciliations of EBITDA to net income, which is
the most directly comparable GAAP financial measure, for each of
Basic and Grey Wolf for each of the periods presented, below.
The following table presents a
reconciliation of EBITDA to net income, which is the most
directly comparable GAAP financial performance measure, for each
of the periods indicated:
Earnings before interest expense, income taxes, depreciation and
amortization
$
66,087
$
59,626
$
258,683
$
231,163
$
121,313
$
59,071
$
28,993
Depreciation and amortization
(28,032
)
(19,225
)
(93,048
)
(62,087
)
(37,072
)
(28,676
)
(18,213
)
Net interest expense
(6,648
)
(5,124
)
(25,136
)
(15,504
)
(12,660
)
(9,550
)
(5,174
)
Income tax expense
(11,751
)
(13,204
)
(52,766
)
(54,742
)
(26,800
)
(7,984
)
(2,772
)
Net income
19,656
22,073
87,733
98,830
44,781
12,861
2,834
(3)
Includes all rigs owned during
periods presented and excludes rigs held for sale.
(4)
Rig utilization rate based on the
weighted average number of rigs owned during the periods being
reported, a
55-hour work
week per rig and the number of weekdays in the periods being
presented.
The following table presents a
reconciliation of EBITDA to net income, which is the most
directly comparable GAAP financial performance measure, for each
of the periods indicated:
The selected unaudited pro forma statement of operations data
presented below is based on the assumption that the mergers
occurred at the beginning of the periods presented and reflects
only adjustments directly related to the mergers. The selected
unaudited pro forma balance sheet data is prepared as if the
mergers occurred on March 31, 2008. The pro forma
adjustments are based on available information and assumptions
that each company’s management believes are reasonable and
in accordance with SEC requirements. The selected unaudited pro
forma condensed combined financial data are presented for
illustrative purposes only and should not be read for any other
purpose. You should not rely on this information as being
indicative of the historical results that would have been
achieved had the companies been combined for the period
presented or the future results that the combined company will
experience after the mergers. The selected unaudited pro forma
condensed combined financial data:
•
have been derived from and should be read in conjunction with
the “Holdings Unaudited Pro Forma Condensed Combined
Financial Information” and the related notes beginning on
page 125 of this joint proxy statement/prospectus; and
•
should be read in conjunction with the historical consolidated
financial statements of Basic and Grey Wolf incorporated by
reference into this joint proxy statement/prospectus.
The following selected comparative per share information of
Basic and Grey Wolf as of and for the three months ended
March 31, 2008 and the year ended December 31, 2007
were derived from the companies’ unaudited and audited
financial statements, respectively. You should read this
information along with Basic’s and Grey Wolf’s
historical consolidated financial statements and the
accompanying notes for that period included in the documents
described under “Where You Can Find More Information”
beginning on page 147. You should also read the unaudited
pro forma condensed combined financial information and
accompanying discussion and notes included in this joint proxy
statement/prospectus under “Holdings Unaudited Pro Forma
Condensed Combined Financial Information” beginning on
page 125.
Basic — Equivalent unaudited pro forma per
share data:
Net Income per share(1):
Basic
$
.45
$
2.24
Diluted
.40
1.99
Book value per share of common stock
13.57
N/A
Grey Wolf — Historical:
Net Income per share:
Basic
$
0.18
$
0.93
Diluted
0.15
0.79
Book value per share of common stock
3.86
3.70
Holdings — Unaudited pro forma combined amounts:
Net Income per share:
Basic
$
0.49
$
2.44
Diluted
0.44
2.16
Book value per share of common stock
14.76
N/A
(1)
The Basic equivalent unaudited pro forma per share data
represents Holdings’ unaudited pro forma per share
data multiplied by Basic’s exchange ratio of 0.9195.
In addition to the other information included and incorporated
by reference in this joint proxy statement/prospectus, Basic and
Grey Wolf stockholders should carefully consider the matters
described below to determine whether to adopt the merger
agreement and thereby approve the mergers.
The
value of the shares of Holdings common stock and cash you
receive upon the consummation of the mergers may be less than
the value of your shares of Basic common stock or Grey Wolf
common stock as of the date of the merger agreement, the date of
this joint proxy statement/prospectus or the date of the special
meetings.
The consideration that you will receive in the Basic merger and
the Grey Wolf merger is fixed and will not be adjusted in the
event of any change in the stock prices of Basic or Grey Wolf
prior to the mergers. There may be a significant amount of time
between the dates when the stockholders of each of Basic and
Grey Wolf vote on the merger agreement at the special meeting of
each company and the date when the mergers are completed. The
absolute and relative prices of shares of Basic common stock and
Grey Wolf common stock may vary significantly between the date
of this joint proxy statement/prospectus, the date of the
special meetings and the date of the completion of the mergers.
These variations may be caused by, among other things, changes
in the businesses, operations, results or prospects of Basic or
Grey Wolf, market expectations of the likelihood that the
mergers will be completed and the timing of completion, the
prospects of post-merger operations, the effect of any
conditions or restrictions imposed on or proposed with respect
to the combined company by regulatory agencies and authorities,
general market and economic conditions and other factors. In
addition, it is impossible to predict accurately the market
price of the Holdings common stock to be received by Basic and
Grey Wolf stockholders after the completion of the mergers.
Accordingly, the prices of Grey Wolf common stock and Basic
common stock on the date of this joint proxy
statement/prospectus and on the date of the special meetings may
not be indicative of their prices immediately prior to
completion of the mergers and the price of Holdings common stock
after the mergers are completed.
The
anticipated benefits of combining the companies may not be
realized.
Basic and Grey Wolf entered into the merger agreement with the
expectation that the mergers would result in various benefits
that cannot be quantified at this time. See “TheMergers — Strategic and Financial Rationale for the
Mergers” beginning on page 38. We may not achieve
these benefits at the levels expected or at all. If we fail to
achieve these expected benefits, the results of operations and
the enterprise value of the combined company may be adversely
affected.
The
integration of Basic and Grey Wolf following the mergers will
present significant challenges that may reduce the anticipated
potential benefits of the mergers.
Basic and Grey Wolf will face significant challenges in
consolidating functions and integrating their organizations,
procedures and operations in a timely and efficient manner, as
well as retaining key personnel. The integration of Basic and
Grey Wolf will be complex and time-consuming due to the location
of their corporate headquarters, and the size and complexity of
each organization. The principal challenges will include the
following:
•
integrating accounting systems and internal controls over
accounting and financial reporting;
•
integrating Basic’s and Grey Wolf’s existing
businesses;
•
combining diverse product and service offerings and sales and
marketing approaches;
•
preserving customer, supplier and other important
relationships; and
•
addressing differences in business cultures, preserving employee
morale and retaining key employees, while maintaining focus on
providing consistent, high quality customer service and meeting
the operational and financial goals of the combined company.
The respective managements of Basic and Grey Wolf will have to
dedicate substantial effort to integrating the businesses. These
efforts could divert management’s focus and resources from
other day-to-day tasks, corporate initiatives or strategic
opportunities during the integration process.
Basic
and Grey Wolf may not be able to retain key
employees.
Uncertainty about the effect of the mergers on employees may
have an adverse effect on Basic and Grey Wolf and, consequently,
on the combined company. These uncertainties may impair
Basic’s and Grey Wolf’s ability to attract, retain and
motivate key personnel until the mergers are consummated and for
a period of time thereafter. Employee retention may be
particularly challenging during the pendency of the mergers
because employees may experience uncertainty about their future
roles with the combined company. If key employees depart because
of issues relating to the uncertainty and difficulty of
integration or a desire not to remain with the combined company,
the combined company’s business could be seriously harmed.
Basic
and Grey Wolf will incur significant transaction and
merger-related integration costs in connection with the
mergers.
Basic and Grey Wolf expect to pay transaction costs of
approximately $35.0 million in the aggregate, excluding
change of control severance payments to some of their departing
employees. These transaction fees include investment banking,
legal and accounting fees and expenses, expenses associated with
the financing of the mergers, SEC filing fees, printing
expenses, mailing expenses and other related charges. These
amounts are preliminary estimates that are subject to change. A
portion of the transaction costs will be incurred regardless of
whether the mergers are consummated. Basic and Grey Wolf will
each pay its own transaction costs, except that they will share
equally certain filing, printing, costs related to financing the
mergers and other costs and expenses. Basic and Grey Wolf also
expect to incur costs associated with integrating the operations
of the two companies. Basic and Grey Wolf are in the early
stages of assessing the magnitude of these integration costs.
While
the mergers are pending, Basic and Grey Wolf will be subject to
business uncertainties and contractual restrictions that could
adversely affect their businesses.
Uncertainty about the effect of the mergers on customers and
suppliers may have an adverse effect on Basic and Grey Wolf and,
consequently, on the combined company. These uncertainties could
cause customers, suppliers and others who deal with Basic and
Grey Wolf to seek to change existing business relationships with
Basic and Grey Wolf. In addition, the merger agreement restricts
Basic and Grey Wolf, without the other party’s consent and
subject to certain exceptions, from making certain acquisitions
and taking other specified actions until the mergers occur or
the merger agreement terminates. These restrictions may prevent
Basic and Grey Wolf from pursuing otherwise attractive business
opportunities and making other changes to their businesses that
may arise prior to completion of the mergers or termination of
the merger agreement.
The
merger agreement limits Basic’s and Grey Wolf’s
ability to pursue an alternative acquisition proposal and
requires Basic or Grey Wolf to pay a termination fee of up to
$30 million if either does.
The merger agreement prohibits Basic and Grey Wolf from
soliciting, initiating or encouraging alternative merger or
acquisition proposals with any third party. The merger agreement
also provides for the payment by Basic or Grey Wolf of a
termination fee of up to $30 million if the merger
agreement is terminated in certain circumstances or the
withdrawal by the board of directors of that company of its
recommendation that the stockholders of that company vote for
the adoption of the merger agreement, as the case may be. See
“The Merger Agreement — Covenants and
Agreements — No Solicitation” beginning on
page 100.
These provisions limit Basic’s and Grey Wolf’s ability
to pursue offers from third parties that could result in greater
value to Basic’s or Grey Wolf’s stockholders. The
obligation to make the termination fee payment may also
discourage a third party from pursuing an alternative
acquisition proposal.
The
approvals needed to consummate the mergers may not be
obtained.
The mergers are subject to the receipt of consents and approvals
from various government entities that may impose conditions on,
jeopardize or delay completion of the mergers or reduce the
anticipated benefits of the mergers. It is possible that we may
not obtain the required consents, orders, approvals and
clearances. Moreover, if they are obtained, they may impose
conditions on, or require divestitures relating to, the
divisions, operations or assets of Basic or Grey Wolf. A
substantial delay in obtaining any required approvals or the
imposition of any unfavorable conditions or divestitures in
connection with the receipt of any required approvals may
jeopardize or delay completion of the mergers or reduce the
anticipated benefits of the mergers.
Failure
to complete the mergers could negatively impact the stock prices
and the future business and financial results of Basic and Grey
Wolf because of, among other things, the disruption that would
occur as a result of uncertainties relating to a failure to
complete the mergers.
The stockholders of both Basic and Grey Wolf may not approve the
mergers or Basic and Grey Wolf may not receive the required
consents, orders, approvals and clearances or satisfy the other
conditions to the completion of the mergers. If the mergers are
not completed for any reason, Basic and Grey Wolf could be
subject to several risks, including the following:
•
being required to pay the other company a termination fee of up
to $30 million in certain circumstances, as described under
“The Merger Agreement — Termination of the Merger
Agreement and Termination Fees” beginning on page 103;
•
having had the focus of management of each of the companies
directed toward the mergers and integration planning instead of
on each company’s core business and other opportunities
that could have been beneficial to the companies; and
•
incurring substantial transaction costs related to the mergers.
In addition, Basic and Grey Wolf would not realize any of the
expected benefits of having completed the mergers.
If the mergers are not completed, the price of Basic or Grey
Wolf common stock may decline to the extent that the current
market price of that stock reflects a market assumption that the
mergers will be completed and that the related benefits will be
realized, or a market perception that the mergers were not
consummated due to an adverse change in Basic’s or Grey
Wolf’s business. In addition, Basic’s business and
Grey Wolf’s business may be harmed, and the prices of their
stock may decline as a result, to the extent that customers,
suppliers and others believe that the companies cannot compete
in the marketplace as effectively without the mergers or
otherwise remain uncertain about the companies’ future
prospects in the absence of the mergers. Similarly, current and
prospective employees of Basic and Grey Wolf may experience
uncertainty about their future roles with the resulting company
and choose to pursue other opportunities, which could adversely
affect Basic or Grey Wolf, as applicable, if the mergers are not
completed. The realization of any of these risks may materially
adversely affect the business, financial results, financial
condition and stock prices of Basic and Grey Wolf.
Some
of the directors and executive officers of Basic and Grey Wolf
have interests in the mergers that are different from the
interests of Basic’s and Grey Wolf’s
stockholders.
When considering the recommendation of their board of directors
with respect to the mergers, stockholders should be aware that
some directors and executive officers have interests in the
mergers that are different from, or in addition to, the
interests of the stockholders. These interests include
(1) their designation as Holdings directors or executive
officers, (2) the fact that the completion of the
transaction will result in the acceleration of vesting of
long-term incentive awards held by non-continuing directors and
(3) the fact that certain executive officers of Basic and
Grey Wolf have entered into change of control agreements that
will entitle them to cash payments and other benefits if the
mergers are completed and their employment is terminated or if
the executive in question resigns or terminates his employment
for certain reasons. Steven A.
Webster has also served on the board of directors of both Grey
Wolf and Basic and is a beneficial owner in the common stock of
each company.
Stockholders should consider these interests in conjunction with
the recommendation of the directors of Basic and Grey Wolf of
approval of the mergers. These interests have been described
more fully in “The Mergers — Interests of Basic
and Grey Wolf Directors and Executive Officers in the
Mergers” beginning on page 75.
Holdings
will have substantial debt after the mergers, which could have a
material adverse effect on its financial health and limit its
future operations.
Holdings will have a significant amount of debt immediately
after the mergers. As of March 31, 2008, on a pro forma
basis to reflect the mergers and Holdings’ borrowing to
finance the cash component of the merger consideration,
repayment of outstanding Basic debt and expenses relating to the
mergers, Holdings’ total outstanding long-term debt would
have been $1,107 million. Under the commitment letter
between Grey Wolf, GSCP and the UBS Lenders dated April 20,2008, and subject to the terms and conditions set forth in the
commitment letter, GSCP and the UBS Lenders have committed to
provide an aggregate principal amount of up to $600 million
under a senior secured term loan facility to Holdings and an
aggregate principal amount of up to $325 million under a
senior secured revolving credit facility. The proceeds of the
term loan facility may be used by Holdings to finance the cash
component of the merger consideration, to repay outstanding debt
of Basic and its subsidiaries, to pay expenses relating to the
mergers, and to provide ongoing working capital requirements of
Holdings and its subsidiaries following the mergers. See
“Financing of the Mergers.”
Holdings’ substantial debt could have a material adverse
effect on its financial condition and results of operations. In
particular, it could:
•
increase Holdings’ vulnerability to general adverse
economic and industry conditions, and require it to dedicate a
substantial portion of its cash flow from operations to payments
on its indebtedness, thereby reducing the availability of its
cash flow to fund working capital, capital expenditures,
acquisitions, other debt service requirements and other general
corporate purposes;
•
increase Holdings’ exposure to risks inherent in interest
rate fluctuations and changes in credit ratings or statements
from rating agencies because certain of its borrowings are at
variable rates of interest, which would result in higher
interest expense to the extent Holdings has not hedged these
risks against increases in interest rates;
•
place Holdings at a competitive disadvantage compared to its
competitors that have less debt; and
•
limit Holdings’ ability to borrow additional funds.
Holdings
may be vulnerable to interest rate increases due to its floating
rate debt obligations.
As of March 31, 2008, on a pro forma basis to reflect the
mergers, Holdings would have $732.2 million of outstanding
long-term indebtedness subject to interest at floating rates.
Changes in economic conditions outside of Holdings’ control
could result in higher interest rates, thereby increasing
Holdings’ interest expense and reducing its funds available
for capital investment, operations or other purposes.
A
material or extended decline in expenditures by oil and natural
gas exploration and production companies due to a decline or
volatility in oil and natural gas prices, a decrease in demand
for oil and natural gas or other factors, could adversely affect
Holdings’ business.
Holdings will be dependent on the level of activity by oil and
natural gas exploration and production companies operating in
the geographic markets where it operates. The number of wells
they choose to drill and general production spending is strongly
influenced by past trends in oil and natural gas prices, current
prices and their outlook for future prices. Mild weather
conditions and increased supplies of oil and natural gas from
other sources could affect these prices. Low oil and natural gas
prices, or the perception among oil
and natural gas companies that prices are likely to decline, can
materially and adversely affect the demand for and price of
Holdings’ services.
Depending on the market prices of oil and natural gas, customers
may cancel or curtail their drilling, workover and/or
maintenance programs, thereby reducing demand for Holdings’
services. Even during periods when prices for oil and natural
gas are high, companies exploring for oil and natural gas may
cancel or curtail their drilling programs or reduce their
maintenance spending for a variety of other reasons beyond
Holdings’ control. Any reduction in the demand for
Holdings’ services may materially adversely affect
utilization rates for equipment and the prices Holdings receives
for services, which adverse effects could adversely affect
Holdings’ results of operation and financial condition. Oil
and natural gas prices have been historically volatile and may
continue to be so in the future. Many factors beyond
Holdings’ control affect oil and natural gas prices,
including:
•
weather conditions in the United States and elsewhere;
•
economic conditions in the United States and elsewhere;
•
actions by OPEC, the Organization of Petroleum Exporting
Countries;
•
political instability in the Middle East, Venezuela, Nigeria and
other major producing regions;
•
governmental regulations, both domestic and foreign;
•
the pace adopted by foreign governments for exploration of their
national reserves; and
•
the overall supply and demand for oil and natural gas.
Holdings
will be subject to federal, state and local regulation regarding
issues of health, safety and protection of the environment.
Under these regulations, Holdings may become liable for
penalties, damages or costs of remediation. Any changes in laws
and government regulations could increase its costs of doing
business.
Holdings’ operations will be subject to federal, state and
local laws and regulations relating to protection of natural
resources and the environment, health and safety, oilfield waste
fluids management, and transportation of oilfield waste fluids
and other materials. Holdings’ fluid services operations
will include disposal operations into injection wells that pose
risks of environmental liability, including leakage from the
wells to surface or subsurface soils, surface water or
groundwater. Liability under these laws and regulations could
result in cancellation of well operations, fines and penalties,
expenditures for remediation, and liability for property damage
and personal injuries. Sanctions for noncompliance with
applicable environmental laws and regulations also may include
assessment of administrative, civil and criminal penalties,
revocation of permits and issuance of corrective action orders.
Additionally, Holdings’ land drilling operations will often
be conducted in or near ecologically sensitive areas, such as
wetlands, which are subject to special protective measures and
which may expose Holdings to additional operating costs and
liabilities for noncompliance with applicable laws.
Laws protecting the environment generally have become more
stringent over time and are expected to continue to do so, which
could lead to material increases in costs for future
environmental compliance and remediation. The modification or
interpretation of existing laws or regulations, or the adoption
of new laws or regulations, could curtail exploratory or
developmental drilling for oil and gas and could limit well
servicing opportunities. Some environmental laws and regulations
may impose strict liability, which means that in some situations
Holdings could be exposed to liability as a result of its
conduct that was lawful at the time it occurred or conduct of,
or conditions caused by, prior operators or other third parties.
Clean-up
costs and other damages arising as a result of environmental
laws, and costs associated with changes in environmental laws
and regulations could be substantial and could have a material
adverse effect on Holdings’ financial condition.
Business
acquisitions entail numerous risks and may disrupt
Holdings’ business or distract management
attention.
It is contemplated that as part of Holdings’ business
strategy it will continue the strategies of Basic and Grey Wolf
to consider and evaluate acquisitions of, or significant
investments in, businesses and assets that are complementary to
it. Any acquisition that Holdings completes could have a
material adverse effect on Holdings’ operating results
and/or the
price of its securities. Acquisitions involve numerous risks,
including:
•
unanticipated costs and liabilities;
•
difficulty of integrating the operations and assets of the
acquired business;
•
Holding’ ability to properly access and maintain an
effective internal control environment over an acquired company,
in order to comply with public reporting requirements;
•
potential loss of key employees and customers of the acquired
companies; and
•
an increase in Holdings’ expenses and working capital
requirements.
Holdings may incur substantial indebtedness to finance future
acquisitions and also may issue equity securities or convertible
securities in connection with any such acquisitions. Debt
service requirements could represent a significant burden on
Holdings’ results of operations and financial condition and
the issuance of additional equity could be dilutive to
shareholders. Holdings will also be required to meet certain
financial covenants in order to borrow money under its credit
agreement to fund future acquisitions. Acquisitions could also
divert the attention of Holdings’ management and other
employees from Holdings’ day-to-day operations and the
development of new business opportunities. Even if Holdings is
successful in integrating its current or future acquisitions
into its existing operations, Holdings may not derive the
benefits, such as operational or administrative synergies, that
Holdings expected from such acquisitions, which may result in
the commitment of Holdings’ capital resources without the
expected returns on such capital. In addition, Holdings may not
be able to continue to identify attractive acquisition
opportunities or successfully acquire identified targets.
Any
difficulty Holdings experiences retaining, replacing or adding
personnel could adversely affect Holdings’
business.
It is anticipated that Holdings will continue the respective
businesses of Basic and Grey Wolf after the mergers and as a
result will have personnel issues similar to those that have
faced Basic and Grey Wolf in the past. Holdings may not be able
to find enough skilled labor to meet its needs, which could
limit its growth. The business activity performed by Basic
historically decreases or increases with the current or forecast
price of oil and gas. As a result, Holdings may have problems
finding enough skilled and unskilled laborers in the future if
demand for its services increases. Basic raised wage rates to
attract workers from other fields and to retain or expand its
current work force during 2007. If Holdings is not able to
increase its service rates sufficiently to compensate for
similar wage rate increases, its operating results may be
adversely affected.
Although Grey Wolf has not historically encountered material
difficulty in hiring and retaining qualified rig crews,
shortages of qualified personnel have occurred in the past in
its industry during periods of high demand. The demand for
qualified rig personnel has increased as a result of overall
stronger demand for land drilling services over the last few
years. Holdings believes the demand for qualified rig personnel
could increase further as new and refurbished rigs are brought
into service by Holdings and its competitors.
Other factors may also inhibit Holdings’ ability to find
enough workers to meet its employment needs. The work currently
performed by Basic and Grey Wolf employees requires skilled
workers who can perform physically demanding work. As a result
of that industry’s volatility and the demanding nature of
the work, workers may choose to pursue employment in fields that
offer a more desirable work environment at wage rates that are
competitive with Holdings’. Holdings’ believe that its
success is dependent upon its ability to continue to employ and
retain skilled technical personnel and qualified rig personnel.
Holdings’ inability to employ or retain skilled technical
personnel and qualified rig personnel generally could have a
material adverse effect on its operations.
Holdings’
operations will involve operating hazards which if not
adequately insured or indemnified against could adversely affect
Holdings’ results of operations and financial
condition.
Holdings’ operations will be subject to the usual hazards
inherent in land drilling and the oil and gas exploration and
production business, including the risks of:
•
accidents;
•
blowouts;
•
reservoir damage;
•
cratering;
•
fires, oil spills, pollution and explosions;
•
collapse of the borehole;
•
lost or stuck drill strings; and
•
damage or loss from natural disasters.
If these events occur they can produce substantial liabilities
to Holdings which include:
•
suspension of operations;
•
damage to, or destruction of, property and equipment and the
environment;
•
personal injury and loss of life; and
•
damage to producing or potentially productive oil and natural
gas formations through which Holdings will likely drill.
It is anticipated that Holdings will attempt to obtain
indemnification from its customers by contract, as was done by
Grey Wolf, for certain of these risks under daywork contracts
but it will not always be able to do so.
It is further anticipated that Holdings will seek to protect
itself from some but not all operating risks through insurance
coverage that is customary in the industry. The indemnification
Holdings will likely receive from its customers and its own
insurance coverage may not, however, be sufficient to protect it
against liability for all consequences of disasters, personal
injury and property damage.
Holdings’ insurance coverage will likely require that
Holdings bear a portion of the claim through substantial
insurance coverage deductibles. Holdings’ insurance or
indemnification arrangements may not adequately protect it
against liability from all of the risks of its business. If
Holdings were to incur a significant liability for which it was
not fully insured or indemnified, it could adversely affect its
financial position and results of operations. In addition,
claims for loss of oil and gas production and damage to
formations can occur in the well services industry. Litigation
arising from a catastrophic occurrence at a location where
Holdings’ equipment and services are being used may result
in Holdings being named as a defendant in lawsuits asserting
large claims. Holdings also may be unable to obtain or renew
insurance coverage of the type and amount it desires at
reasonable rates.
The
price of Holdings’ common stock may experience
volatility.
Following the consummation of the mergers, the price of
Holdings’ common stock may be volatile. Some of the factors
that could affect the price of Holdings’ common stock are
quarterly increases or decreases in revenue or earnings, changes
in revenue or earnings estimates by the investment community,
the ability of Holdings to implement its integration strategy
and to realize the expected benefits from the mergers and
speculation in the press or investment community about
Holdings’ financial condition or results of operations.
General market conditions and U.S. or international
economic factors and political events unrelated to the
performance of Holdings may also affect its stock price. For
these reasons, investors should not rely on recent
trends in the price of Basic or Grey Wolf common stock to
predict the future price of Holdings’ common stock or its
financial results.
The
charter and bylaws of Holdings contain provisions that may make
it more difficult for a third party to acquire control
of it.
There are provisions in Holdings’ restated certificate of
incorporation and amended and restated bylaws that may make it
more difficult for a third party to acquire control of it, even
if a change in control would result in the purchase of your
shares of common stock of Holdings at a premium to the market
price or would otherwise be beneficial to you. For example,
Holdings’ restated certificate of incorporation authorizes
Holdings’ board of directors to issue preferred stock
without stockholder approval. If the board of directors of
Holdings elects to issue preferred stock, it could be more
difficult for a third party to acquire it. In addition,
provisions of Holdings’ restated certificate of
incorporation and bylaws provide for limitations on stockholder
actions by written consent and on stockholder proposals at
meetings of stockholders, could make it more difficult for a
third party to acquire control of Holdings. Delaware corporation
law may also discourage takeover attempts that have not been
approved by the board of directors of Holdings.
This joint proxy statement/prospectus and the documents that are
incorporated into this joint proxy statement/prospectus by
reference may contain or incorporate by reference statements
that do not directly or exclusively relate to historical facts.
Those statements are “forward-looking statements”
intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of
1995 and Section 21E of the Securities Exchange Act of
1934, as amended. You can typically identify forward-looking
statements by the use of forward-looking words, such as
“may,”“will,”“could,”“project,”“believe,”“anticipate,”“expect,”“estimate,”“continue,”“potential,”“plan,”“forecast”
and other words of similar import. Forward-looking statements
include information concerning possible or assumed future
results of operations, including statements about the following
subjects:
•
benefits, effects or results of the proposed mergers;
•
operations and results after the proposed mergers;
•
integration of operations;
•
business strategies;
•
growth opportunities;
•
competitive position;
•
market outlook;
•
expected financial position;
•
expected results of operations;
•
future cash flows;
•
financing plans;
•
budgets for capital and other expenditures;
•
plans and objectives of management;
•
timing of the consummation of the proposed mergers;
•
tax treatment of the proposed mergers;
•
accounting treatment of the proposed mergers;
•
costs in connection with the proposed mergers; and
•
any other statements regarding future growth, future cash needs,
future operations, business plans and future financial results,
and any other statements that are not historical facts.
These forward-looking statements represent Holdings’
intentions, plans, expectations, assumptions and beliefs about
future events and are subject to risks, uncertainties and other
factors. Many of those factors are outside of Holdings’
control and could cause actual results to differ materially from
the results expressed or implied by those forward-looking
statements. In addition to the risk factors described in this
joint proxy statement/prospectus under “Risk Factors,”
as well as the risk factors described in the other documents
Basic and Grey Wolf file with the SEC and incorporate by
reference in this joint proxy statement/prospectus, those
factors include:
•
conditions in the oil and gas industry, including any prolonged
substantial reduction in oil and natural gas prices, which could
cause a decline in the demand for Holdings’ services;
•
employment workforce factors, including the loss of key
personnel;
•
changes in safety and environmental regulations pertaining to
Holdings’ business;
•
the inherent risks associated with Holdings’ operations,
such as equipment defects, malfunctions and natural disasters;
•
changes in governmental safety, health, environmental and other
regulations, which could require us to make significant
expenditures;
•
liabilities related to Holdings’ services; and
•
Holdings’ ability to successfully complete merger,
acquisition or divestiture plans (including the proposed
mergers), regulatory or other limitations imposed as a result of
a merger, acquisition or divestiture, and the success of the
business following a merger, acquisition or divestiture.
In light of these risks, uncertainties and assumptions, the
events described in the forward-looking statements might not
occur or might occur to a different extent or at a different
time than we have described. You should consider the areas of
risk and uncertainty described above and discussed under
“Risk Factors” in this joint proxy
statement/prospectus and the other documents we file with the
SEC and incorporate by reference in connection with any written
or oral forward-looking statements that may be made after the
date of this joint proxy statement/prospectus by Basic, Grey
Wolf or Holdings or anyone acting for any or all of them. Except
as may be required by law, we undertake no obligation to
publicly update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise.
The discussion in this joint proxy statement/prospectus of
the mergers and the principal terms of the merger agreement are
subject to, and are qualified in their entirety by reference to,
the merger agreement, a copy of which is attached to this joint
proxy statement/prospectus as Annex A and incorporated into
this joint proxy statement/prospectus by reference.
Prior to entering into the merger agreement, Basic and Grey Wolf
formed a new Delaware corporation, Horsepower Holdings, Inc. The
merger agreement contemplates that Grey Wolf will merge with and
into Holdings, with Holdings surviving the merger. In that
merger, which we call the “Grey Wolf merger,” each
share of Grey Wolf common stock will be converted into the right
to receive 0.2500 of a share of Holdings common stock, which we
refer to as the “Grey Wolf stock consideration,” and
$1.82 in cash, which we refer to as the “Grey Wolf cash
consideration” and together with the Grey Wolf stock
consideration, the “Grey Wolf merger consideration.”
The merger agreement contemplates that concurrently with the
Grey Wolf merger, Basic will merge with and into Holdings, with
Holdings surviving the merger. In that merger, which we call the
“Basic merger,” each share of Basic common stock will
be converted into the right to receive 0.9195 of a share of
Holdings common stock, which we refer to as the “Basic
stock consideration,” and $6.70 in cash, which we refer to
as the “Basic cash consideration” and together with
the Basic stock consideration, the “Basic merger
consideration.” We refer to the Grey Wolf merger and the
Basic merger together throughout this document as the
“mergers.” As a result, the current holders of Basic
common stock and Grey Wolf common stock will become holders of
Holdings common stock. Immediately following completion of the
mergers, based on the number of shares of common stock of each
of Basic and Grey Wolf outstanding on the record date, former
Basic stockholders will own approximately 47% of Holdings’
common stock and former Grey Wolf stockholders will own
approximately 53% of Holdings’ common stock.
We intend to apply to the New York Stock Exchange prior to the
consummation of the mergers to list Holdings common stock under
the symbol “GW.”
Each of Basic’s and Grey Wolf’s board of directors and
senior management has from time to time engaged in strategic
planning reviews to consider ways to enhance stockholder value.
For each company, these reviews have included consideration of
merger or acquisition transactions with third parties, both as
the acquiring party and as the acquired party, and the potential
benefits and risks of those transactions.
In this context, Thomas P. Richards, Chairman and Chief
Executive Officer of Grey Wolf, and Kenneth V. Huseman,
President and Chief Executive Officer of Basic, met on
April 26, 2007, at the invitation of Mr. Richards, to
discuss a possible transaction involving Basic and Grey Wolf.
The two executives discussed the business prospects of their
respective companies and the strategic merits of a business
combination. Mr. Huseman advised Mr. Richards that he
would consult the Basic board of directors concerning a possible
transaction. In a conversation on May 14, 2007,
Mr. Huseman and Mr. Richards discussed a possible
all-cash transaction but did not have similar expectations as to
price. The Grey Wolf board decided to discontinue further
discussions with Basic because of the amount of indebtedness
that would have then been required to finance an all-cash
transaction with Basic.
Later in 2007, each of Basic and Grey Wolf held preliminary
discussions with other publicly-held oilfield services
companies, but neither resulted in the execution of definitive
agreements and the transactions were abandoned.
No further business combination discussions were held between
Basic and Grey Wolf until early 2008. However, the Basic board
of directors continued to discuss Grey Wolf as a potential
strategic combination candidate at regular meetings of the board
during 2007.
On February 5, 2008, Steven A. Webster, Chairman of the
Board of Basic and also a director of Grey Wolf, hosted a dinner
for executives and directors of Basic and Grey Wolf who were
attending an energy
industry investor conference. Mr. Webster mentioned to
David W. Wehlmann, the Executive Vice President and Chief
Financial Officer of Grey Wolf, that the time might be right to
again discuss a possible business combination between Basic and
Grey Wolf. Mr. Webster indicated that he believed that
Basic would consider a transaction involving stock
consideration. Mr. Richards later contacted
Mr. Huseman and the two executives arranged to meet again
to discuss a possible business combination.
On February 20, 2008, Mr. Huseman and
Mr. Richards met in Houston, Texas and discussed the
possible terms and strategic rationale for a transaction,
including the composition of the board of directors and senior
management of the combined company. Both executives expressed an
interest in considering a merger of equals structure similar to
one that had been recently completed in the oilfield service
sector in which stockholders of both merging companies received
cash in the merger funded by indebtedness incurred by the
combined company. The amount of a possible substantial cash
payment to stockholders of the combined company in the merger
was discussed, with Mr. Richards proposing a
$200 million, and Mr. Huseman proposing a
$600 million, aggregate cash payment. The difficulty of
obtaining suitable financing for such a payment in light of
then-existing disruption in the credit markets was also
discussed. Mr. Richards proposed that the board of
directors of the combined company consist of both Basic and Grey
Wolf directors, with Grey Wolf directors constituting a
majority, and that the combined company be named “Grey
Wolf, Inc.” and be headquartered in Houston, Texas.
Mr. Richards and Mr. Huseman also discussed pricing
terms, with Mr. Richards initially suggesting no premium
for Basic stockholders and Mr. Huseman countering that a
10% premium would be in order, but did not reach agreement. Both
executives agreed to consult with their respective boards of
directors for additional direction and meet again.
On the morning of February 27, 2008, Grey Wolf’s board
of directors met at a regularly scheduled meeting at which
Mr. Richards reported on his discussions with
Mr. Huseman. The Grey Wolf board of directors discussed the
strategic merits of a proposed merger with Basic and the amount
of cash that might be paid to the stockholders of the combined
company. The Grey Wolf board met in executive session to discuss
possible candidates for senior management positions of the
combined company.
Steven A. Webster is a director and stockholder of both Basic
and Grey Wolf, but excused himself from participating in any
discussions regarding the potential business combination at all
meetings of the board of directors of Basic and Grey Wolf. In
addition, he did not vote on the subsequent approvals of the
mergers by the Basic and Grey Wolf boards.
On February 27, 2008, Messrs. Huseman and Richards met
in Houston, Texas and held further discussions of a possible
merger of equals between Basic and Grey Wolf which were
continued by telephone the next day. The executives exchanged
views concerning pricing terms, the amount of any cash payment
to stockholders and the ongoing positions of
Messrs. Huseman and Richards with the combined company.
Later in the day on February 27, 2008, Mr. Huseman
also held individual discussions with Robert F. Fulton, William
E. Chiles, H.H. Wommack, III and James S.
D’Agostino, Jr., each of whom are members of the Basic
board of directors, in Houston, Texas regarding the discussions
being held with Grey Wolf.
On March 4, 2008, Mr. Huseman received a draft of a
mutual confidentiality and standstill agreement from Grey Wolf.
On March 5, 2008, Mr. Huseman and Mr. Richards
met and discussed potential pricing and other key terms of a
merger of equals and the size and composition of the board of
directors and the senior management of the combined company.
Both agreed to continue discussions after consulting with their
respective boards.
On March 7, 2008, a special meeting of the Grey Wolf board
of directors was held to discuss the proposed merger.
Mr. Richards updated the board concerning his discussions
with Mr. Huseman. The board also received a presentation
and advice from UBS Securities LLC, Grey Wolf’s financial
advisor, concerning the proposed transaction and possible
financing structures and terms. A representative of
Porter & Hedges, L.L.P., legal counsel to Grey Wolf,
also briefed the board on legal matters relating to the
board’s responsibilities with respect to the proposed
transaction.
On March 7, 2008, Mr. Richards informed
Mr. Huseman that the Grey Wolf board of directors had given
him authority to pursue negotiations with regard to a
transaction with Basic with an 8% premium to Basic’s
stockholders and a $600 million aggregate cash payment to
the stockholders of the combined company. Mr. Huseman
indicated that he believed that the Basic board of directors
would require a higher premium. Messrs. Huseman and
Richards both agreed that they would suggest an 8.5% premium for
discussion by their respective boards.
On March 11, 2008, the Basic board of directors held a
regularly scheduled meeting in Houston, Texas. Andrews Kurth
LLP, legal counsel to Basic, discussed fiduciary duty matters
with the directors, and inquired of the directors whether they
had any potential conflicts. These matters, including
Mr. Webster’s role as a director of Grey Wolf and his
significant stock ownership in Grey Wolf, were disclosed and
discussed. After Mr. Webster excused himself from the
meeting, Mr. Huseman then briefed the Basic board on his
merger talks with Mr. Richards and discussed the rationale
and risks of a potential transaction with Grey Wolf. Goldman,
Sachs & Co., Basic’s financial advisor, also made
a presentation regarding financial aspects of the proposed
strategic combination. After further discussion and
deliberation, the board agreed that Mr. Huseman should
continue to pursue due diligence and negotiations with respect
to a possible transaction.
On March 12, 2008, the senior management of Basic and Grey
Wolf met and gave presentations to each other regarding their
respective businesses. Prior to the commencement of the meeting,
a confidentiality and standstill agreement was executed and
delivered by the companies. Also in attendance were
representatives of Goldman Sachs and UBS. Representatives of
Andrews Kurth and Davis Polk & Wardwell, legal counsel
to Basic, and representatives of Porter & Hedges and
Gardere Wynne Sewell LLP, legal counsel to Grey Wolf, were also
present. Following the management presentations,
Mr. Huseman and Mr. Richards met privately to discuss
the key proposed transaction terms.
During the latter part of the week of March 13, 2008, and
continuing into the following week, Basic and Grey Wolf, legal
counsel for each of Basic and Grey Wolf, Goldman Sachs, UBS and
legal counsel for Goldman Sachs and UBS, in their capacities as
potential lead arrangers of financing for the mergers, held
telephonic conferences to discuss alternative legal structures
for the transaction. The resulting conclusion was that both
Basic and Grey Wolf would simultaneously merge with and into a
newly-created company, which would be the sole surviving
corporation of the mergers.
On the morning of March 19, 2008, Messrs. Huseman and
Richards met to discuss various open matters relating to the
mergers, particularly those relating to the organizational
structure and senior management of the combined company.
In the afternoon of March 19, 2008, a due diligence meeting
was attended by senior management of each company and by each
company’s financial and legal advisors. Each company’s
management gave more detailed presentations about their
respective companies than were given in the meeting held on
March 12, 2008 and answered due diligence questions.
Thereafter, and continuing into late April 2008, each
company’s management, its financial advisors, its legal
counsel and separate teams of the Transaction Advisory group of
KPMG (on behalf of both Grey Wolf and Basic) conducted due
diligence inquiries and reviews with respect to the other
company.
On March 24, 2008, a special meeting of the Grey Wolf board
of directors was held at which Grey Wolf management reported on
the status of negotiations of the proposed mergers. UBS made a
presentation regarding the proposed mergers, including possible
terms and structure of the transaction, board and management
composition post-transaction, the relative valuation of the two
companies and the expected pro forma capitalization of the
combined company, assuming indicative terms of merger financing.
The Grey Wolf board also determined to engage
Simmons & Company International to analyze the
proposed transaction and express their opinion to the board with
respect to the fairness of the mergers. Legal counsel to Grey
Wolf provided legal advice to the board and briefed the board on
the progress of legal due diligence of Basic and its business.
On March 27, 2008, Mr. Krenek, Basic’s chief
financial officer, met with William T. Donovan and William R.
Ziegler, who are each members of Grey Wolf’s audit
committee, to discuss Mr. Krenek’s views on
financing initiatives, financial leverage, internal control over
financial reporting and disclosure controls and procedures, as
well as their views of the corporate culture of Grey Wolf
regarding the same matters.
On April 1, 2008, a special meeting of the Grey Wolf board
of directors was held, the principal purpose of which was to
receive a presentation from UBS, in its capacity as a possible
joint lead arranger of financing for the mergers, of indicative
financing commitment terms for the proposed merger financing.
Also discussed in general were the expected terms of a
commitment letter from UBS and an affiliate of Goldman Sachs to
provide financing for the mergers. Mr. Richards also
updated the board on the state of negotiations with Basic and a
timetable for possible signing of the merger agreement.
On April 2, 2008, Mr. Huseman and Mr. Richards
met and further discussed organizational matters and job
responsibilities of the chairman, the chief executive officer
and the president and chief operating officer of the combined
company.
On April 3, 2008, Porter & Hedges sent a draft
merger agreement to Andrews Kurth and Davis Polk &
Wardwell. Thereafter, until the signing of the merger agreement,
legal counsel for both companies negotiated and exchanged
comments to the merger agreement and ancillary agreements to the
merger agreement.
On April 9 and 10, 2008, representatives of Basic and Grey Wolf
held meetings to discuss integration, transition and other
organizational matters relevant to a possible transaction.
On April 10, 2008, the Grey Wolf board of directors held a
special meeting at which a representative of Porter &
Hedges reported on the status of negotiations with Basic
regarding the merger agreement and the progress of legal due
diligence. Management reported on the status of discussions
regarding financing for the proposed transaction. A form of
severance and retention plan for Basic and Grey Wolf employees
following the mergers was also approved.
Later on April 10, 2008, Grey Wolf directors Frank M.
Brown, William T. Donovan and Trevor M. Turbidy, met with
Mr. Huseman to discuss Mr. Huseman’s background
and experience and his vision and goals for the combined
company. The group also discussed Mr. Huseman’s plans
for managing the much larger combined company and its management
organizational structure.
On April 14, 2008, the Grey Wolf board of directors held a
special meeting at which a representative of Porter &
Hedges briefed the board on the status of negotiations of the
merger agreement, management reported on the progress of
discussions with UBS and GSCP regarding financing for the
mergers, and Gardere Wynne Sewell and Porter & Hedges
updated the board regarding legal due diligence matters.
On April 17, 2008, the Basic board of directors held a
special meeting in Houston, Texas. At this meeting,
Mr. Huseman further discussed the rationale and risks for
the potential transaction. The board received from its legal
counsel, Davis Polk & Wardwell and Andrews Kurth, an
overview of fiduciary duties and a summary of current terms
proposed for the transaction. Goldman Sachs was also asked to
join the meeting and to make a presentation regarding financial
aspects of the proposed strategic combination. The board also
discussed the engagement of Tudor, Pickering, Holt &
Co. Securities Inc. to render a second fairness opinion in
addition to the fairness opinion expected to be delivered by
Goldman Sachs to Basic’s board of directors.
Mr. Huseman also discussed a proposed mutual retention and
severance plan for employees, and Messrs. Huseman and
Krenek discussed the status of certain employment agreement
amendments being requested by Grey Wolf in connection with the
mergers. Goldman Sachs summarized and discussed with the board
the current financing terms pursuant to proposed commitment
letter. The directors present, other than Mr. Huseman, also
met in executive session.
On April 17, 2008, Mr. Huseman and Grey Wolf director
Trevor M. Turbidy met and discussed changes to the terms of
Mr. Huseman’s and Mr. Krenek’s employment
contracts that were being requested by Grey Wolf and management
organizational matters of the combined company.
On the morning of April 18, 2008, the Grey Wolf board of
directors held a special telephonic meeting to discuss matters
relating to Mr. Huseman’s and Mr. Krenek’s
employment contracts and the job responsibilities of senior
management of the combined company. In addition, the Grey Wolf
board received presentations from management and representatives
of UBS regarding the proposal of UBS and GSCP to provide
financing for
the mergers. Representatives of UBS also presented information
regarding the proposed mergers including the relative
performance of the two companies’ stock prices, the pro
forma financial condition of the combined company and an
expected accretion/dilution analysis of the proposed transaction.
The Grey Wolf board of directors held a second special
telephonic meeting in the early evening of April 18, 2008
to review and discuss two letter agreements that had been
prepared by Grey Wolf’s legal counsel for signature by
Basic, Grey Wolf and each of Messrs. Huseman and Krenek
relating to the waiver by them of their rights to terminate
their employment for “good reason” and to receive
related change of control severance benefits under their
employment contracts in connection with the mergers, and
clarifying the management organization and job responsibilities
of senior management of the combined company.
On April 19, 2008, Mr. Turbidy and Mr. Huseman
discussed by telephone the letter agreements for
Mr. Huseman and Mr. Krenek that had been presented by
Mr. Turbidy to Mr. Huseman and discussed the previous
day.
On the afternoon of April 19, 2008, the Grey Wolf board of
directors held a special telephonic meeting to receive the
report of legal counsel on negotiations between Grey Wolf and
Mr. Huseman and Mr. Krenek regarding the letter
agreements proposed by Grey Wolf.
On the afternoon of April 20, 2008, the Grey Wolf board of
directors held a special meeting to consider further the mergers
and the merger agreement. All members of the board, other than
Mr. Webster, were present in person or by telephone.
Representatives from Simmons & Company, UBS,
Porter & Hedges, Gardere Wynne Sewell and KPMG also
attended the meeting. Simmons & Company reviewed its
financial analysis of the Basic merger consideration relative to
the Grey Wolf merger consideration and then delivered to Grey
Wolf’s board of directors its oral and written opinion
that, as of the date of the opinion and based upon and subject
to factors and assumptions described in the opinion, the Basic
merger consideration relative to the Grey Wolf merger
consideration was fair, from a financial point of view, to Grey
Wolf. UBS then reviewed its financial analysis of the Basic
merger consideration relative to the Grey Wolf merger
consideration and delivered to Grey Wolf’s board of
directors its oral opinion, later confirmed by its written
opinion of the same date, that, as of the date of the opinion
and based upon and subject to the various assumptions made,
procedures followed, matters considered and limitations on the
review undertaken by UBS described in its opinion, the Basic
merger consideration relative to the Grey Wolf merger
consideration provided for in the mergers was fair, from a
financial point of view, to Grey Wolf. Management updated the
board on the terms of the proposed transaction and the results
of management’s due diligence process. The board also
received due diligence reports from Grey Wolf’s legal
counsel, Porter & Hedges and Gardere Wynne Sewell,
regarding the scope and results of their respective due
diligence inquiries. Porter & Hedges also briefed the
board on the terms of the merger agreement. Representatives of
the Transaction Services group of KPMG also reported to the
board on the scope and results of their due diligence process
relating to Basic’s financial accounting, tax and other
matters. Following all presentations and further discussion, the
Grey Wolf board of directors then determined that the form,
terms, provisions and conditions of the merger agreement and the
transactions contemplated by the merger agreement were fair and
in the best interests of Grey Wolf and its stockholders and
approved, adopted, declared advisable, ratified and confirmed
the merger agreement and the transactions contemplated by the
merger agreement, and recommended that the merger agreement be
submitted to the Grey Wolf stockholders with the recommendation
that the merger agreement be adopted and approved by the Grey
Wolf stockholders. The Grey Wolf board of directors also
determined that the Holdings incentive plan is fair and in the
best interests of Grey Wolf and its stockholders and recommended
that the Holdings incentive plan be submitted to the Grey Wolf
stockholders with the recommendation that it be adopted and
approved by the Grey Wolf stockholders.
On April 20, 2008, the Basic board of directors held a
special meeting at the offices of Andrews Kurth in Houston,
Texas. At this meeting, the board received from its legal
counsel, Davis Polk & Wardwell and Andrews Kurth, a
summary of the final terms of the merger agreement, voting
agreement, lockup agreements, proposed waivers to employment and
equity award documents, and other related matters, which final
documents were also provided for the review and consideration of
the directors. Goldman Sachs also made a presentation regarding
its financial analysis of the strategic combination. After
making this presentation, Goldman Sachs rendered its oral
opinion, which was subsequently confirmed in writing, to the
Basic board of
directors to the effect that, as of the date of the opinion, and
based upon and subject to the factors and assumptions set forth
therein, the Basic merger consideration, taken in the aggregate,
to be received by the holders of outstanding shares of Basic
common stock pursuant to the merger agreement was fair from a
financial point of view to such holders. In addition,
TudorPickering also made a presentation and rendered its oral
opinion, subsequently confirmed in writing, as to the fairness
of the merger consideration from a financial point of view. The
directors present, other than Mr. Huseman, also met in
executive session. After final deliberation, the Basic board
determined that the mergers are advisable and in the best
interests of Basic and its stockholders, approved the merger and
the merger agreement, recommended that Basic’s stockholders
approve the merger agreement and directed that such matters be
submitted to the Basic stockholders for their approval. The
board also approved the Holdings incentive plan and directed
that it be submitted to Basic’s stockholders for approval
in connection with the mergers, approved the Severance and
Retention Benefits Plan to be implemented for both Basic and
Grey Wolf employees in connection with the mergers, and approved
and ratified the engagement letters with Goldman Sachs and
TudorPickering.
Late in the evening on April 20, 2008, following approval
of the merger agreement by the boards of directors of both
companies, the chief executive officers of Basic and Grey Wolf
signed the merger agreement. Concurrently with the signing of
the merger agreement, Grey Wolf entered into financing
commitment letters with GSCP and the UBS Lenders pursuant to
which GSCP and the UBS Lenders committed subject to the terms
and conditions set forth in the financing commitment letter to
provide loans under a senior secured term loan facility to the
combined company of up to $600 million and a senior secured
revolving credit facility to the combined company of up to
$325 million to support the cash component of the merger
consideration and to provide financing for general corporate
purposes. The letter agreements among Basic, Grey Wolf and each
of Messrs. Huseman and Krenek were also signed by all
parties. In addition, the DLJMB affiliates delivered their
executed voting agreement and the applicable officers and
directors of Basic and Grey Wolf delivered executed lockup
letters.
Early in the morning of April 21, 2008, the parties
publicly announced the execution of the merger agreement.
In the course of their discussions, both Basic and Grey Wolf
recognized that there were substantial potential strategic and
financial benefits to be obtained from the mergers. This section
summarizes the primary strategic and financial reasons why Basic
and Grey Wolf entered into the merger agreement. For a
discussion of various factors that could prohibit or limit the
parties’ ability to realize some or all of the benefits the
parties expect to achieve in the mergers, please read “Risk
Factors” beginning on page 23,
“— Basic’s Reasons for the Mergers and
Recommendation of Basic’s Board of Directors”
beginning on page 39 and “— Grey Wolf’s
Reasons for the Mergers and Recommendation of Grey Wolf’s
Board of Directors” beginning on page 42.
We believe the mergers will provide the stockholders of each of
Basic and Grey Wolf an opportunity to realize increased
long-term returns on their investment by creating a combined
company that is more operationally diverse, with enhanced size
and scale. We believe that the mergers will enhance stockholder
value by, among other things, enabling the parties to capitalize
on the following benefits:
•
Complementary Strengths. The mergers will
combine Basic’s strength in providing well site services
with Grey Wolf’s strength as a land driller to create a
larger, more diversified oilfield services company. The combined
company is expected to have approximately 7,500 employees
and will provide an array of complementary oilfield services
spanning the entire life of a well.
•
Diversified Sources of Revenue. The sources of
revenue for the combined company will be more diverse than
either Basic or Grey Wolf individually because of the combined
company’s larger customer base, its broader range of
services and its wider geographic areas of operations, including
international operations in Mexico. On a pro forma basis for the
year ended December 31, 2007, Holdings’ revenues would
have been derived 53% from contract drilling, 19% from well
servicing, 15% from fluid services and 13% from completion and
remedial services.
Expected Earnings and Cash Flow. We expect
that the combined company will initially have greater earnings
and cash flow than either Basic or Grey Wolf as a result of its
size and business line diversification, as well as improved
buying power and access to capital markets.
•
Premium Equipment. The combined company will
benefit from each of its predecessor companies’ strategy of
providing customers with premium equipment and is expected to
have a fleet of approximately 130 drilling rigs and 395 workover
rigs, as well as a broad range of other oilfield service assets.
•
Growth Opportunities. The combined company
will be better positioned to take advantage of growth
opportunities in domestic and foreign markets, both organically
and through acquisitions.
At its meeting on April 20, 2008, after due consideration,
the Basic board of directors:
•
determined that the merger agreement and the transactions
contemplated thereby are advisable and in the best interests of
the stockholders of Basic;
•
approved, authorized and adopted the merger agreement; and
•
recommended that the stockholders of Basic vote FOR adoption of
the merger agreement at the special meeting of stockholders of
Basic.
In approving the merger agreement and making these
determinations, the Basic board of directors consulted with
Basic’s management as well as Goldman Sachs, Basic’s
financial advisor, and TudorPickering, and legal counsel, and
considered a number of factors, which are discussed below. The
following discussion of the information and factors considered
by the Basic board of directors is not intended to be
exhaustive. In view of the wide variety of factors considered in
connection with the mergers, the Basic board of directors did
not consider it practicable to, nor did it attempt to, quantify
or otherwise assign relative weights to the specific material
factors it considered in reaching its decision. In addition,
individual members of the Basic board of directors may have
given different weight to different factors. The Basic board of
directors considered this information and these factors as a
whole, and overall considered the relevant information and
factors to be favorable to, and in support of, its
determinations and recommendations.
The Basic board of directors considered the following as
generally supporting its decision to enter into the merger
agreement:
•
Mutual Benefits. The Basic board considered
the expected benefits to both companies and their stockholders
described above under “— Strategic and Financial
Rationale for the Mergers.”
•
Long-Term and Immediate Value. The Basic board
believes that the mergers will allow Basic stockholders to
participate in possible long-term value created by the
combination of the two companies, while at the same time
providing an immediate consideration to its stockholders in the
form of the Basic merger consideration of $6.70 in cash per
share plus shares of Holdings common stock.
•
Terms of Merger Agreement and Taxation. The
Basic board considered (1) the Basic merger consideration
relative to the Grey Wolf merger consideration, (2) the
fact that Holdings is expected to be initially owned 47% by the
former stockholders of Basic and (3) the anticipated tax
aspects of the mergers as summarized below under the caption
“— Material U.S. Federal Income Tax
Consequences of the Mergers.”
•
Holdings Governance and Board Composition. The
Basic board considered the corporate governance provisions of
the proposed certificate of incorporation and bylaws of
Holdings, that the Holdings board will be initially composed of
five former Grey Wolf directors and four former Basic directors,
and the initial membership of the committees of Holdings’
board of directors, all as further described in
“— Continuing Board and Management
Positions.”
Executive Management and Headquarters. The
Basic board considered the initial composition of the executive
management of Holdings after the consummation of the mergers, as
further described in “— Continuing Board and
Management Positions,” and that the principal executive
offices of Holdings will initially be those of Grey Wolf in
Houston, Texas. The Basic board considered that
Messrs. Huseman and Krenek have agreed to the relocation of
their principal offices from Midland to Houston upon completion
of the mergers and, in the case of Mr. Krenek, to the later
relocation of his principal residence from Midland, Texas to the
Houston, Texas area.
•
Premium. The Basic board noted that the Basic
merger consideration, based on the closing price of the Basic
common stock on the last trading day before the execution of the
merger agreement, reflected an approximate 8.5% premium to the
closing price of the Basic common stock.
•
Ownership of Holdings. The Basic board noted
that the stockholders of Basic would own approximately 47% of
the combined company based on the number of shares of Basic and
Grey Wolf common stock outstanding as of the date of the merger
agreement and that DLJ Merchant Banking Partners III, L.P. and
certain affiliated funds, who currently own approximately 44% of
the outstanding shares of Basic common stock, would own
approximately 21% of the combined company. This increased
diversification of the shareholder base could result in
increased trading liquidity for the combined company compared to
the shareholder base of Basic.
•
Increased Scale. The Basic board considered
the potential benefits to the combined company and Basic’s
employees from the expanded opportunities available as a result
of being part of a larger organization with increased
operational scale.
•
Reciprocity of Merger Agreement. The Basic
board considered the largely reciprocal nature of the terms of
the merger agreement, including the representations and
warranties, obligations and rights of the parties under the
merger agreement, such as the provisions that permit either
party to respond to an unsolicited superior proposal and change
its recommendation of the mergers, the conditions to each
party’s obligation to complete the mergers, the instances
in which each party is permitted to terminate the merger
agreement and the related termination fees payable by each party
in the event of termination of the merger agreement under
specified circumstances.
•
Recommendation of Management. The Basic board
considered management’s recommendation in support of the
mergers.
•
Fairness Opinions Presented to the Basic
Board. The Basic board considered the financial
analysis reviewed and discussed with the Basic board by
representatives of both Goldman Sachs and TudorPickering on
April 20, 2008, as well as the oral opinions of Goldman
Sachs and TudorPickering that were delivered to the Basic board
on such date (which were subsequently confirmed in writing by
delivery of written opinions dated the same date) to the effect
that, as of April 20, 2008 and based upon and subject to
the procedures followed, assumptions made, qualifications and
limitations on the review undertaken and other matters
considered by each of them in preparing its opinion, the Basic
merger consideration, taken in the aggregate, was fair from a
financial point of view to the holders of outstanding shares of
Basic common stock. Basic does not intend to request that
Goldman Sachs or TudorPickering render an opinion as of any date
subsequent to April 20, 2008.
•
Stock Market Prices. The Basic board
considered the historical and current market prices of the Basic
common stock and the Grey Wolf common stock.
The Basic board also considered the potential risks of the
mergers, including the following:
•
Fixed Merger Consideration. The Basic board
considered the fact that the merger consideration would not
adjust downwards to compensate for changes in the price of Basic
or Grey Wolf common stock prior to the consummation of the
mergers, and that the terms of the merger agreement did not
include termination rights triggered expressly by a decrease in
the value of Grey Wolf relative to the value of Basic. The Basic
board determined this structure was appropriate and the risk
acceptable due to the directors’ focus on the relative
intrinsic values and performance of Basic and Grey Wolf and the
inclusion in the merger agreement of other structural
protections, such as the board’s ability to change its
recommendation in favor of the merger agreement or to terminate
the merger agreement in certain circumstances.
•
Grey Wolf Business Risks. The Basic board
considered certain risks inherent in Grey Wolf’s business
and operations and other contingent liabilities. These risks
include greater cyclicality in the North American land
drilling market and natural gas environment compared to well
servicing and other markets historically served by Basic. Based
on reports of management and outside advisors regarding the due
diligence process and the representations and warranties made by
Grey Wolf in the merger agreement, the Basic board determined
that these risks were manageable as part of the ongoing business
of the combined company.
•
Integration and Synergies. The Basic board
considered the challenges inherent in the combination of two
business enterprises of the size and scope of Basic and Grey
Wolf having corporate headquarters located in different cities,
including the possibility the anticipated benefits sought to be
obtained from the mergers might not be achieved in the time
frame contemplated or at all.
•
Restrictions on Interim Operations. The Basic
board considered the provisions in the merger agreement placing
restrictions on Basic’s operations until completion of the
mergers, and the extent of those restrictions as negotiated
between the parties. See “The Merger Agreement —
Covenants and Agreements — Interim Operations”
beginning on page 95 for further information.
•
Personnel. The Basic board considered the
adverse impact that business uncertainty pending completion of
the mergers could have on the ability to attract, retain and
motivate key personnel until the consummation of mergers.
•
No-Solicitation and Related Provisions. The
Basic board considered the provisions of the merger agreement
that, subject to certain exceptions, prohibit Basic from
soliciting, entering into or participating in discussions
regarding any acquisition proposal and the provisions of the
agreement that require Basic to conduct a stockholder meeting to
consider adoption of the merger agreement whether or not the
board of that company continues to recommend in favor of the
mergers, subject to the ability to terminate the merger
agreement to accept a superior proposal. See “The Merger
Agreement — Covenants and Agreements — No
Solicitation” beginning on page 100 for further
information.
•
Regulatory Approvals. The Basic board
considered the regulatory approvals required to complete the
mergers and the risk that governmental authorities might seek to
impose unfavorable terms or conditions on the required approvals
or that such approvals may not be obtained at all. The Basic
board further considered the potential length of the regulatory
approval process and the period of time Basic may be subject to
the merger agreement without assurance that the mergers will be
completed.
•
Termination Fee. The Basic board considered
the risk of the provisions in the merger agreement relating to
the potential payment of a termination fee of $30.0 million
under certain circumstances or the payment of a
$5.0 million expense reimbursement under certain other
circumstances. See “The Merger Agreement —
Termination of the Merger Agreement and Termination Fees”
beginning on page 103 for further information.
•
Financing. The Basic board considered the risk
that the financing might not be available on the terms set forth
in the commitment letter and that the expiration of the
financing commitment is September 30, 2008 while the merger
agreement does not expire until November 30, 2008.
The Basic board also considered the following factors relating
to the mergers:
•
the expected senior management of Holdings, including that Ken
Huseman would be Chief Executive Officer of Holdings and Alan
Krenek would be Executive Vice President and Chief Financial
Officer of Holdings;
•
the corporate governance provisions of the proposed certificate
of incorporation and bylaws of Holdings;
the scope of the due diligence investigation conducted by
management and Basic’s outside advisors and the results
thereof;
•
the pro forma earnings, cash flow and balance sheet impact of
the mergers;
•
the relative financial performance, businesses, risks and
prospects of Basic and Grey Wolf;
•
the historical and then-current stock price of Basic and Grey
Wolf;
•
the fact that Steven A. Webster, the Chairman of Basic’s
board of directors and a long-time director of Grey Wolf,
abstained from participating in the deliberations of the board
of directors of both Basic and Grey Wolf with respect to
negotiations relating to the mergers; and
•
the interests that certain Basic executive officers and
directors may have with respect to the mergers in addition to
their interests as Basic stockholders. See
“— Interests of Basic and Grey Wolf Directors and
Executive Officers in the Mergers” beginning on
page 75 for further information.
The Basic board concluded that, overall, the potential benefits
of the mergers to Basic and its stockholders outweighed the
risks, many of which are mentioned above.
The Basic board realized that there can be no assurance about
future results, including results considered or expected as
described in the factors listed above. It should be noted that
this explanation of the reasoning of the Basic board and all
other information presented in this section are forward-looking
in nature and, therefore, should be read in light of the factors
discussed under the heading “Cautionary Information
Regarding Forward-Looking Statements” beginning on
page 31.
The Basic board of directors has approved, authorized and
adopted the merger agreement, has determined that the merger
agreement and the transactions contemplated thereby, including
the mergers, are advisable and in the best interests of the
stockholders of Basic, and recommends that Basic stockholders
vote FOR the proposal to adopt the merger agreement.
At its meeting on April 20, 2008, after due consideration,
the Grey Wolf board of directors:
•
determined that the merger agreement and the transactions it
contemplates are advisable, fair to and in the best interests of
Grey Wolf and its stockholders;
•
approved the merger agreement; and
•
recommended that the Grey Wolf stockholders vote for the
approval of the merger agreement.
In reaching its determination to recommend the approval of the
merger agreement, the Grey Wolf board of directors consulted
with management, as well as UBS Securities LLC and
Simmons & Company International, Grey Wolf’s
financial advisors, and Grey Wolf’s legal counsel. Grey
Wolf’s board of directors also considered various material
factors that are discussed below. The discussion in this section
is not intended to be an exhaustive list of the information and
factors considered by Grey Wolf’s board of directors. In
view of the wide variety of factors considered in connection
with the mergers, the Grey Wolf board of directors did not
consider it practicable to, nor did it attempt to, quantify or
otherwise assign relative weights to the specific material
factors it considered in reaching its decision. In addition,
individual members of the Grey Wolf board of directors may have
given different weight to different factors. The Grey Wolf board
of directors considered this information and these factors, as a
whole and, overall, and considered the relevant information and
factors to be favorable to, and in support of, its
determinations and recommendation.
The Grey Wolf board of directors considered the following
factors as generally supporting its decision to enter into the
merger agreement:
•
Mutual Benefits. The Grey Wolf board
considered the expected benefits to both companies and their
stockholders described above under “— Strategic
and Financial Rationale for the Mergers.”
Long-Term and Immediate Value. The Grey Wolf
board believes that the mergers will allow Grey Wolf
stockholders to participate in possible long-term value created
by the combination of the two companies, while at the same time
providing an immediate return to its stockholders in the form of
the Grey Wolf merger consideration of $1.82 in cash per share
plus shares of Holdings common stock.
•
Terms of Merger Agreement and Taxation. The
Grey Wolf board considered (1) the largely reciprocal
nature of the terms of the merger agreement, (2) the Grey
Wolf merger consideration relative to the Basic merger
consideration, (3) the fact that Holdings is expected to be
initially owned 53% by the former stockholders of Grey Wolf and
(4) the anticipated tax aspects of the mergers as
summarized below under the caption “Material
U.S. Federal Income Tax Consequences of the Mergers.”
•
Holdings Governance and Board Composition. The
Grey Wolf board considered the corporate governance provisions
of the proposed certificate of incorporation and bylaws of
Holdings, that the Holdings board will be initially composed of
five former Grey Wolf directors and four former Basic directors,
and the initial membership of the committees of Holdings’
board of directors, all as further described in
“— Continuing Board and Management
Positions.”
•
Improved Commodity Price Exposure. Because a
majority of Basic’s services are provided to producers of
oil while Grey Wolf’s drilling services are provided
predominately to customers in search of natural gas, the Grey
Wolf Board considered that the combined company could be
expected to have less exposure to changes in demand for its
services caused by fluctuations in the price of natural gas.
•
Executive Management and Headquarters. The
Grey Wolf board considered the initial composition of the
executive management of Holdings after the consummation of the
mergers, as further described in “— Continuing
Board and Management Positions,” and that the principal
executive offices of Holdings will initially be those of Grey
Wolf in Houston, Texas. The Grey Wolf board considered that
Messrs. Huseman and Krenek have agreed to the relocation of
their principal offices from Midland to Houston upon completion
of the mergers and, in the case of Mr. Krenek, to the later
relocation of his principal residence from Midland, Texas to the
Houston, Texas area.
•
Integration Experience of Holdings Senior
Management. The Grey Wolf board regarded as
positive the successful experience of Holdings’ ongoing
management in integrating companies, although none of the
companies integrated presented the magnitude or complexity of
the integration challenges likely to confront Holdings as a
result of the mergers.
•
No Mandatory Repurchase or Redemption of Senior Notes.
The Grey Wolf board regarded as favorable that
Holdings would succeed to the currently favorable financing
terms of Basic’s 7.125% senior notes, Grey Wolf’s
3.75% contingent convertible senior notes and Grey Wolf’s
floating rate contingent convertible senior notes because
Holdings will not be required to make a mandatory offer to
repurchase or redeem the senior notes of either company as a
result of the mergers, although holders of Grey Wolf’s
contingent convertible senior notes will have an opportunity to
convert their senior notes into Grey Wolf common stock prior to
the mergers under the terms of the contingent convertible senior
notes.
•
Recommendation of Management. The Grey Wolf
board considered management’s recommendation in support of
the mergers.
•
Fairness Opinions Presented to the Grey Wolf
Board. The Grey Wolf board considered the
financial analyses presented by UBS Securities LLC and
Simmons & Company International on April 20,2008, as well as the oral opinions of those firms on that date
(subsequently confirmed in written opinions dated the same
date), to the Grey Wolf board as to the fairness, from a
financial point of view and as of the date of such opinions, to
Grey Wolf of the Basic merger consideration relative to the Grey
Wolf merger consideration provided for in the mergers, as more
fully described below under the caption
“— Opinions of Grey Wolf’s Financial
Advisors” beginning on page 62.
The Grey Wolf board also considered various potential risks of
the mergers, including the following:
•
Fixed Merger Consideration. The Grey Wolf
board considered the fact that the merger consideration will not
adjust upward or downward to compensate for changes in the price
of either Basic or Grey Wolf common stock prior to the
consummation of the mergers, and that the terms of the merger
agreement do not include termination rights triggered expressly
by a decrease in value of either company due to a decline in the
market price of that company’s common stock. The Grey Wolf
board determined that this structure was appropriate and the
risk acceptable in view of Grey Wolf board’s focus on the
relative intrinsic values and financial performance of Basic and
Grey Wolf, the percentage of the combined company to be owned by
former holders of Grey Wolf common stock, and the inclusion in
the merger agreement of other structural protections such as the
board’s ability to change its recommendation in favor of
the merger agreement or to terminate the merger agreement in the
event of a material adverse change in Basic’s business.
•
Basic Business Risks. The Grey Wolf board
considered certain risks inherent in Basic’s business and
operations, including environmental risks. Based on reports of
management and outside advisors regarding the due diligence
process and the representations and warranties of Basic in the
merger agreement, the Grey Wolf board determined that these
risks were manageable as part of the ongoing business of the
combined company.
•
Substantial Indebtedness. The Grey Wolf board
considered the fact that as a result of the financing to be
obtained in connection with the mergers and Holdings’
assumption of other indebtedness of Basic and Grey Wolf as a
consequence of the mergers, Holdings will initially have
substantial indebtedness.
•
Benefits of the Mergers and Integration. The
Grey Wolf board evaluated the possibility that the anticipated
benefits sought to be obtained from the mergers might not be
achieved in the time frame contemplated, or at all, and the
possibility that the integration of the two companies could be
more time consuming and expansive than anticipated.
•
Personnel. The Grey Wolf board considered the
adverse impact that uncertainty pending consummation of the
mergers could have on the ability to attract, retain and
motivate key personnel until the mergers are completed.
•
Restrictions on Interim Operations. The Grey
Wolf board considered the provisions of the merger agreement
placing restrictions on each company’s operations until
completion of the mergers and the extent of those restrictions
as negotiated between the parties. See “The Merger
Agreement — Covenants and Agreements —
Interim Operations” beginning on page 95 for further
information.
•
No-Solicitation and Related Provisions. The
Grey Wolf board considered the provisions of the merger
agreement that, subject to certain exceptions, prohibit each
company from soliciting, entering into or participating in
discussions regarding any takeover proposal and the provisions
of the agreement that require each company to conduct a
stockholder meeting to consider adoption of the merger agreement
whether or not the board of that company continues to recommend
in favor of the mergers, subject to the ability to terminate the
merger agreement to accept a superior proposal. See “The
Merger Agreement — Covenants and
Agreements — No Solicitation” beginning on
page 100 for further information.
•
Regulatory Approvals. The Grey Wolf board
considered the regulatory approvals required to complete the
mergers and the risk that governmental authorities and third
parties might seek to impose unfavorable terms or conditions on
the required approvals or that such approvals may not be
obtained at all. The Grey Wolf board further considered the
potential length of the regulatory approval process and the
period of time Grey Wolf may be subject to the merger agreement
without assurance that it will be completed.
•
Termination Fee. The Grey Wolf board
considered the provisions of the merger agreement relating to
the potential payment or receipt of a termination fee of
$30.0 million under certain circumstances or the payment of
a $5.0 million expense reimbursement under certain other
circumstances. See “The
Merger Agreement — Termination of the Merger
Agreement and Termination Fees” beginning on page 103
for further information.
•
Financing. The Grey Wolf board considered the
risk that the financing might not be available on the terms set
forth in the commitment letter and that the expiration of the
financing commitment is September 30, 2008 while the merger
agreement does not expire until November 30, 2008.
The Grey Wolf board also considered the following factors:
•
the scope of the due diligence investigation conducted by
management and Grey Wolf’s outside advisors and the results
thereof;
•
the provisions of Holdings’ organizational documents,
including those that are different from Grey Wolf’s;
•
the pro forma earnings, cash flow and balance sheet impact of
the mergers;
•
the relative financial performance, businesses, risks and
prospects of Basic and Grey Wolf;
•
the historical and then-current stock price of Basic and Grey
Wolf;
•
the fact that the mergers will result in a special conversion
privilege permitting, but not requiring, the holders of Grey
Wolf convertible notes to convert their notes into Grey Wolf
common stock;
•
the fact that an affiliated group of Basic’s stockholders
holding approximately 44% of Basic’s common stock executed
a voting agreement to vote in favor of the mergers at the Basic
meeting;
•
the fact that Steven A. Webster, the Chairman of Basic’s
board of directors and a long-time director of Grey Wolf,
abstained from participating in the deliberations of the board
of directors of both Basic and Grey Wolf with respect to
negotiations relating to the mergers; and
•
the interests that certain Grey Wolf executive officers and
directors may have with respect to the mergers in addition to
their interests as Grey Wolf stockholders. See
“— Interests of Basic and Grey Wolf Directors and
Executive Officers in the Mergers,” beginning on
page 75 for further information.
The Grey Wolf board of directors concluded that, overall, the
potential benefits of the mergers to Grey Wolf and Grey
Wolf’s stockholders outweighed the risks. The Grey Wolf
board of directors realized that there can be no assurance about
future results, including results considered or expected as
described in the factors listed above. It should be noted that
this explanation of Grey Wolf’s board of directors’
reasoning and all other information presented in this section
are forward-looking in nature and, therefore, should be read in
light of the factors discussed under the heading
“Cautionary Information Regarding Forward-Looking
Statements” beginning on page 31.
The Grey Wolf board of directors has approved the merger
agreement, has determined that the merger agreement and the
transactions contemplated thereby, including the mergers, are
advisable, fair to and in the best interests of Grey Wolf and
Grey Wolf’s stockholders, and recommends that Grey Wolf
stockholders vote FOR the proposal to approve the merger
agreement.
During the course of discussions between Basic and Grey Wolf,
the companies provided their respective financial advisors
selected, non-public long-term financial forecasts prepared by
the companies’ respective managements. Basic and Grey Wolf
also exchanged with each other their managements’ financial
projections for 2008. These 2008 forecast amounts are included
below in this joint proxy statement/prospectus only because this
information was provided by Basic and Grey Wolf directly to each
other in connection with the proposed mergers.
Basic and Grey Wolf advised each other and their financial
advisors that their respective short-term and long-term internal
financial forecasts were subjective in many respects. The
forecasts reflect numerous and varying assumptions with respect
to industry performance, general business, economic, market and
financial conditions and other matters, all of which are
difficult to predict and beyond Basic’s and Grey
Wolf’s control. The forecasts also reflect numerous
estimates and assumptions related to the businesses of Basic and
Grey Wolf (including with respect to the growth of certain
segments of their respective businesses) that are inherently
subject to significant economic, political, and competitive
uncertainties, all of which are difficult to predict and many of
which are beyond Basic’s and Grey Wolf’s control. See
“Risk Factors” beginning on page 23. The
assumptions made in preparing the forecasts may not prove
accurate, and actual results may be materially greater or less
than those set forth below. See “Cautionary Information
Regarding Forward-Looking Statements” beginning on
page 31.
The managements of Basic and Grey Wolf have prepared from time
to time in the past, and will continue to prepare in the future,
internal financial forecasts that reflect various estimates and
assumptions that change from time to time. Accordingly, the
forecasts used in conjunction with the mergers may differ from
these other forecasts.
THE FORECASTS OF BASIC AND GREY WOLF INCLUDED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS HAVE BEEN PREPARED BY, AND ARE THE
RESPONSIBILITY OF, BASIC AND GREY WOLF MANAGEMENT, AS THE CASE
MAY BE. THE ACCOMPANYING FORECASTS RELATED TO BASIC AND GREY
WOLF WERE NOT PREPARED WITH A VIEW TOWARD PUBLIC DISCLOSURE OR
WITH A VIEW TOWARD COMPLYING WITH THE GUIDELINES ESTABLISHED BY
THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS WITH
RESPECT TO FORECASTS, BUT, IN THE VIEW OF BASIC AND GREY WOLF
MANAGEMENT, AS THE CASE MAY BE, WERE PREPARED ON A REASONABLE
BASIS, REFLECT THE BEST ESTIMATES AND JUDGMENTS AVAILABLE AT THE
TIME THE FORECASTS WERE PREPARED, AND PRESENT, TO THE BEST OF
BASIC AND GREY WOLF, MANAGEMENT’S KNOWLEDGE AND BELIEF AT
THE TIME THE INFORMATION WAS PREPARED, THE EXPECTED COURSE OF
ACTION AND THE EXPECTED FUTURE FINANCIAL PERFORMANCE OF BASIC
AND GREY WOLF. HOWEVER, THESE FORECASTS ARE NOT FACT AND SHOULD
NOT BE RELIED UPON AS BEING NECESSARILY INDICATIVE OF FUTURE
RESULTS, AND READERS OF THIS JOINT PROXY STATEMENT/PROSPECTUS
ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORECASTS.
NEITHER KPMG LLP NOR ANY OTHER INDEPENDENT ACCOUNTANTS HAVE
COMPILED, EXAMINED OR PERFORMED ANY PROCEDURES WITH RESPECT TO
THE FORECASTS CONTAINED HEREIN, NOR HAVE THEY EXPRESSED ANY
OPINION OR ANY OTHER FORM OF ASSURANCE ON SUCH FORECASTS OR
THEIR ACHIEVABILITY, AND ASSUME NO RESPONSIBILITY FOR, AND
DISCLAIM ANY ASSOCIATION WITH, THE FORECASTS.
THE INCLUSION OF THE FORECASTS IN THIS JOINT PROXY
STATEMENT/PROSPECTUS SHOULD NOT BE REGARDED AS AN INDICATION
THAT BASIC OR GREY WOLF OR THEIR RESPECTIVE OFFICERS AND
DIRECTORS CONSIDER THE FORECASTS TO BE AN ACCURATE PREDICTION OF
FUTURE EVENTS OR NECESSARILY ACHIEVABLE. IN LIGHT OF THE
UNCERTAINTIES INHERENT IN FORWARD-LOOKING INFORMATION OF ANY
KIND, BASIC AND GREY WOLF CAUTION YOU AGAINST RELYING ON THIS
INFORMATION. NONE OF BASIC, GREY WOLF OR THEIR RESPECTIVE
OFFICERS OR DIRECTORS INTEND TO UPDATE OR REVISE THE FORECASTS
TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE THEY WERE
PREPARED OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EXCEPT
TO THE EXTENT REQUIRED BY LAW. SEE “CAUTIONARY INFORMATION
REGARDING FORWARD-LOOKING STATEMENTS” BEGINNING ON
PAGE 31.
Basic retained Goldman Sachs as its financial advisor in
connection with the mergers.
In this capacity Goldman Sachs rendered its opinion to
Basic’s board of directors that, as of April 20, 2008,
and based upon and subject to the factors and assumptions set
forth therein, the 0.9195 shares of Holdings common stock
and the $6.70 in cash, taken in the aggregate, to be received by
the holders of
outstanding shares of Basic common stock in respect of each
outstanding share of Basic common stock pursuant to the merger
agreement was fair from a financial point of view to such
holders.
The full text of the written opinion of Goldman Sachs, dated
April 20, 2008, which sets forth assumptions made,
procedures followed, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as
Annex B and is incorporated by reference in this joint
proxy statement/prospectus. You should read the opinion in its
entirety. Goldman Sachs provided its opinion for the information
and assistance of Basic’s board of directors in connection
with its consideration of the transactions contemplated by the
merger agreement. The Goldman Sachs opinion is not a
recommendation as to how any holder of outstanding shares of
Basic common stock should vote with respect to Basic merger,
Grey Wolf merger or any other matter.
In connection with rendering the opinion described above and
performing its related financial analyses, Goldman Sachs
reviewed, among other things:
•
the merger agreement;
•
annual reports to stockholders and Annual Reports on Form
10-K of
Basic for the three fiscal years ended December 31, 2007
and of Grey Wolf for the five fiscal years ended
December 31, 2007;
•
certain interim reports to stockholders and Quarterly Reports on
Form 10-Q
of Basic and Grey Wolf;
•
certain other communications from Basic and Grey Wolf to their
respective stockholders;
•
certain publicly available research analyst reports for Basic
and Grey Wolf;
•
certain internal financial analyses and forecasts for Grey Wolf
prepared by Grey Wolf’s management; and
•
certain internal financial analyses and forecasts for Basic
prepared by its management and certain internal financial
analyses and forecasts for Grey Wolf and for Holdings prepared
by the management of Basic (the “Forecasts”),
including certain cost savings and operating synergies projected
by the managements of Basic and Grey Wolf to result from the
mergers (the “Synergies”).
Goldman Sachs also held discussions with members of the senior
management of Basic and Grey Wolf regarding their assessment of
the strategic rationale for, and the potential benefits of, the
transaction and the past and current business operations,
financial condition and future prospects of their respective
companies. In addition, Goldman Sachs:
•
reviewed the reported price and trading activity for Basic
common stock and Grey Wolf common stock;
•
compared certain financial and stock market information for
Basic and Grey Wolf with similar information for certain other
companies the securities of which are publicly traded;
•
reviewed the financial terms of certain recent business
combinations in the oilfield services industry specifically and
in other industries generally;
•
performed such other studies and analyses, and considered such
other factors, as Goldman Sachs considered appropriate; and
•
reviewed (1) the Appraisal / Inventory Audit
Report for Basic dated January 4, 2008 from Hadco
International Appraisals & Consulting Services and
(2) the Appraisal Report for Grey Wolf dated
December 12, 2007 from M.E.L. Valuations, Inc. which
Goldman Sachs received in connection with the proposed financing
for Holdings (collectively, the “Appraisals”).
Goldman Sachs relied upon and assumed, without assuming any
responsibility for independent verification, the accuracy and
completeness of all of the financial, legal, regulatory, tax,
accounting and other information provided to, discussed with or
reviewed by it. In that regard, Goldman Sachs assumed with
Basic’s consent that the Forecasts, including the
Synergies, had been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the
management of Basic. In addition, Goldman Sachs did not make an
independent evaluation or appraisal of the assets and
liabilities (including any contingent,
derivative or off-balance-sheet assets and liabilities) of Basic
or Grey Wolf or any of their respective subsidiaries and, except
for the Appraisals, Goldman Sachs was not furnished with any
such evaluation or appraisal. Goldman Sachs assumed that all
governmental, regulatory or other consents and approvals
necessary for the consummation of the mergers will be obtained
without any adverse effect on Basic, Grey Wolf or Holdings or on
the expected benefits of the mergers in any way meaningful to
its analysis. Goldman Sachs’ opinion did not address any
legal, regulatory, tax or accounting matters.
Goldman Sachs’ opinion did not address the underlying
business decision of Basic to engage in the Basic merger, or the
relative merits of the mergers as compared to any strategic
alternatives that may be available to Basic. The opinion
addressed only the fairness from a financial point of view to
the holders of the outstanding shares of Basic common stock, as
of the date of the opinion, of the Basic merger consideration,
taken in the aggregate, to be received by such holders pursuant
to the merger agreement. Goldman Sachs did not express any view
on, and its opinion did not address, any other term or aspect of
the merger agreement or the mergers, including, without
limitation, the fairness of the mergers to, or any consideration
received in connection therewith by, the holders of any other
class of securities, creditors, or other constituencies of Basic
or Grey Wolf; nor as to the fairness of the amount or nature of
any compensation to be paid or payable to any of the officers,
directors or employees of Basic or Grey Wolf, or class of such
persons in connection with the mergers, whether relative to the
Basic merger consideration, taken in the aggregate, to be
received by the holders of the outstanding shares of Basic
common stock pursuant to the merger agreement or otherwise.
Goldman Sachs did not express any opinion as to the prices at
which shares of Holdings common stock will trade at any time.
Goldman Sachs’ opinion was necessarily based on economic,
monetary, market and other conditions as in effect on, and the
information made available to it as of, the date of the opinion
and Goldman Sachs assumed no responsibility for updating,
revising or reaffirming its opinion based on circumstances,
developments or events occurring after the date of the opinion.
Goldman Sachs’ advisory services and its opinion were
provided for the information and assistance of the board of
directors of Basic in connection with its consideration of the
mergers and such opinion did not constitute a recommendation as
to how any holder of Basic common stock should vote with respect
to the mergers or any other matter. Goldman Sachs’ opinion
was approved by a fairness committee of Goldman Sachs.
The following is a summary of the material financial analyses
delivered by Goldman Sachs to the board of directors of Basic in
connection with rendering the opinion described above. The
following summary, however, does not purport to be a complete
description of the financial analyses performed by Goldman
Sachs, nor does the order of analyses described represent
relative importance or weight given to those analyses by Goldman
Sachs. Some of the summaries of the financial analyses include
information presented in tabular format. The tables must be read
together with the full text of each summary and are alone not a
complete description of Goldman Sachs’ financial analyses.
Except as otherwise noted, the following quantitative
information, to the extent that it is based on market data, is
based on market data as it existed on or before April 20,2008, and is not necessarily indicative of current market
conditions.
Historical Stock Trading Analysis. Goldman
Sachs reviewed and compared the historical daily trading prices
of Basic common stock and Grey Wolf common stock from
December 9, 2005 to April 18, 2008 and from
April 18, 2007 to April 18, 2008 relative to the
performance of the following indexes consisting of publicly
traded corporations over the same periods: (1) an
equally-weighted index comprised of common stock of workover
services companies (referred to as the “Workover Services
Companies”) consisting of Key Energy Services and Complete
Production Services, Inc.; (2) an equally-weighted index
comprised of common stock of mid and large cap land drilling
companies (referred to as the “Mid and Large Cap Drillers
Companies”) consisting of Nabors Industries, Inc.,
Helmerich and Payne, Inc., and Patterson-UTI Energy, Inc.; and
(3) an equally-weighted index comprised of common stock of
small cap land drilling companies (referred to as the
“Small Cap Drillers Companies”) consisting of Parker
Drilling Company, Pioneer Drilling Company, and Union Drilling,
Inc. We refer to the Workover Services Companies, the Mid and
Large Cap Drillers Companies and the Small Cap Drillers
Companies as the “Selected Companies.”
Transaction Premium Analysis. Goldman Sachs
analyzed the premium implied by the value of the Basic merger
consideration compared to the closing price of Basic common
stock as of April 18, 2008, the last day of trading on the
New York Stock Exchange prior to the delivery of Goldman’s
oral opinion, as well as the premiums over the average of
closing share prices during the 10 trading days prior, 30
trading days prior and 90 trading days prior to that day, as
well as the premiums over Basic common stock’s 52 week
high and 52 week low prior that day.
The following table presents the results of this analysis:
Price
Implied
Transaction Price Premium to:
per Share
Premium
Current stock price (4/18/08)
$
25.77
8.5
%
Prior 10 trading days average
$
24.35
14.8
%
Prior 30 trading days average
$
22.18
26.0
%
Prior 90 trading days average
$
21.13
32.3
%
52 week high
$
27.77
0.7
%
52 week low
$
17.95
55.8
%
Selected Companies Analysis. Goldman Sachs
reviewed and compared certain financial information for Basic
and Grey Wolf to corresponding financial information, ratios and
public market multiples for the Selected Companies. Although
none of the Selected Companies is directly comparable to Basic
or Grey Wolf, the companies included were chosen because they
are publicly traded companies with operations that for purposes
of analysis may be considered similar to certain operations of
Basic and Grey Wolf.
Goldman Sachs calculated and compared various financial
multiples and ratios for the Selected Companies, Basic and Grey
Wolf based on information that it obtained from public filings
and estimates from the Institutional Brokers Estimate System, or
IBES, with respect to the Selected Companies, Basic and Grey
Wolf:
•
ratios of current enterprise value (which Goldman Sachs defines
as diluted market capitalization plus net debt) to estimated
calendar year 2008 earnings before interest, taxes, depreciation
and amortization (which Goldman Sachs calls EBITDA);
•
ratios of current enterprise value to estimated calendar year
2009 EBITDA;
•
ratios of the April 18, 2008 closing share price (which
Goldman Sachs calls current share price) to estimated calendar
year 2008 earnings per share;
•
ratios of current share price to estimated calendar year 2009
earnings per share;
•
ratios of current share price to estimated calendar year 2008
cash flow per share; and
•
ratios of current share price to estimated calendar year 2009
cash flow per share.
The following table presents the results of this analysis:
Implied Multiples
Workover Services
Mid and Large Cap
Small Cap Drillers
Grey
Companies
Drillers Companies
Companies
Basic
Wolf
(Median Multiples)
(Median Multiples)
(Median Multiples)
Enterprise Value/EBITDA:
2008 (estimated)
5.3
x
4.8
x
5.7
x
7.1
x
4.9
x
2009 (estimated)
4.9
x
4.4
x
5.2
x
6.4
x
4.4
x
Current Share Price/Earnings per Share:
2008 (estimated)
13.2
x
13.8
x
11.8
x
13.4
x
14.0
x
2009 (estimated)
11.8
x
12.3
x
9.9
x
12.0
x
11.1
x
Current Share Price/Cash Flow per Share:
2008 (estimated)
5.2
x
7.1
x
5.8
x
7.7
x
5.4
x
2009 (estimated)
4.7
x
6.5
x
5.1
x
6.6
x
4.8
x
In addition, using estimates provided by the management of Basic
for Basic and Grey Wolf, Goldman Sachs also calculated:
•
ratios of current enterprise value to estimated EBITDA for 2008
and 2009;
•
ratios of current share price to estimated earnings per share
for 2008 and 2009; and
•
ratios of current share price to estimated cash flow per share
(which Goldman Sachs defines as net income plus depreciation and
amortization per share) for 2008 and 2009.
Goldman Sachs, using estimates provided by Basic, also
calculated for Grey Wolf, assuming convertible debt is treated
as debt, ratios of current enterprise value to estimated EBITDA,
current share price to estimated earnings per share and current
share price to estimated cash flow per share for 2008 and 2009.
The following table presents the results of this analysis with
respect to Basic and Grey Wolf:
Implied Multiples
Basic
Grey Wolf
Basic Management
Basic
Estimates (Assuming
Basic Management
Management
Convertible Debt
Estimates (Assuming
Estimates
Treated as Debt)
Conversion of Debt)
Enterprise Value/ EBITDA:
2008 (estimated)
5.0
x
4.6
x
4.6
x
2009 (estimated)
4.7
x
4.2
x
4.2
x
Current Share Price/Earnings per Share:
2008 (estimated)
11.8
x
11.3
x
13.1
x
2009 (estimated)
11.1
x
9.5
x
11.1
x
Current Share Price/Cash Flow per Share:
2008 (estimated)
5.2
x
5.8
x
6.9
x
2009 (estimated)
4.8
x
5.3
x
6.3
x
Selected Precedent Transactions
Analysis. Goldman Sachs reviewed and compared the
proposed terms of the mergers to corresponding publicly
available terms for recent precedent transactions that Goldman
Sachs deemed generally comparable to the mergers. The reviewed
terms included relative market capitalization, relative
ownership, premium to market, and the number of board seats and
senior management positions the constituent companies
contributed to the merged entities following the consummation of
the transaction.
The selected precedent transactions, in order of announcement
date, were:
Date
Announced
Acquiror
Target
7/23/07
Transocean, Inc.
GlobalSantaFe Corporation
2/5/07
Universal Compression Holdings, Inc.
Hanover Compressor Company
8/12/04
National-Oilwell, Inc.
Varco International, Inc.
1/28/02
PanCanadian Energy Corp.
Alberta Energy Company Ltd.
11/19/01
Phillips Petroleum Company
Conoco, Inc.
9/1/01
Santa Fe International Corporation
Global Marine, Inc.
5/23/01
Pride International, Inc.
Marine Drilling Co., Inc.
3/16/01
BHP Ltd.
Billiton PLC
10/16/00
Chevron Corporation
Texaco, Inc.
Historical Exchange Ratio Analysis. Goldman
Sachs calculated the average historical exchange ratios of Basic
common stock to Grey Wolf common stock and the premium or
discount derived by comparing the implied exchange ratio based
on the closing prices of Basic Common Stock and Grey Wolf common
stock on April 18, 2008 of 3.39 to the implied exchange
ratios of 3.68 implied by the transaction terms as well as the
implied exchange ratios based on the average closing prices of
Basic common stock and Grey Wolf common stock during the
following periods ending on April 18, 2008: 5-trading days,
10-trading days, 30-trading days,
3-months,
6-months,
one year, and since Basic initial public offering on
December 9, 2005.
The following table presents the results of this analysis:
Contribution Analysis. Goldman Sachs performed
a contribution analysis in which Goldman Sachs analyzed the
relative estimated contributions to be made by Basic and Grey
Wolf to EBITDA, cash flow (defined as net income plus
depreciation and amortization), and net income of the combined
company following consummation of the mergers, before taking
into account any of the possible benefits that may be realized
following the mergers.
The following table presents the results of this analysis:
Implied
Exchange
Premium to
Ratios
Current
EBITDA:
2008 (estimated)
3.11
x
(8.3
)%
2009 (estimated)
3.00
x
(11.6
)%
Cash Flow:
2008 (estimated)
3.84
x
13.3
%
2009 (estimated)
3.75
x
10.7
%
Net Income:
2008 (estimated)
3.26
x
(4.0
)%
2009 (estimated)
2.94
x
(13.2
)%
Relative Discounted Cash Flow
Analysis. Goldman Sachs performed an illustrative
relative discounted cash flow analysis to determine the implied
exchange ratios of Basic common stock to Grey Wolf common stock,
assuming each company continued to operate as a standalone
company and using estimates for Basic and Grey Wolf prepared by
Basic’s management. Goldman Sachs calculated the implied
exchange ratios using present values of five years of estimated
cash flows starting from March 31, 2008 for Basic and Grey
Wolf, applying a range of discount rates ranging from 6.5% to
8.5%, and the present value of an illustrative terminal value of
Basic and Grey Wolf at March 31, 2013, based on a range of
terminal multiples from 4.0x to 5.5x estimated EBITDA. This
analysis resulted in implied exchange ratios of Basic common
stock to Grey Wolf common stock ranging from 3.22x to 3.53x.
Goldman Sachs then calculated the premiums, expressed as a
percentage, the transaction exchange ratio of 3.68x bears to the
range of implied exchange ratios set forth above. This analysis
resulted in a range of premiums of the transaction exchange
ratio to the implied exchange ratios of 4.2% to 14.1%.
Accretion/Dilution Analysis. Goldman Sachs
analyzed the pro forma financial effects of the mergers on Grey
Wolf’s estimated earnings per share and cash flow per share
using estimates for Basic and Grey Wolf based on the views of
Basic’s management. Goldman Sachs compared the projected
earnings per share and cash flow per share of Grey Wolf common
stock on a standalone basis for 2008 and 2009, assuming no
mergers, to the projected earnings per share and cash flow per
share of the holdings company assuming completion of the
mergers. This analysis indicated that the mergers would be
accretive on an estimated earnings per share basis and on an
estimated cash flow per share basis for both years analyzed.
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the
summary set forth above, without considering the analyses as a
whole, could create an incomplete view of the processes
underlying Goldman Sachs’ opinion. In arriving at its
fairness determination, Goldman Sachs considered the results of
all of its analyses and did not attribute any particular weight
to any factor or analysis considered by it. Rather, Goldman
Sachs made its determination as to fairness on the basis of its
experience and professional judgment after considering the
results of all of its analyses. No company used in the above
analyses as a comparison is directly comparable to Basic or Grey
Wolf.
Goldman Sachs prepared these analyses for purposes of Goldman
Sachs’ providing its opinion to Basic’s board of
directors as to the fairness from a financial point of view to
the holders of outstanding shares of Basic common stock of the
Basic merger consideration, taken in the aggregate, to be
received by such holders in connection with the mergers. These
analyses do not purport to be appraisals nor do they necessarily
reflect the prices at which businesses or securities actually
may be sold. Analyses based upon forecasts of future results are
not necessarily indicative of actual future results, which may
be significantly more or less favorable than suggested by these
analyses. Because these analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond
the control of the parties or their respective advisors, none of
Basic
or Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast.
The Basic merger consideration to be received by Basic
shareholders was determined through arms’ length
negotiations between Basic and Grey Wolf and was approved by
Basic’s board of directors. Goldman Sachs provided advice
to Basic during these negotiations. Goldman Sachs did not,
however, recommend any specific amount of consideration to Basic
or its board of directors or that any specific amount of
consideration constituted the only appropriate consideration for
the mergers.
As described above, Goldman Sachs’ opinion to Basic’s
board of directors was one of many factors taken into
consideration by Basic’s board of directors in making its
determination to approve the merger agreement. The foregoing
summary does not purport to be a complete description of the
analyses performed by Goldman Sachs in connection with the
fairness opinion and is qualified in its entirety by reference
to the written opinion of Goldman Sachs attached as Annex B.
Goldman Sachs and its affiliates are engaged in investment
banking and financial advisory services, securities trading,
investment management, principal investment, financial planning,
benefits counseling, risk management, hedging, financing,
brokerage activities and other financial and non-financial
activities and services for various persons and entities. In the
ordinary course of these activities and services, Goldman Sachs
and its affiliates may at any time make or hold long or short
positions and investments, as well as actively trade or effect
transactions, in the equity, debt and other securities (or
related derivative securities) and financial instruments
(including bank loans and other obligations) of Basic, Grey Wolf
and any of their respective affiliates or any currency or
commodity that may be involved in the mergers contemplated by
the merger agreement for their own account and for the accounts
of their customers. Goldman Sachs acted as financial advisor to
Basic in connection with, and has participated in certain of the
negotiations leading to, the mergers.
At Basic’s request, GSCP, an affiliate of Goldman Sachs has
entered into financing commitments to provide Holdings with
revolving credit facilities and a term loan in connection with
the consummation of the mergers, subject to the terms of such
commitments, and for which such affiliate will receive customary
fees and as a result of which potential conflicts of interest
(or a perception thereof) between Goldman Sachs and Basic may
arise. Please be advised that GSCP is acting as an independent
contractor in connection with the proposed financing and will
not have, and the proposed financing will not be deemed to
create, an advisory, fiduciary or agency relationship, or any
fiduciary or other implied duties, between GSCP, on the one
hand, and Basic or Holdings, and their respective equity holders
and affiliates, on the other. In addition, please be advised
that GSCP looked solely to its own interests and objectives in
determining whether, and on what terms, it would arrange
and/or
provide such financing, as set forth in the commitment letter.
In addition, Goldman Sachs provided certain investment banking
and other financial services to Basic and its affiliates from
time to time, including having acted as joint bookrunner for the
initial public offering of 14,375,000 shares of common
stock of Basic in December 2005, and as co-manager for the
offering of the Company’s 7.125% Senior Notes due 2016
(aggregate principal amount $225 million) in April 2006.
Goldman Sachs also may provide investment banking and other
financial services to Basic, Grey Wolf and Holdings and their
respective affiliates in the future. In connection with the
above-described services Goldman Sachs has received, and may
receive, compensation.
The board of directors of Basic selected Goldman Sachs as its
financial advisor because it is an internationally recognized
investment banking firm that has substantial experience in
transactions similar to the mergers. Pursuant to a letter
agreement dated April 8, 2008 Basic engaged Goldman Sachs
to act as its financial advisor in connection with the mergers.
Pursuant to the terms of this engagement letter, Basic has
agreed to pay Goldman Sachs a transaction fee of
$11.5 million, $8.5 million of which is contingent
upon consummation of the mergers. In addition, Basic has agreed
to reimburse Goldman Sachs for its expenses and indemnify
Goldman Sachs against certain liabilities arising out of its
engagement.
Basic retained Tudor, Pickering, Holt & Co.
Securities, Inc., or TudorPickering, to provide a fairness
opinion to the board of directors of Basic in connection with
the mergers. Basic instructed TudorPickering to evaluate the
fairness, from a financial point of view, of the merger
consideration to be paid to the holders of Basic common stock
pursuant to the merger agreement.
At a meeting of the board of directors of Basic held on
April 20, 2008, TudorPickering rendered its opinion to the
board of directors of Basic that, as of April 20, 2008,
based upon and subject to the factors and assumptions set forth
in the opinion and based upon such other matters as
TudorPickering considered relevant, the merger consideration to
be paid to the holders of Basic common stock pursuant to the
merger agreement was fair from a financial point of view to such
holders.
The opinion speaks only as of the date it was delivered and not
as of the time the mergers will be completed. The opinion does
not reflect changes that may occur or may have occurred after
April 20, 2008, which could significantly alter the value
of Basic or Grey Wolf or the respective trading prices of their
common stock, which are factors on which TudorPickering’s
opinion was based.
The full text of the TudorPickering opinion, dated
April 20, 2008, which sets forth, among other things, the
assumptions made, procedures followed, matters considered, and
qualifications and limitations of the review undertaken by
TudorPickering in rendering its opinion, is attached as
Annex C to this document and is incorporated herein by
reference. The summary of the TudorPickering opinion set forth
in this document is qualified in its entirety by reference to
the full text of the opinion. Basic stockholders are urged to
read the TudorPickering opinion carefully and in its entirety.
TudorPickering provided its opinion for the information and
assistance of the board of directors of Basic in connection with
its consideration of the mergers. The TudorPickering opinion
does not constitute a recommendation to any holder of shares of
Basic common stock as to how such holder should vote with
respect to the mergers or any other matter.
TudorPickering’s opinion and its presentation to the board
of directors of Basic were among many factors taken into
consideration by the board of directors of Basic in approving
the merger agreement and making its recommendation regarding the
mergers.
In connection with rendering its opinion and performing its
related financial analysis, TudorPickering reviewed, among other
things:
•
the merger agreement;
•
annual reports to stockholders and Annual Reports on Form
10-K of
Basic for the three years ended December 31, 2007;
•
annual reports to shareholders and Annual Reports on Form
10-K of Grey
Wolf for the five years ended December 31, 2007;
•
certain interim reports to stockholders and Quarterly Reports on
Form 10-Q
of Basic and Grey Wolf;
•
certain other communications from Basic and Grey Wolf to their
respective stockholders;
•
certain internal financial information and forecasts for Basic
and Grey Wolf prepared by the management of Basic;
•
certain publicly available research analyst reports with respect
to the future financial performance of Basic and Grey Wolf,
which it discussed with the senior managements of Basic and Grey
Wolf; and
•
certain cost savings and operating synergies projected by the
managements of Basic and Grey Wolf to result from the mergers.
TudorPickering also held discussions with members of the senior
managements of Basic and Grey Wolf regarding their assessment of
the strategic rationale for, and the potential benefits of, the
mergers and the past and current business operations, financial
condition and future prospects of their respective entities and
of
Holdings. In addition, TudorPickering reviewed the reported
price and trading activity for the Basic common stock and Grey
Wolf common stock, compared certain financial and stock market
information for Basic and Grey Wolf with similar information for
certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business
combinations in the drilling and oilfield services industry
specifically and in other industries generally and performed
such other studies and analyses, and considered such other
factors, as it considered appropriate.
For purposes of its opinion, TudorPickering assumed and relied
upon the accuracy and completeness of all of the financial,
accounting, legal, tax and other information discussed with or
reviewed by or for it, or publicly available, and has not
independently verified such information. In that regard,
TudorPickering assumed with Basic’s consent that the
financial information and forecasts and synergies referenced
above were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of Basic.
TudorPickering also assumed that all governmental, regulatory or
other consents or approvals necessary for the consummation of
the mergers will be obtained without any material adverse effect
on Basic, Grey Wolf, Holdings, the holders of Basic common stock
or the mergers. Further, it assumed the financing for the
mergers will be consummated on terms consistent with the
commitment letter among Grey Wolf, GSCP and the UBS Lenders. In
addition, TudorPickering has not made an independent evaluation
or appraisal of the assets and liabilities (including any
contingent, derivative or off-balance-sheet assets and
liabilities) of Basic or any of its subsidiaries or Grey Wolf or
any of its subsidiaries and has not been furnished with any such
evaluation or appraisal.
TudorPickering’s opinion is necessarily based upon
economic, monetary, market and other conditions as in effect on,
and the information made available to it as of, April 20,2008. TudorPickering has disclaimed any undertaking or
obligation to update, revise or reaffirm its opinion or to
advise any person of any change in any matter affecting its
opinion which may be brought to its attention after the date of
its opinion.
The estimates contained in TudorPickering’s analysis and
the results from any particular analysis are not necessarily
indicative of future results, which may be significantly more or
less favorable than suggested by such analyses. In addition,
analyses relating to the value of businesses or assets neither
purport to be appraisals nor do they necessarily reflect the
prices at which businesses or assets may actually be sold.
Accordingly, TudorPickering’s analysis and estimates are
inherently subject to substantial uncertainty.
In arriving at its opinion, TudorPickering did not attribute any
particular weight to any particular analysis or factor
considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor.
Several analytical methodologies were employed by TudorPickering
in its analyses, and no one single method of analysis should be
regarded as critical to the overall conclusion reached by
TudorPickering. Each analytical technique has inherent strengths
and weaknesses, and the nature of the available information may
further affect the value of particular techniques. Accordingly,
TudorPickering believes that its analyses must be considered as
a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and
factors in their entirety, could create a misleading or
incomplete view of the evaluation process underlying its
opinion. The conclusion reached by TudorPickering, therefore, is
based on the application of TudorPickering’s own experience
and judgment to all analyses and factors considered by
TudorPickering, taken as a whole.
TudorPickering’s opinion relates solely to the fairness
from a financial point of view to the holders of the outstanding
shares of Basic common stock of the merger consideration to be
paid to such holders in the mergers as contemplated by the
merger agreement. TudorPickering’s opinion was provided for
the information and assistance of the board of directors of
Basic in connection with its consideration of the merger
agreement and the mergers, and does not constitute a
recommendation to any holder of Basic common stock, or any other
holder of interests in Basic, as to how such holder should vote
with respect to the mergers or any other matters.
TudorPickering’s opinion does not address the relative
merits of the mergers as compared to any alternative business
transaction or strategic alternative that might be available to
Basic, nor does it address the underlying business decision of
Basic to engage in the mergers and the other transactions
contemplated by the merger agreement. TudorPickering does not
express any view on, and its opinion does not address, any other
term or aspect of the merger agreement or the mergers,
including, without limitation, the fairness of the mergers to,
or any consideration received in connection therewith by,
creditors or other constituencies of Basic or Grey Wolf; nor as
to the fairness of the amount or nature of any compensation to
be paid or payable to any of the officers, directors or
employees of Basic or Grey Wolf, or any class of such persons,
in connection with the mergers. TudorPickering has not been
asked to consider, and its opinion does not address, the price
at which Holdings’ common stock will trade at any time.
TudorPickering is not rendering any legal or accounting advice
and understands Basic is relying on its legal counsel and
accounting advisors as to legal and accounting matters in
connection with the mergers.
The data and analysis summarized herein is from
TudorPickering’s presentation to the board of directors of
Basic delivered on April 20, 2008, which primarily utilized
data from market closing prices as of April 18, 2008. For
purposes of its analysis, TudorPickering defined EBITDA as net
income plus income taxes, interest expense (less interest
income), depreciation and amortization. Cash flow represents
cash flow provided by operations, which includes changes in
working capital.
Summary
of TudorPickering’s Analysis
Pursuant to the merger agreement, holders of Basic common stock
will receive in the mergers 0.9195 shares of Holdings’
common stock and $6.70 in cash for each share of Basic common
stock. Holders of Grey Wolf common stock will receive
0.2500 shares of Holdings’ common stock and $1.82 in
cash for each share of Grey Wolf common stock. These figures
represent the outcome of a negotiated share exchange ratio of
3.678x (the number of shares of Holdings’ common stock to
be paid in the mergers in respect to each share of Basic common
stock in relation to the number shares of Holdings’ common
stock to be paid in respect to each share of Grey Wolf common
stock) and a pro rata distribution of approximately
$600 million to the stockholders of Basic and Grey Wolf
based on such share exchange ratio. Based on this share exchange
ratio, former Basic stockholders would own approximately 46% of
the shares of common stock of Holdings.
In determining its opinion, TudorPickering focused its analysis
on determining if the merger consideration to be paid to holders
of Basic common stock in the mergers was fair from a financial
point of view to such holders. As part of that analysis,
TudorPickering analyzed the relative valuations of Basic and
Grey Wolf to assess whether a 3.678x share exchange ratio was
fair to Basic’s stockholders from a financial point of view.
Historical
Share Exchange Ratio Analysis
TudorPickering derived implied historical share exchange ratios
by dividing the closing price of the Basic common stock by the
closing price of the Grey Wolf common stock for each trading day
over varying time periods. Such derived share exchange ratios
were used by TudorPickering as a basis for comparison with the
proposed share exchange ratio, which is calculated as an 8.5%
premium to the exchange ratio calculated based on the 10-day
volume weighted average prices of the Basic and Grey Wolf shares
as of April 18, 2008. The following table sets forth the
results of this analysis:
TudorPickering analyzed the pro forma effects of the mergers on
Basic’s estimated earnings per share and cash flow per
share based on the views of Basic’s management. For
purposes of the analysis, each share of Basic common stock and
Grey Wolf common stock was converted to an equivalent number of
shares of Holdings’ common stock using the share exchange
ratio. For purposes of the analysis, $600 million, which is
the estimated cash component of the merger consideration to be
paid to holders of Basic common stock and Grey Wolf common stock
in the mergers, was treated as having been paid in the form of a
pro rata dividend to holders of Holdings’ common stock
immediately following the mergers. The analysis was performed
first assuming that the Grey Wolf convertible debt remained
outstanding and then assuming that the debt converted to shares
of Holdings’ common stock.
% Accretion/
(Dilution)
to Basic
Stockholders
Accretion / Dilution without Conversion
2008E EPS
21
%
2009E EPS
34
2008E CFPS
31
2009E CFPS
31
% Accretion/
(Dilution)
to Basic
Stockholders
Accretion / Dilution with Conversion
2008E EPS
8
%
2009E EPS
18
2008E CFPS
14
2009E CFPS
14
Relative
Contribution Analysis
TudorPickering analyzed implied share exchange ratios based on
projections of each company’s relative contributions of
EBITDA, cash flow and net income as provided by Basic’s
management. Relative contribution analysis was done for each of
the three parameters utilized and the projected years ending
December 31, 2008 and December 31, 2009. The analysis
was performed first assuming that the Grey Wolf convertible debt
remained outstanding and then assuming that the debt converted
to shares of Holdings’ common stock. The implied ownership
of Basic stockholders was converted to an implied exchange
ratio, which was compared with the exchange ratio proposed by
the transaction.
TudorPickering performed a discounted cash flow analysis of
Basic and Grey Wolf using financial forecasts through 2013 as
provided by Basic’s management. A total of three cases were
analyzed reflecting sensitivities to both revenues and gross
margins. Terminal values in 2013 were based on 5.0x EBITDA.
Discount rates of 9% for Basic and 10% for Grey Wolf were used
to discount annual free cash flows and terminal values to derive
enterprise values, which were then adjusted by respective net
debt amounts to assess the relative equity values of Basic and
Grey Wolf. The results were presented as part of the
contribution analysis. The implied ownership of Basic
stockholders was converted to an implied exchange ratio, which
was compared with the exchange ratio proposed by the transaction.
Implied Share
Exchange Ratio
Discounted Cash Flow Without Conversion
DCF Contribution
2.836-3.816
x
Discounted Cash Flow With Conversion
DCF Contribution
3.175-3.530
x
Selected
Stock Merger Transactions
TudorPickering reviewed certain financial and governance
information for each “merger of equals” transaction in
the energy industry with the following criteria:
(1) greater than 60% stock consideration; (2) the
target retained at least 25% ownership; (3) announced since
2003; and (4) transaction value greater than
$300 million.
•
Transocean/GlobalSantaFe (2007)
•
Hercules Offshore/TODCO (2007)
•
Universal Compression/Hanover Compressor (2007)
•
Petrohawk Energy Corporation/KCS Energy, Inc. (2006)
•
SEACOR Holdings Inc./Seabulk International (2005)
•
Cimarex Energy Co./Magnum Hunter Resources, Inc. (2005)
•
National-Oilwell, Inc./Varco International Inc. (2004)
Plains Exploration & Production Co./Nuevo Energy
Company (2004)
•
Devon Energy Corp./Ocean Energy, Inc. (2003)
For each of the preceding transactions, TudorPickering
calculated the premium to the stock price implied by the
exchange ratio for the transaction to the last trading day prior
and a trading day one month prior to the announcement of the
transaction, compared the target pro forma ownership of the
combined company, and
reviewed certain non-financial terms of the transaction,
including the composition of the board of directors and
management of the combined company. TudorPickering did not
perform its selected transactions review for the purposes of
performing financial analyses. The results of these analyses and
reviews are summarized in the following table:
% of Board of
Target
Directors
Premium to
% Stock
Ownership
from Target
1-Day
1-Month
Transocean/GlobalSantaFe(1)
100
%(1)
28
%
50
%
0.0
%
1.5
%
Hercules Offshore/TODCO
62
%
64
%
30
%
28.2
%
27.5
%
Universal Compression/Hanover Compressor
100
%
56
%
44
%
2.4
%
12.1
%
Petrohawk Energy Corporation/KCS Energy, Inc.
71
%
50
%
44
%
9.6
%
32.9
%
SEACOR Holdings Inc./Seabulk International
81
%
26
%
15
%
NA
NA
Cimarex Energy Co./Magnum Hunter Resources, Inc.
100
%
48
%
10
%
26.9
%
31.8
%
National-Oilwell, Inc./Varco International Inc.
100
%
49
%
50
%
9.2
%
9.9
%
Kerr-McGee Corporation/Westport Resources Corp.
100
%
33
%
10
%
10.7
%
13.4
%
Plains Exploration & Production Co./Nuevo Energy
Company
100
%
49
%
29
%
(3.0
)%
2.7
%
Devon Energy Corp./Ocean Energy, Inc.
100
%
33
%
31
%
3.6
%
6.9
%
Median
100
%
48
%
30
%
9.2
%
12.1
%
(1)
For purposes of its analysis, TudorPickering has assumed that
the cash component of the merger consideration paid to holders
of Transocean’s and GlobalSantaFe’s common stock was
paid in the form of a pro rata dividend by the combined company
immediately following the merger.
Selected
Transactions Analysis
TudorPickering calculated multiples of enterprise value to
certain financial data based on the purchase prices paid in
selected publicly announced transactions involving companies in
the oil and gas services industry. The calculated multiples
included enterprise value as a multiple of trailing twelve month
EBITDA
and/or
forward year EBITDA. The selected transactions were chosen
because the target companies were deemed to be similar to Basic
in one or more respects including nature of the business, size
and geographic concentration. The multiples implied by the
mergers were compared to the multiples of the selected
transactions.
TudorPickering reviewed and compared certain financial,
operating and stock market information of Basic and Grey Wolf to
corresponding information of seven publicly traded companies.
Also, TudorPickering classified each of these seven companies
into two groups: those that had businesses and operations more
similar to Basic and those with businesses and operations more
similar to Grey Wolf. The Basic group included Complete
Production Services and Key Energy Services. The Grey Wolf group
included Helmerich & Payne, Parker Drilling Company,
Patterson-UTI Energy, Pioneer Drilling Company and Union
Drilling.
For Basic, Grey Wolf and each of the comparable companies,
TudorPickering reviewed the following ratios for the year ended
December 31, 2008 and the year ended December 31, 2009:
•
the ratio of each company’s enterprise value to EBITDA;
•
the ratio of earnings per share to the company’s stock
price per share; and
•
the ratio of cash flow per share to the company’s stock
price per share.
TudorPickering utilized third-party research estimates for each
company’s EBITDA, earnings per share and cash flow per
share.
Basic Group
Grey Wolf Group
Range
Median
Range
Median
Ratio Of Enterprise Value To:
2008E EBITDA
5.3x - 6.1
x
5.7
x
4.2x - 7.2
x
5.9
x
2009E EBITDA
4.6x - 5.4
x
5.0
x
3.8x - 5.6
x
4.7
x
Ratio Of Equity Value To:
2008E Net Income
11.4x - 12.1
x
11.7
x
11.0x - 15.1
x
13.6
x
2009E Net Income
8.7x - 10.8
x
9.8
x
9.0x - 12.8
x
12.4
x
2008E Cash Flow
5.6x - 5.9
x
5.8
x
4.0x - 9.2
x
5.6
x
2009E Cash Flow
4.4x - 5.1
x
4.8
x
3.4x - 6.8
x
4.8
x
The multiples implied by the mergers were compared to the
trading multiples of the comparable companies.
Assessment
of Cash Distribution
TudorPickering reviewed the calculations as to how the cash
component of the merger consideration would be allocated to
Basic and Grey Wolf stockholders. For purposes of its analysis,
TudorPickering has assumed that $600 million, which is the
estimated cash component of the merger consideration to be paid
to holders of Basic common stock and Grey Wolf common stock in
the mergers, would be paid in the form of a pro rata dividend to
holders of Holdings’ common stock immediately following the
mergers. A summary of these calculations is as follows:
•
A total of approximately $600 million will be distributed
pro rata from the proceeds of a $600 million loan and cash
on hand.
•
Cash will be allocated on the basis of the agreed exchange ratio
in the mergers. This will result in approximately 46% of the
distribution, or approximately $274 million, being
distributed to the Basic stockholders.
•
Based on Basic’s actual common stock outstanding of
approximately 40.9 million shares, as furnished by Basic,
the cash distribution per share of Basic common stock would be
$6.70.
TudorPickering’s opinion does not address the underlying
business decision for the combined company to incur new debt to
fund the above distribution to stockholders.
TudorPickering and its affiliates, as part of their investment
banking business, are continually engaged in performing
financial analyses with respect to businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and other transactions as well as for estate,
corporate and other purposes. Basic selected TudorPickering to
provide a fairness opinion in connection with the mergers
because of TudorPickering’s expertise, reputation and
familiarity with the oil and gas industry generally and the oil
and gas services industry specifically and because its
investment banking professionals have substantial experience in
transactions comparable to the mergers.
Although TudorPickering has not provided investment banking
services to Basic or Grey Wolf, other than with respect to its
opinion, it may provide such services to Basic, Grey Wolf or
Holdings in the future. In connection with the above-described
investment banking services, TudorPickering may receive
compensation. The description set forth above constitutes a
summary of the analyses employed and factors considered by
TudorPickering in rendering its opinion to the board of
directors of Basic. TudorPickering believes that its analyses
must be considered as a whole and that selecting portions of its
analyses, without considering all analyses and factors, could
create an incomplete view of the process underlying its opinion.
The preparation of a fairness opinion is a complex, analytical
process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and
is not necessarily susceptible to partial analysis or summary
description.
No company or transaction used in the analyses of comparable
transactions summarized above is identical to Basic, Grey Wolf
or the mergers. Accordingly, these analyses must take into
account differences in the financial and operating
characteristics of the selected publicly traded companies and
differences in the structure and timing of the selected
transactions and other factors that would affect the public
trading value and acquisition value of the companies considered.
Pursuant to the terms of the engagement of TudorPickering, Basic
agreed to pay TudorPickering a $1,000,000 fee for rendering its
opinion. In addition, Basic has agreed to reimburse
TudorPickering for its reasonably incurred out-of-pocket
expenses incurred in connection with the engagement, including
fees and disbursements of its legal counsel. Basic has also
agreed to indemnify TudorPickering and its officers, directors,
agents, employees and controlling persons for liabilities
related to or arising out of its rendering of services under its
engagement, including liabilities under the federal securities
laws.
On April 20, 2008, at a meeting of the Grey Wolf board of
directors held to evaluate the mergers, UBS delivered its oral
opinion to the Grey Wolf board of directors, confirmed by
delivery of a written opinion of the same date, to the effect
that, as of April 20, 2008, and based on and subject to
various assumptions, matters considered and limitations
described in its opinion, the Basic Exchange Ratio provided for
in the mergers was fair, from a financial point of view, to Grey
Wolf. As used herein, the term “Basic Exchange Ratio”
means the Basic merger consideration relative to the Grey Wolf
merger consideration.
The full text of the opinion of UBS, dated April 20, 2008,
describes the assumptions made, procedures followed, matters
considered and limitations on the review undertaken by UBS. This
opinion is attached as Annex D and is incorporated herein
by reference in its entirety. UBS’ opinion was directed
only to the fairness, from a financial point of view, to Grey
Wolf, of the Basic Exchange Ratio provided for in the mergers
and did not address any other aspect of the mergers. The opinion
did not address the relative merits of the mergers as compared
to other business strategies or transactions that might be
available with respect to Grey Wolf or Grey Wolf’s
underlying business decision to effect the mergers. UBS’
opinion does not constitute a recommendation to any shareholder
as to how such shareholder should vote or act with respect to
the mergers. UBS provided its opinion for the information and
assistance of Grey Wolf’s board of directors in connection
with its consideration of the mergers. Holders of Grey
Wolf common stock are encouraged to read the opinion
carefully in its entirety. The summary of UBS’ opinion
described below is qualified in its entirety by reference to the
full text of the opinion.
In arriving at its opinion, UBS, among other things:
•
reviewed certain publicly available business and financial
information relating to Basic and Grey Wolf;
•
reviewed certain internal financial information and other data
relating to the business and financial prospects of Basic that
were provided to UBS by the management of Basic and not publicly
available, including financial forecasts and estimates prepared
by the management of Basic that the Grey Wolf board of directors
directed UBS to use for purposes of its analysis;
•
reviewed certain internal financial information and other data
relating to the business and financial prospects of Grey Wolf
that were provided to UBS by the management of Grey Wolf and not
publicly available, including financial forecasts and estimates
prepared by the management of Grey Wolf that the Grey Wolf board
of directors directed UBS to use for purposes of its analysis;
•
reviewed certain estimates of synergies prepared by the
management of Grey Wolf that were provided to UBS by Grey Wolf
and not publicly available that the Grey Wolf board of directors
directed UBS to use for purposes of its analysis;
•
conducted discussions with members of the senior managements of
Basic and Grey Wolf concerning the businesses and financial
prospects of Basic and Grey Wolf;
•
reviewed publicly available financial and stock market data with
respect to certain other companies UBS believed to be generally
relevant;
•
compared the financial terms of the mergers with the publicly
available financial terms of certain other transactions UBS
believed to be generally relevant;
•
reviewed current and historical market prices of Basic common
stock and Grey Wolf common stock;
•
considered certain pro forma effects of the mergers on Grey
Wolf’s financial statements;
•
reviewed an April 20, 2008 draft of the merger
agreement; and
•
conducted such other financial studies, analyses and
investigations, and considered such other information, as UBS
deemed necessary or appropriate.
In connection with its review, with the consent of the Grey Wolf
board of directors, UBS assumed and relied upon, without
independent verification, the accuracy and completeness in all
material respects of the information provided to or reviewed by
UBS for the purpose of its opinion. In addition, with the
consent of the Grey Wolf board of directors, UBS did not make
any independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of Basic, Grey Wolf or
Holdings, nor was UBS furnished with any such evaluation or
appraisal. With respect to the financial forecasts, estimates,
synergies and pro forma effects reviewed by UBS, UBS assumed, at
the direction of the Grey Wolf board of directors, that they
were reasonably prepared on a basis reflecting the best then
available estimates and judgments of the management of Basic as
to the future financial performance of Basic and of the
management of Grey Wolf as to the future financial performance
of Grey Wolf and such synergies and pro forma effects. In
addition, UBS assumed, with the approval of the Grey Wolf board
of directors, that the financial forecasts and estimates,
including synergies, reviewed by UBS would be achieved at the
times and in the amounts projected. UBS also assumed, with the
consent of the Grey Wolf board of directors, that the mergers
would qualify for U.S. federal income tax purposes as a
“reorganization” within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended. UBS’ opinion was necessarily based on economic,
monetary, market and other conditions as in effect on, and the
information made available to UBS as of, April 20, 2008.
At the direction of the Grey Wolf board of directors, UBS was
not asked to, and it did not, offer any opinion as to the terms,
other than the Basic Exchange Ratio to the extent expressly
specified in UBS’ opinion, of the merger agreement or any
related documents or the form of the mergers. In addition, UBS
expressed no opinion as to the fairness of the amount or nature
of any compensation to be received by any
officers, directors or employees of any parties to the mergers,
or any class of such persons, relative to the Basic merger
consideration or the Grey Wolf merger consideration. UBS
expressed no opinion as to what the value of Holdings common
stock would be when issued pursuant to the mergers or the prices
at which Grey Wolf common stock, Basic common stock or Holdings
common stock will trade at any time. In rendering its opinion,
UBS assumed, with the consent of the Grey Wolf board of
directors, that (1) the final executed form of the merger
agreement did not differ in any material respect from the draft
dated April 20, 2008 that UBS reviewed, (2) Basic,
Holdings and Grey Wolf would comply with all of the material
terms of the merger agreement, and (3) the mergers would be
consummated in accordance with the terms of the merger agreement
without any adverse waiver or amendment of any material term or
condition of the merger agreement. UBS also assumed that all
governmental, regulatory or other consents and approvals
necessary for the consummation of the mergers would be obtained
without any material adverse effect on Grey Wolf, Basic,
Holdings or the mergers.
In connection with rendering its opinion to the Grey Wolf board
of directors, UBS performed a variety of financial and
comparative analyses which are summarized below. The following
is not a complete description of all analyses performed and
factors considered by UBS in connection with its opinion. The
preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to
partial analysis or summary description. With respect to the
selected companies analysis and selected transactions analysis
summarized below, no company or transaction used as a comparison
is either identical or directly comparable to Grey Wolf, Basic
and Holdings pro forma for the mergers. These analyses
necessarily involved complex considerations and judgments
concerning financial and operating characteristics and other
factors that could affect the public trading or acquisition
values of the companies concerned.
The estimates of future performance of Grey Wolf, Basic and
Holdings pro forma for the mergers in or underlying UBS’
analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than
those estimates. In performing its analysis, UBS considered
industry performance, general business and economic conditions
and other matters, many of which are beyond Grey Wolf’s or
Basic’s control. Estimates of the financial value of
companies do not purport to be appraisals or necessarily reflect
the prices at which companies may actually be sold.
The Basic merger consideration and the Grey Wolf merger
consideration were determined through negotiations between Basic
and Grey Wolf and the decision of the Grey Wolf board of
directors to enter into and approve the merger agreement was
solely that of the Grey Wolf board of directors. UBS’
opinion and financial analyses were only one of many factors
considered by the Grey Wolf board of directors in its evaluation
of the mergers and should not be viewed as determinative of the
views of the Grey Wolf board of directors or management with
respect to the mergers, the Basic merger consideration, the Grey
Wolf merger consideration or the Basic Exchange Ratio.
The following is a brief summary of the material financial
analyses performed by UBS and reviewed with the Grey Wolf board
of directors in connection with UBS’ opinion relating to
the proposed mergers. Portions of the summaries of the financial
analyses include information presented in tabular format. In
order to fully understand UBS’ financial analyses, the
tables must be read together with the text of each summary.
Considering the data in the tables without considering the full
narrative description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of UBS’ financial
analyses.
Implied Trading Ratio Analysis. UBS reviewed
the ratio of the average daily closing price per share of Basic
common stock to the average daily closing stock price per share
of Grey Wolf common stock for the period from December 10,2005, the date of the initial public offering of Basic common
stock, to April 18, 2008, the last trading day before the
Grey Wolf board of directors approved the mergers, for the
one-year period ending April 18, 2008 and as of
April 18, 2008, to calculate illustrative implied exchange
ratios between shares of Basic common stock and Grey Wolf common
stock for each such period. The average daily closing prices per
share of Grey Wolf common stock used in this analysis were
adjusted for the exchange ratio of 0.2500 of a share of Holdings
common stock per share of Grey Wolf common stock provided for in
the
mergers. UBS compared the results of this analysis to the
exchange ratio of 0.9195 of a share of Holdings common stock per
share of Basic common stock provided for in the mergers.
The following table presents the results of this analysis:
Selected Public Companies Analysis. UBS
compared selected financial information, ratios and public
market multiples for Grey Wolf to the corresponding data for the
following publicly traded companies selected by UBS:
•
Nabors Industries Ltd.
•
Helmerich & Payne, Inc.
•
Patterson-UTI Energy, Inc.
•
Ensign Energy Services, Inc.
•
Precision Drilling Trust
•
Unit Corp.
•
Parker Drilling
•
Pioneer Drilling
•
Union Drilling, Inc.
In addition, UBS compared selected financial information, ratios
and public market multiples for Basic to the corresponding data
for the following publicly traded companies selected by UBS:
•
Nabors Industries Ltd.
•
Superior Energy Services, Inc.
•
Oil States International, Inc.
•
Complete Production Services, Inc.
•
W-H Energy Services, Inc.
•
Key Energy Services, Inc.
•
RPC, Inc.
•
TETRA Tech, Inc.
•
Allis-Chalmers Inc.
•
Pioneer Drilling Company
•
Superior Well Services, Inc.
UBS compared financial information and calculated various
financial market multiples and ratios with respect to the
selected companies based on information it obtained from SEC
filings for historical information and consensus estimates
provided by Institutional Brokerage Estimate System, or IBES (a
data service that compiles estimates issued by securities
analysts), for forecasted information. The multiples and ratios
of the selected companies were calculated using common stock
closing prices on April 18, 2008. The multiples and
ratios of Basic and Grey Wolf were calculated based on IBES
consensus estimates and estimates of the respective managements
of Basic and Grey Wolf as well as balance sheet data for each
company as of December 31, 2007. The multiples and ratios
of Basic were calculated using (1) the $25.77 closing price
per share of Basic common stock on April 18, 2008 and
(2) the $25.77 closing price per share of Basic common
stock on April 18, 2008 as adjusted to give effect to the
Basic merger consideration, which we refer to as the Basic
Adjusted Price. The multiples of Grey Wolf were calculated using
the $7.60 closing price per share of Grey Wolf common stock on
April 18, 2008.
For each of the companies selected by UBS, UBS reviewed, among
other information:
•
the ratio of price per share to estimated earnings per share, or
EPS, for fiscal years 2008 and 2009;
•
the ratio of price per share to estimated cash flow per share
for fiscal years 2008 and 2009; and
•
the ratio of enterprise value, which was calculated as diluted
equity value based on closing stock prices on April 18,2008, plus the book value of debt, less cash and cash
equivalents, as a multiple of 2007 and estimated 2008 and 2009
EBITDA (earnings before interest, taxes, depreciation and
amortization).
The results of these analyses are summarized in the following
tables:
Selected Precedent Transactions Analysis. UBS
analyzed certain publicly available financial information
relating to the following selected transactions:
For each selected transaction and for Basic at the Basic
Adjusted Price, UBS calculated and compared:
•
equity value as a multiple of last twelve months, or LTM, cash
flow, one-year forward cash flow, LTM net income and one-year
forward net income; and
•
enterprise value as a multiple of LTM EBITDA, one-year forward
EBITDA and LTM EBIT.
Multiples for the selected transactions were calculated based on
publicly available information at the time of the relevant
transaction and data collected from John S. Herold, Inc.
Multiples for Basic were calculated based on IBES consensus
estimates and estimates of Basic management.
The following tables summarize the results of this analysis:
Equity Value
1-Year
1-Year
LTM Cash
Forward Cash
LTM Net
Forward Net
Flow
Flow
Income
Income
Median
11.0
7.5
23.9
11.8
Mean
11.0
7.5
20.1
16.1
Range
7.9 to 14.0
7.5
4.6 to 28.1
9.9 to 26.7
Management-Basic Adjusted Price
5.6
5.3
12.7
12.0
Consensus-Basic Adjusted Price
5.6
5.4
12.7
13.6
Enterprise Value
1-Year
Forward
LTM EBITDA
EBITDA
LTM EBIT
Median
9.7
7.5
14.9
Mean
9.1
7.1
13.0
Range
4.6 to 12.5
4.9 to 8.9
5.3 to 16.8
Management-Basic Adjusted Price
5.6
5.0
8.7
Consensus-Basic Adjusted Price
5.6
5.3
8.7
Relative Discounted Cash Flow Analysis. UBS
performed an illustrative discounted cash flow analysis to
determine the implied exchange ratio per share of Basic common
stock to Grey Wolf common stock as of June 30, 2008,
assuming each company continued to operate as a standalone
company and using estimates of unlevered free cash flows for
Basic and Grey Wolf for the last two quarters of fiscal year
2008 and fiscal years 2009 through 2013 prepared by the
respective managements of Basic and Grey Wolf. UBS assumed
discount rates ranging from 9.5% to 11.5% for Basic and 10% to
12% for Grey Wolf and calculated present values of unlevered
free cash flows for Basic and Grey Wolf generated over the
periods described above. UBS then added terminal values assuming
terminal year EBITDA multiples ranging from 4.0x to 6.0x for
Basic and 3.5x to 5.5x for Grey Wolf discounted at the above
referenced discount rates. The resulting implied exchange ratios
were adjusted by the exchange ratio of 0.2500 of a share of
Holdings common stock per share of Grey Wolf common stock to be
received by the holders of shares of Grey Wolf common stock in
the mergers. This
analysis indicated a reference range of implied exchange ratios
of Basic common stock to Grey Wolf common stock of 0.994 to
1.013.
Contribution Analysis. UBS performed an
analysis of the relative contributions from each of Basic and
Grey Wolf to the combined company, before taking into account
any synergies arising from the mergers, with respect to each of
the following:
•
enterprise value and equity value based on closing stock prices
as of April 18, 2008, which we refer to as the current
enterprise value and current equity value;
•
resulting enterprise value and equity value based on the Basic
Energy Adjusted Price for Basic and the closing price per share
of Grey Wolf common stock as of April 18, 2008 for Grey
Wolf, which we refer to as the transaction enterprise value and
transaction equity value;
•
estimated 2008 and 2009 EBITDA;
•
estimated 2008 and 2009 cash flows from operations; and
•
estimated 2008 and 2009 net income.
Estimated financial data of Basic and Grey Wolf were based on
internal estimates of the respective managements of Basic and
Grey Wolf.
The following table presents the results of this analysis:
Percentage Contribution
Grey Wolf
Basic
Enterprise Value
Current Enterprise Value
49.6
50.4
Transaction Enterprise Value
49.2
50.8
2008E EBITDA
49.6
50.4
2009E EBITDA
50.8
49.2
Equity Value
Current Equity Value
55.8
44.2
Transaction Equity Value
53.6
46.4
2008E Cash Flow from Operations
55.3
44.7
2009E Cash Flow from Operations
50.9
49.1
2008E Net Income
53.8
46.2
2009E Net Income
57.4
42.6
Accretion/Dilution Analysis. UBS reviewed the
potential pro forma effect of the mergers on Grey Wolf’s
fiscal year 2008 and 2009 estimated EPS and cash flow per share,
after giving effect to the estimated synergies to result from
the mergers reviewed by UBS. Estimated financial data of Basic
and Grey Wolf were based on estimates prepared by the respective
managements of Basic and Grey Wolf. Based on the exchange ratio
provided in the mergers, estimated annual synergies reviewed by
UBS and the assumption that the mergers would be completed as of
June 30, 2008, this analysis indicated that the mergers
would be accretive to Grey Wolf’s estimated EPS and cash
flow per share in each of fiscal years 2008 and 2009.
Miscellaneous. UBS has acted as financial
adviser to Grey Wolf’s board of directors in connection
with the mergers and will receive a fee for its services,
$1.0 million of which was paid upon delivery of UBS’
opinion and $6.5 million of which is contingent upon
consummation of the mergers. In addition, Grey Wolf may pay UBS
an additional fee of $1.0 million, solely in its
discretion, upon consummation of the mergers. Grey Wolf also
agreed to pay UBS a fee if Grey Wolf receives a
break-up or
similar fee in connection with the termination of the merger
agreement. In addition, Grey Wolf has agreed to reimburse UBS
for its reasonable expenses, including fees, disbursements and
other charges of its counsel, and to indemnify UBS and related
parties against liabilities, including liabilities under federal
securities laws, relating to, or arising
out of, its engagement. At Grey Wolf’s request, the UBS
Lenders have entered into financing commitments to provide
Holdings with revolving credit facilities and a term loan in
connection with the consummation of the mergers, subject to the
terms of such commitments, and for which the UBS Lenders will
receive fees and as a result of which potential conflicts of
interest (or a perception thereof) between UBS and Grey Wolf may
arise. The UBS Lenders are acting as independent contractors in
connection with the proposed financing and will not have, and
the proposed financing will not be deemed to create, an
advisory, fiduciary or agency relationship, or any fiduciary or
other implied duties, between the UBS Lenders, on the one hand,
and Grey Wolf or Holdings, and their respective equity holders
and affiliates, on the other. The UBS Lenders looked solely to
their own interests and objectives in determining whether, and
on what terms, they would arrange
and/or
provide such financing, as set forth in the commitment letter.
In the past, UBS and its affiliates have provided investment
banking services to Basic unrelated to the mergers, for which
UBS and its affiliates received compensation, including having
acted as senior co-manager of Basic’s initial public
offering and as joint bookrunner of a Basic bond offering. In
addition, UBS or an affiliate has acted as sole lead arranger
for Basic’s senior secured credit facility and for
subsequent refinancings, for which it received and continues to
receive fees and interest payments. In the ordinary course of
business, UBS and its affiliates may hold or trade, for their
own accounts and the accounts of their customers, securities of
Grey Wolf
and/or Basic
and, accordingly, may at any time hold a long or short position
in such securities. The issuance of UBS’ opinion was
approved by an authorized committee of UBS. Grey Wolf selected
UBS as its financial advisor in connection with the mergers
because UBS is an internationally recognized investment banking
firm with substantial experience in similar transactions. UBS is
continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
leveraged buyouts, negotiated underwritings, competitive bids,
secondary distributions of listed and unlisted securities and
private placements.
Simmons &
Company International
Grey Wolf retained Simmons & Company as a financial
advisor to evaluate the fairness, from a financial point of
view, to Grey Wolf of the Basic merger consideration relative to
the Grey Wolf merger consideration pursuant to the merger
agreement and to provide its opinion thereon to the Grey Wolf
board of directors in connection with the mergers. Grey Wolf
selected Simmons & Company based upon
Simmons & Company’s qualifications, reputation
and experience in connection with mergers and acquisitions.
On April 20, 2008, Simmons & Company delivered
its written opinion to the board of directors of Grey Wolf to
the effect that, as of that date and based upon and subject to
factors and assumptions set forth in its opinion, the Basic
merger consideration relative to the Grey Wolf merger
consideration was fair, from a financial point of view, to Grey
Wolf. The opinion speaks only as of the date it was delivered
and not as of the time the mergers will be completed. The
opinion does not reflect changes that may occur or may have
occurred after April 20, 2008, which could significantly
alter the value of Basic or Grey Wolf or the respective trading
prices of their common stock, which are factors on which
Simmons & Company’s opinion was based.
The full text of the Simmons & Company fairness
opinion, dated April 20, 2008, which sets forth the
assumptions made, matters considered and qualifications and
limitations on the review undertaken, is attached as
Annex E to this joint proxy statement/prospectus and is
incorporated into this document by reference. The summary of the
Simmons & Company fairness opinion set forth in this
joint proxy statement/prospectus does not describe all aspects
of Simmons & Company’s opinion and it is
qualified in its entirety by reference to the full text of the
Simmons & Company fairness opinion. Grey Wolf
stockholders should read the Simmons & Company
fairness opinion carefully and in its entirety. In arriving at
its opinion, Simmons & Company did not ascribe a
specific value to Basic or Grey Wolf, but rather made its
determination as to the fairness, from a financial point of
view, to Grey Wolf of the Basic merger consideration relative to
the Grey Wolf merger consideration on the basis of the financial
and comparative analyses described below. Simmons &
Company’s opinion is for the use and benefit of the Grey
Wolf board of directors and was rendered to the board of
directors in connection with its consideration of the mergers.
The opinion does not address the merits of the underlying
decision of Grey Wolf to engage in the transaction contemplated
by the merger agreement. Grey Wolf’s stockholders
should not view Simmons & Company’s opinion as
providing any assurance that the market value of merger
consideration to be received in the mergers will be in excess of
the market value of Grey Wolf common stock owned by such
stockholders at any time before the announcement or completion
of the mergers. Moreover, it does not constitute a
recommendation by Simmons & Company to any Grey Wolf
stockholder as to how such stockholder should vote or make any
election with respect to the mergers.
In reaching its opinion, Simmons & Company reviewed
and analyzed, among other things, the following:
the financial statements and other information concerning Grey
Wolf, including Grey Wolf’s Annual Reports on
Form 10-K
for each of the years in the three-year period ended
December 31, 2007, certain other communications from Grey
Wolf to its stockholders, and Grey Wolf’s most recent proxy
statement;
•
the financial statements and other information concerning Basic,
including Basic’s Annual Reports on
Form 10-K
for each of the years in the three-year period ended
December 31, 2007, certain other communications from Basic
to its stockholders, and Basic’s most recent proxy
statement;
•
certain business and financial analysis and information relating
to Basic and Grey Wolf, including certain internal financial
forecasts prepared by management of Basic and Grey Wolf and
which were provided to Simmons & Company by Grey Wolf;
•
certain publicly available information concerning the trading
of, and the trading market for, Grey Wolf’s common stock
and Basic’s common stock;
•
certain publicly available information with respect to certain
other companies Simmons & Company believes to be
comparable to Basic or Grey Wolf and the trading markets for
certain of such companies’ securities;
•
certain publicly available information concerning the estimates
of the future operating and financial performance of Grey Wolf,
Basic and the comparable companies prepared by industry experts
unaffiliated with either Basic or Grey Wolf; and
•
certain publicly available information concerning the nature and
terms of certain other transactions considered relevant to
Simmons & Company’s analysis.
Simmons & Company also considered such other
information, financial studies, analysis and investigations and
financial, economic and market criteria which
Simmons & Company deemed relevant. Simmons &
Company also met with officers and employees of Grey Wolf and
has participated in discussions with officers of Basic to
discuss the foregoing, as well as other matters believed
relevant to Simmons & Company’s analysis.
Simmons & Company did not independently verify any of
the foregoing information and have relied on it being complete
and accurate in all material respects. With respect to the
financial forecasts, Simmons & Company assumed that
they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of Grey Wolf’s
management as to the future financial performance of Basic and
Grey Wolf. Simmons & Company assumed that the mergers
will be consummated in accordance with the terms set forth in
the merger agreement without any waiver, amendment or delay of
any terms or conditions. Simmons & Company have
assumed that in connection with the receipt of all necessary
governmental, regulatory or other approvals and consents
required for the mergers, no delays, limitations, conditions or
restrictions will be imposed that would have a material adverse
effect on the contemplated benefits expected to be derived by
the mergers. Simmons & Company did not perform any tax
or regulatory analysis nor was Simmons & Company
furnished with any such analysis. Accordingly,
Simmons & Company did not evaluate (and
Simmons & Company’s opinion does not include) any
potential tax or regulatory consequences related to the mergers
including, without limitation, any potential tax or regulatory
consequences to Grey Wolf, Basic or their respective
stockholders. Simmons & Company’s opinion is
necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available
to Simmons & Company as of
the date thereof. Events occurring after the date thereof may
affect this opinion and the assumptions used in preparing it,
and Simmons & Company does not assume any obligation
to update, revise or reaffirm this opinion.
In preparing its fairness opinion for the Grey Wolf board of
directors, Simmons & Company performed a variety of
financial and comparative analyses, including those described
below. The summary of the analyses performed by
Simmons & Company, as set forth below, does not
purport to be a complete description of the analyses underlying
the opinion. The preparation of a fairness opinion is a complex
analytical process involving various determinations as to the
most appropriate and relevant methods of financial analysis and
the application of those methods to the particular circumstances
and, therefore, fairness opinions are not readily susceptible to
partial or summary description. No company or transaction used
in such analyses as a comparison is identical to Grey Wolf,
Basic or the transaction contemplated by the merger agreement,
nor is an evaluation of the results of such analyses entirely
mathematical; rather, it involves complex considerations and
judgments concerning financial and operational characteristics
and other factors that could affect the public trading or other
values of the companies or transactions being analyzed. The
estimates contained in such analyses and the ranges of
valuations resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition,
analyses relating to the value of the business or securities do
not purport to be appraisals or to reflect the prices at which
businesses, companies or securities actually may be sold.
Accordingly, such analyses and estimates are subject inherently
to substantial uncertainty.
In arriving at the fairness opinion, Simmons & Company
made qualitative judgments as to the significance and relevance
of each analysis as well as other data considered by
Simmons & Company. Accordingly, Simmons &
Company believes that its analyses must be considered as a whole
and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create an incomplete
view of the processes underlying such analyses and the fairness
opinion. In its analyses, Simmons & Company made
numerous assumptions with respect to general business, economic,
market and financial conditions, as well as other matters, many
of which are beyond the control of Basic and Grey Wolf and
involve the application of complex methodologies and experienced
and educated judgment.
The analyses were prepared solely as part of Simmons &
Company’s analysis of the fairness, from a financial point
of view, to Grey Wolf of the Basic merger consideration relative
to the Grey Wolf merger consideration in the proposed mergers.
Simmons & Company’s opinion and financial
analyses were only one of the many factors considered by Grey
Wolf’s management and the Grey Wolf board of directors in
their evaluation of the mergers and should not be viewed as
determinative of the views of Grey Wolf’s management or the
Grey Wolf board of directors with respect to the mergers and the
merger consideration.
The data and analysis summarized herein is from
Simmons & Company’s presentation to the Grey Wolf
board of directors delivered on April 20, 2008, which
primarily utilized data from market closing prices as of
April 18, 2008. For purposes of its analysis,
Simmons & Company defined EBITDA as net income plus
income taxes, interest expense (less interest income),
depreciation and amortization. Cash flow represents net income
plus depreciation and amortization and deferred taxes.
Introduction
In the mergers, Grey Wolf stockholders will receive $1.82 of
cash and 0.2500 of a share of the combined company for each Grey
Wolf share. Basic stockholders will exchange each of their
shares for $6.70 of cash and 0.9195 of a share of the combined
company. These figures represent the outcome of a negotiated
share exchange ratio of 0.9195x (number of shares of Grey Wolf
common stock, adjusted for a four-to-one reverse stock split,
per share of Basic common stock), which represents an 8.5%
premium to the ratio of the two companies’
10-day
volume weighted average share prices prior to signing the
definitive agreement and a pro-rata distribution of
$600.0 million to stockholders of the combined company.
In determining its opinion, Simmons & Company focused
on the relative valuations of Basic and Grey Wolf to assess
whether the Basic merger consideration relative to the Grey Wolf
merger consideration was fair to Grey Wolf from a financial
point of view.
Historical
Share Price Ratio Analysis
Simmons & Company derived implied historical share
price ratios by dividing the closing price of shares of Basic
common stock by the closing price of shares of Grey Wolf common
stock for each trading day over varying time periods. The
historical share price ratio analysis and all share price ratios
derived by Simmons & Company in its analysis assume a
four-to-one reverse stock split for Grey Wolf common stock. Such
derived share price ratios were used by Simmons &
Company as a basis for comparison with the transaction share
exchange ratio of 0.9195x. The following table sets forth the
results of this analysis:
Transaction
Share
Premium Based
Price Ratio
On 0.9195x
Ratio As Of 4/18/08
0.848
x
8.5
%
10-Day
Average
0.846
x
8.7
30-Day
Average
0.828
x
11.0
60-Day
Average
0.824
x
11.5
90-Day
Average
0.869
x
5.8
Comparable
Company Trading Analysis
Simmons & Company reviewed and compared certain
financial, operating and stock market information of Grey Wolf
to corresponding information of seven publicly traded, land
drilling-oriented companies (the “Land Drilling
Group”). Simmons & Company reviewed and compared
certain financial, operating and stock market information of
Basic to corresponding information of nine publicly traded,
production and well services companies (the “Production and
Well Services Group”). The Land Drilling Group included
Bronco, Helmerich & Payne, Nabors Industries,
Patterson-UTI Energy, Pioneer Drilling, Union Drilling, and
Unit. The Production and Well Services Group included
Allis-Chalmers Energy, Complete Production Services, Key Energy
Services, Oil States International, RPC, Superior Energy
Services, Superior Well Services, Tetra Technologies and W-H
Energy.
For Grey Wolf, Basic and each of the comparable companies,
Simmons & Company reviewed the following ratios for
the year ended December 31, 2008 and the year ended
December 31, 2009:
•
the ratio of each company’s enterprise market value to
EBITDA;
•
the ratio of earnings per share to the company’s stock
price per share; and
•
the ratio of cash flow per share to the company’s stock
price per share.
Simmons & Company utilized third-party research
estimates for each company’s projected earnings per share.
Adjustments to convert earnings per share to cash flow per share
and EBITDA were based on data from third-party research analysts
and Simmons & Company’s research group.
Enterprise value, as used by Simmons & Company in its
analysis, means equity value (fully diluted shares outstanding
multiplied by the closing share price as of April 18,2008) plus debt and minority interests and less cash and
any investment in unconsolidated affiliates.
The following table sets forth the results of this analysis:
Land Drilling
Production And Well
Group
Services Group
Range
Range
Ratio Of Enterprise Value To
2008P EBITDA
2.4x - 8.0
x
4.5x - 7.5
x
2009P EBITDA
2.3x - 7.0
x
3.9x - 6.6
x
Ratio Of Equity Value To
2008P Net Income
4.8x - 15.5
x
11.4x - 21.3
x
2009P Net Income
4.6x - 13.5
x
8.3x - 18.2
x
2008P Cash Flow
3.4x - 8.4
x
4.0x - 9.5
x
2009P Cash Flow
3.3x - 7.7
x
3.4x - 8.4
x
Based on the above data, Simmons & Company
subjectively selected a range of ratios for Basic and Grey Wolf
for each of the above measures and time periods. These ratio
ranges were then used to determine an implied share price for
Basic and Grey Wolf using research estimates from third party
research analysts and financial forecasts provided by Grey
Wolf’s and Basic’s management. Generally,
Simmons & Company placed more emphasis on the
multiples of the Land Drilling Group for Grey Wolf. For Basic,
Simmons & Company placed more emphasis on the
multiples of the Production and Well Services Group. The
following table sets forth the range of multiples selected:
Grey Wolf
Basic
Suggested
Suggested
Range
Range
Ratio Of Enterprise Value To
2008P EBITDA
4.5x - 5.5
x
5.0x - 6.0
x
2009P EBITDA
4.0x - 5.0
x
4.5x - 5.5
x
Ratio Of Equity Value To
2008P Net Income
10.0x - 12.0
x
11.0x - 14.0
x
2009P Net Income
8.0x - 11.0
x
9.0x - 13.0
x
2008P Cash Flow
5.0x - 6.0
x
5.0x - 6.0
x
2009P Cash Flow
4.5x - 5.5
x
4.5x - 5.5
x
Implied share prices for Basic and Grey Wolf where then used to
determine an implied exchange ratio range for each measure and
time period. The results of this analysis based on third-party
research estimates for projected financial periods suggest an
exchange ratio range of 0.623x to 1.236x. The results of this
analysis based on financial forecasts provided by Grey
Wolf’s and Basic’s management suggested an exchange
ratio range of 0.661x to 1.314x.
Comparable
Transactions Analysis
Simmons & Company analyzed certain information
relating to selected transactions in the land drilling segment
since 2003. Specifically, Simmons & Company
calculated, when available, the trailing twelve month
(“TTM”) EBITDA and projected year EBITDA multiples
implied by the transaction value of the selected transactions.
Simmons & Company determined the selected
transactions’ range of ratios of transaction value to each
of (1) TTM EBITDA and (2) projected year EBITDA were
3.7x to 9.0x and 2.4x to 6.9x, respectively. Simmons &
Company calculated the ratio of Grey Wolf’s enterprise
value to each of Grey Wolf’s (1) TTM EBITDA and
(2) projected year EBITDA and suggested that these
multiples were within the ranges of multiples of the comparable
transactions.
Simmons & Company also analyzed certain information
relating to selected transactions in the production and well
services segment since 2004. Simmons & Company
determined the selected transactions’ range of ratios of
transaction value to each of (1) TTM EBITDA and
(2) projected year EBITDA were 4.0x to 12.3x and 3.4x to
8.2x, respectively. Simmons & Company calculated the
ratio of the merger’s transaction value to
each of Basic’s (1) TTM EBITDA and (2) projected
year EBITDA and suggested that these multiples were within the
ranges of multiples of the comparable transactions.
Premiums
Paid Analysis
Simmons & Company analyzed the premiums implied by the
merger consideration and compared that to the premiums paid in
selected merger of equals transactions in the energy service
industry since 1997. Simmons & Company determined the
range of premiums in the selected transactions to be 0.0% to
17.8% and (9.3)% to 25.8% based on the closing share price ratio
one-day and
30-days
prior to public announcement of the transaction, respectively.
Simmons & Company also noted that the premiums to be
paid by Grey Wolf in the mergers were within the ranges of
premiums of the comparable transactions (based on an exchange
ratio of 0.9195x applied to Grey Wolf’s share price
(reverse split adjusted) at the respective dates).
Relative
Contribution Analysis
Simmons & Company analyzed implied equity exchange
ratios based on each company’s relative contributions of
EBITDA, cash flow and net income as provided by Grey Wolf’s
and Basic’s management. Relative contribution analysis was
done for each of the projected years ending December 31,2008 through December 31, 2010 using financial forecasts
provided by Basic and Grey Wolf. Simmons & Company
also analyzed two additional cases with each case reflecting
different levels of industry performance and financial
performance by business segment of each company for the
projected year ending December 31, 2010. These financial
forecasts imply equity exchange ratios of 0.896x to 1.033x in
2008, 0.808x to 1.008x in 2009 and 0.634x to 1.632x in 2010.
Simmons & Company also reviewed implied equity
exchange ratios based on each company’s relative
contributions based on third party research analyst estimates of
EBITDA, cash flow and net income for years ending
December 31, 2008 through December 31, 2009. These
financial forecasts imply equity exchange ratios of 0.774x to
0.970x in 2008 and 0.761x to 0.965x in 2009. However,
Simmons & Company did not emphasize the implied equity
exchange ratios suggested by third party analyst estimates as
such estimates reflect a more limited time period.
Discounted
Cash Flow Analysis
Simmons & Company performed a discounted cash flow
analysis of Basic and Grey Wolf using financial forecasts
through 2012 as provided by Basic and Grey Wolf.
Simmons & Company also analyzed the additional cases
used in the relative contribution analysis. Terminal values in
2012 were based on 5.5x and 6.5x EBITDA. Discount rates of 9% to
13% were used to discount annual free cash flows and terminal
values to derive an assessment of the enterprise value of Basic
and Grey Wolf. Simmons & Company then converted
implied enterprise values to implied share prices for each
company based on their respective capital structure and shares
outstanding. Finally, share prices were converted to implied
share exchange ratios. The implied share price ratios suggested
by the discounted cash flow analysis were in the range of 0.722x
to 1.555x.
Accretion/Dilution
Analysis
Simmons & Company prepared a pro forma merger model
that incorporated Grey Wolf’s and Basic’s financial
projections for the years 2008 and 2009, as well as the
estimated transaction costs and estimated synergies that could
result from the mergers. Simmons & Company then
compared the earnings and cash flow per share for Grey Wolf, on
a stand-alone basis to the earnings and cash flow per share for
the combined company following the completion of the mergers.
Based on such analysis the proposed transaction would be
accretive to earnings per share and cash flow per share in 2008
and 2009.
Miscellaneous
Simmons & Company is an internationally recognized
investment banking firm specializing in the energy industry and
is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions. Grey
Wolf selected Simmons & Company to provide a fairness
opinion in connection with the mergers because of
Simmons & Company’s experience and expertise. In
the ordinary
course of its business, Simmons & Company may actively
trade the debt and equity securities of both Basic and Grey Wolf
for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in
such securities.
Other than in the context of this proposed transaction,
Simmons & Company has not acted as financial advisor
to Grey Wolf or Basic, although Simmons & Company may
act as financial advisor to Grey Wolf or Basic with respect to
future transactions.
You should be aware that some Basic and Grey Wolf directors and
executive officers have interests in the mergers as directors or
officers that are different from, or in addition to, the
interests of other Basic and Grey Wolf stockholders.
Governance
Structure and Management Positions
As provided in the merger agreement, upon the consummation of
the mergers, the Holdings board of directors will consist of
nine members, four of whom will be current members of, and
designated by, Basic’s board of directors and five of whom
will be current members of, and designated by, Grey Wolf’s
board of directors. In addition, certain executive officers of
Basic and Grey Wolf have been selected to serve as executive
officers of Holdings. More information regarding the directors
and executive officers that have been designated or selected is
set forth in “— Continuing Board and Management
Positions” beginning on page 80.
Steven
A. Webster Directorship and Ownership Interests in Basic and
Grey Wolf
Steven A. Webster is a director of both Basic and Grey Wolf
having served on the board of Basic since 2001 and on the board
of Grey Wolf since 1996. Mr. Webster is also a beneficial
owner of Basic and Grey Wolf common stock. Mr. Webster
excused himself from participating in any discussions regarding
the mergers at all meetings of the board of directors of Basic
and Grey Wolf. Additionally, Mr. Webster did not
participate in, or vote at, the board of directors meetings of
Basic and Grey Wolf held on April 20, 2008, at which the
merger agreement was approved and recommended to the respective
stockholders of the companies for approval and adoption.
The outstanding equity awards and the Third Amended and Restated
Basic Energy Services, Inc. 2003 Incentive Plan, as may be
amended upon approval of the Basic stockholders, will be assumed
by Holdings. The merger agreement provides that upon completion
of the mergers, each share of restricted stock issued by Basic
will be converted into the Basic merger consideration, or at the
election of a holder solely into shares of Holdings common
stock, and each Basic stock option will be converted into
Holdings stock options with adjustments to the number of shares
and the exercise price, in each case, adjusted pursuant to the
terms of the merger agreement. Upon the consummation of the
Basic merger, under the terms of Basic’s equity incentive
plans, each Basic stock option and each share of restricted
stock of Basic held by a non-continuing director outstanding as
of the effective time of the Basic merger will vest in full.
Restricted stock held by anyone other than a non-continuing
director will not vest upon the consummation of the Basic
merger, but will vest in accordance with their normal vesting
schedule and be subject to the same risk of forfeiture
provisions that were subject prior to the Basic merger. If the
Holdings incentive plan is approved by the stockholders of Basic
and Grey Wolf and the mergers are consummated, Holdings will not
issue any further equity incentive awards under the existing
Basic plans following the consummation of the mergers. For
additional information regarding the treatment of equity awards
in the mergers, see “The Merger Agreement —
Consideration to be Received in the Mergers —
Treatment of Equity Awards” beginning on page 94.
In addition to the treatment of options under the merger
agreement, in light of the 60-day lockup agreement agreed to by
the non-continuing directors of Basic, Basic has agreed to
extend the expiration date during which non-continuing directors
can exercise their options from 90 days after the
director’s termination date until 150 days after the
director’s termination date in connection with the mergers.
Change
of Control Payments
The employment agreements of Basic’s executive officers
provide for the payment of severance benefits upon the
occurrence of a change in control. The agreements generally
provide that following a “qualifying termination” of
employment (which is generally defined as either the termination
of the executive officer by Basic without “cause” or
the termination by the executive officer for “good
reason,” in each case within 12 months of a change of
control, such as the Basic merger), Basic will pay to the
executive officer an amount equal to the sum of:
•
the executive officer’s earned but unpaid base salary
through the date of termination plus the executive
officer’s target bonus for the current year;
•
any earned but unpaid actual bonus for the prior year;
•
that portion of the executive officer’s vacation pay
accrued, but not used, for the current year to the date of
termination; and
•
the product of a multiple (for Mr. Huseman —
3.0 times; for Messrs. Krenek and Swift —
2.0 times; and for Messrs. Patterson, Tyner and
Rankin — 1.0 times) times the sum of the
executive officer’s respective base salary and 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 target bonus received by
him for any of the last three fiscal years.
For purposes of these agreements, “good reason”
includes, in relevant part, the following events:
•
a reduction in executive’s base salary or bonus opportunity;
•
a relocation of more than fifty miles of executive’s
principal office with Basic or its successor;
•
a substantial and adverse change in the executive’s duties,
control, authority, status or position, or the assignment to the
executive of duties or responsibilities which are materially
inconsistent with such status or position, or a material
reduction in the duties and responsibilities previously
exercised by the executive, or a loss of title, loss of office,
loss of significant authority, power or control, or any removal
of executive from, or any failure to reappoint or reelect him
to, such positions, except in connection with the termination of
his employment by Basic for “cause,” as defined below
(provided, a change in reporting relationships alone will not
constitute such a change);
•
Basic or its successor fails to continue in effect any pension
plan, life insurance plan,
health-and-accident
plan, retirement plan, disability plan, stock option plan,
deferred compensation plan or executive incentive compensation
plan under which the executive was receiving material benefits
(or plans providing the executive with substantially similar
benefits), or the taking of any action by Basic or its successor
that would materially and adversely affect the executive’s
participation in or materially reduce his benefits under any
such plan, unless any such adverse change to any such plan
applies on the same terms to all of the then-current senior
officers of Basic;
•
any material breach by Basic or its successor of any other
material provision of the executive’s employment
agreement; or
•
any failure by Basic to obtain an assumption of the
executive’s employment agreement by its successor in
interest.
For purposes of these agreements “cause” includes but
is not limited to:
•
the commission by the executive of a material act of fraud upon
Basic or an affiliate;
a conviction or a no contest plea in connection with a felony or
a crime involving moral turpitude or a felony;
•
the knowing engagement in any material activity which directly
competes with the business of Basic or an affiliate; or
•
failure of the executive to follow the written directions of the
board of directors or to render services in accordance with an
employment arrangement.
As a result of the change of control provision in their
employment agreements, any executive officers of Basic who are
terminated without “cause” or who terminate their own
employment for “good reason” within 12 months of
the consummation of the Basic merger will be entitled to the
severance benefits set forth in their employment agreement.
In connection with the signing of the merger agreement, each of
Mr. Huseman and Mr. Krenek entered into a letter
agreement waiving certain contractual rights under his
employment agreement with Basic to receive change of control
severance payments and benefits that would otherwise become
payable to them as a result of certain consequences of the
mergers. The waivers given by each of Messrs. Huseman and
Krenek related to the change in the location of their principal
office from Midland, Texas to Houston, Texas (the headquarters
of Holdings after the mergers) and certain changes in their
current health and benefit plans upon consummation of the
mergers. Mr. Huseman also waived contractual rights
regarding the change in his personal title and responsibilities
resulting from the creation of the position of President and
Chief Operating Officer of Holdings upon consummation of the
mergers. The title of President of Basic is now held by
Mr. Huseman and certain of his current responsibilities
with Basic include responsibilities that are expected to become
those of Holdings’ President and Chief Operating Officer
upon consummation of the mergers. Mr. Krenek agreed to
relocate his principal residence to the Houston metropolitan
area within 90 days after the closing of the mergers.
Mr. Huseman acknowledged in his letter agreement that he
would initially perform his duties as Chief Executive Officer of
Holdings from his current residence in Midland, Texas but that
the need to effectively manage Holdings, including the
successful integration of the businesses and personnel of Basic
and Grey Wolf, would require him to travel regularly to Houston,
Texas and spend a substantial amount of his time at
Holdings’ headquarters there. Following the integration of
the companies, which is expected to take approximately one year,
Mr. Huseman agreed that substantially all of his business
time would be spent working from Holdings’ headquarters in
Houston, Texas.
Grey
Wolf, Inc. 2003 Incentive Stock Plan and Other Compensatory
Plans
The Grey Wolf, Inc. 1996 Employee Stock Option Plan and the Grey
Wolf, Inc. 2003 Incentive Stock Plan (collectively, the
“Grey Wolf Equity Plans”) will be assumed by Holdings.
Pursuant to the terms of the merger agreement, upon the
consummation of the mergers, all outstanding unvested restricted
stock awards and unexercised options to purchase shares of Grey
Wolf common stock will be assumed by Holdings. Each share of
Grey Wolf restricted stock held by anyone other than a
non-continuing director will be converted into the right to
receive the Grey Wolf merger consideration, or at the
holder’s election, shares of Holdings common stock. The
consideration that a holder receives in exchange for restricted
stock will be subject to the same vesting or risk of forfeiture
provisions that the shares of Grey Wolf restricted stock were
subject to prior to the mergers. Each share of Grey Wolf
restricted stock held by a non-continuing director will become
fully vested and be converted into the right to receive the Grey
Wolf merger consideration. Each option to acquire shares of Grey
Wolf common stock will be converted into an option to acquire
shares of Holdings common stock with adjustments to the number
of shares and exercise price, in each case, adjusted pursuant to
the terms of the merger agreement. If the Holdings incentive
plan is approved by the stockholders of Basic and Grey Wolf and
the mergers are consummated, Holdings will not issue any further
equity incentive awards under the existing Grey Wolf plans
following the consummation of the mergers. For additional
information regarding the
treatment of equity awards in the mergers, see “The Merger
Agreement — Consideration to be Received in the
Mergers — Treatment of Equity Awards” beginning
on page 94.
Change
of Control Payments Under Executive Severance Plan and
Employment Agreements
In November 2001, Grey Wolf established an Executive Severance
Plan. The purpose of the Executive Severance Plan is to provide
those executive officers who have not entered into employment
agreements with Grey Wolf economic protection in the event of
termination of employment within 12 months after a
“Change in Control” (as defined in the Executive
Severance Plan). Pursuant to the terms of the Executive
Severance Plan, a participant will receive a severance payment
equal to one and one half times the sum of: (1) the
participant’s annual salary, plus (2) a bonus equal to
thirty percent of such annual salary.
Grey Wolf is a party to employment agreements with Thomas P.
Richards, David W. Wehlmann, David J. Crowley, Robert J.
Proffit, Edward S. Jacob III, Forrest M. Conley, Jr.,
Joseph C. Hopewell and Ronald G. Hale which contain provisions
that provide for severance payments to the executive. The
employment agreements were amended and restated to provide that
the mergers will constitute a “change of control,” but
such amended and restated agreements will only become effective
if the mergers are consummated. If the employment of any of
these executive officers is terminated by Grey Wolf during the
one-year (two-year in the case of Mr. Richards) period
immediately following the consummation of the mergers for any
reason other than death, disability or “cause,” as
defined below, or if the executive terminates his employment due
to a “constructive termination without cause,” as
defined below, the former officer will be entitled to receive
the following from Holdings:
•
the product of three times (three and three quarters times in
the case of Mr. Richards) the executive’s current base
salary and a bonus equal to 50% (100% in the case of
Mr. Richards) of the executive’s base salary;
•
for varying periods of time following the executive’s date
of termination (depending on the executive’s age and years
of service with Grey Wolf), medical and welfare benefits equal
to those benefits which would have been provided to such
executive in accordance with the benefits if the
executive’s employment had not been terminated;
•
all stock options, restricted stock, restricted stock units or
other stock-based awards held by the executive that are not
vested, will vest; and
•
in the event any payment or distribution to the executive would
be subject to the federal excise tax imposed by
section 4999 of the Internal Revenue Code on “excess
parachute payments,” the executive will be made whole by
Grey Wolf for any such payments.
For purposes of these change of control agreements,
“constructive termination without cause” includes, in
relevant part, the following events:
•
a failure to elect or reelect or to appoint or reappoint the
executive to the office he currently holds with Grey Wolf or
other material change by Grey Wolf of the executive’s
functions, duties or responsibilities which change would reduce
the ranking or level, dignity, responsibility, importance or
scope of the executive’s position with Grey Wolf from the
position and attributes he currently holds;
•
the assignment or reassignment by Grey Wolf of the executive to
a location not within fifty (50) miles of Grey Wolf’s
current location;
•
the liquidation, dissolution, consolidation or merger of Grey
Wolf, or transfer of all or substantially all of its assets,
other than a transaction in which a successor corporation with a
net worth substantially the same as or greater than that of Grey
Wolf assumes the executive’s employment agreement and all
obligations and undertakings of Grey Wolf thereunder;
the failure of Grey Wolf to continue to provide the executive
with office space, related facilities and secretarial assistance
that are commensurate with the executive’s responsibilities
to and position with Grey Wolf;
•
the notification by Grey Wolf of Grey Wolf’s intention not
to observe or perform one or more of the obligations of Grey
Wolf under the executive’s employment agreement;
•
the failure by Grey Wolf to indemnify, pay or reimburse the
executive at the time and under the circumstances required by
the executive’s employment agreement;
•
the occurrence of any other material breach of the
executive’s employment agreement by Grey Wolf or any of its
subsidiaries; or
•
the delivery of notice by the Company in accordance with the
executive’s employment agreement hereof that it desires to
terminate the executive’s employment agreement.
For purposes of these change of control agreements, termination
for “cause” includes, in relevant part, termination
for any of the following reasons:
•
chronic alcoholism or controlled substance abuse;
•
an act of proven fraud or dishonesty on the part of the
executive with respect to Grey Wolf;
•
knowing and material failure by the executive to comply with
material applicable laws and regulations relating to the
business of Grey Wolf;
•
the executive’s material and continuing failure to perform
(as opposed to unsatisfactory performance) his duties or a
material breach by the executive of his employment agreement
except, in each case, where such failure or breach is caused by
the illness or other similar incapacity or disability of the
executive; or
•
conviction of a crime involving moral turpitude or a felony.
Messrs. Richards and Wehlmann will not be continuing as
employees of the combined company after the effective time of
the mergers, and thus, in connection with the mergers,
Mr. Richards will receive approximately $4.9 million
and Mr. Wehlmann will receive approximately
$1.6 million six months after the closing of the mergers.
In addition, all unvested options and restricted stock
automatically will vest and any other conditions to these awards
will be deemed satisfied upon closing of the mergers.
Additionally, Messrs. Richards and Wehlmann will be
provided health care insurance benefits for three years in the
case of Mr. Wehlmann and for life in the case of Mr.
Richards.
Consulting
Agreement
Mr. Richards entered into a consulting agreement with Grey
Wolf which will be effective upon consummation of the mergers.
Under the terms of the consulting agreement will be paid a
consulting fee at an annual rate of $400,000, payable monthly,
less any cash fees he receives as a director of Holdings.
Mr. Richards will also be entitled to an office and
secretarial assistance provided by Holdings. This agreement will
terminate the earlier of (1) 30 days after either
Mr. Richards or Holdings gives notice of termination or
(2) Holdings’ 2009 annual shareholders meeting.
Messrs. Huseman and Johnson each beneficially own 2,000 and
5,000 shares of Grey Wolf common stock, respectively, which
ownership interests were disclosed to the Basic board of
directors in connection with its consideration of the merger. In
addition, Mr. Ziegler beneficially owns 3,900 shares
of Basic common stock, which ownership interests were disclosed
to the Grey Wolf board of directors in connection with its
consideration of the merger.
The merger agreement provides that upon the consummation of the
mergers, the Holdings board of directors will consist of nine
members divided into three classes having three members each.
Four of the members will be current members of, and designated
by, Basic’s board of directors and five of the members will
be current members of, and designated by, Grey Wolf’s board
of directors. The term of each class of directors expires at the
annual meeting of Holdings held in the following years:
Class I — 2009; Class II — 2010;
and Class III — 2011.
The following table identifies those individuals that, upon
consummation of the mergers, are expected to be members of the
board of directors of Holdings, their board classification and
their expected board committee assignments:
Committee Membership
Nominating and
Audit
Compensation
Governance
Name
Designated by
Class
Committee
Committee
Committee
Kenneth V. Huseman
Basic
I
Thomas P. Richards
Grey Wolf
I
Robert E. Rose
Grey Wolf
I
X
James S. D’Agostino
Basic
II
X
X
(1)
Robert F. Fulton
Basic
II
X
X
Frank M. Brown
Grey Wolf
II
Steven A. Webster
Basic
III
William T. Donovan
Grey Wolf
III
X
(1)
X
William R. Ziegler
Grey Wolf
III
X
X
(1)
(1)
Chair of Committee.
Each of the foregoing directors have been, or will be, approved
by the board of directors of each of Basic and Grey Wolf as
continuing directors of Holdings as successor to each of Basic
and Grey Wolf. As contemplated by the merger agreement, Grey
Wolf has designated William T. Donovan as the lead independent
director of Holdings who will chair executive sessions of
Holdings’ board of directors in accordance with the New
York Stock Exchange requirements. Mr. Richards has informed
the parties that he does not plan to stand for re-election to
the Holdings board of directors following the expiration of his
term in 2009. The bylaws of Holdings that will become effective
upon the consummation of the mergers provide that the size of
the board of directors can be increased or decreased, and any
vacancies on the board can be filled, only with the affirmative
vote of a majority of the whole board, which is defined to mean
the total number of authorized directors, regardless of whether
there exists a vacancy in any previously authorized director
position. However, if there is a vacancy due to the death,
resignation or removal of a director designated by either
company within the one year anniversary of the mergers, a
committee of the remaining designated directors of that company
will be formed to fill that vacancy.
The merger agreement provides that Kenneth V. Huseman, the
current President and Chief Executive Officer of Basic, will be
the Chief Executive Officer of Holdings and Thomas P. Richards,
the current President and Chief Executive Officer of Grey Wolf
and Chairman of Grey Wolf’s board of directors, will be the
Chairman of the board of directors of Holdings.
Messrs. Huseman and Richards will have all duties customary
to their respective positions, as well as any duties
specifically set forth in the amended and restated bylaws of
Holdings, a copy of which is included as Exhibit 2.3(b) of
Annex A to this joint proxy statement/prospectus.
David J. Crowley, the current Executive Vice President and Chief
Operating Officer of Grey Wolf, will be President and Chief
Operating Officer of Holdings and Alan Krenek, the current
Senior Vice President and Chief Financial Officer of Basic, will
be Executive Vice President and Chief Financial Officer of
Holdings.
The holders of Grey Wolf’s 3.75% convertible notes and
floating rate convertible notes will be entitled to a special
conversion privilege entitling them to convert the principal
amount of their convertible notes into Grey Wolf common stock
for a period beginning 15 business days prior to, and ending two
business days prior to, the anticipated effective time of the
mergers. If converted, the holders of Grey Wolf’s
convertible notes will be entitled to receive one share of Grey
Wolf common stock for each $6.45 of principal amount of Grey
Wolf’s 3.75% convertible notes that is converted, and one
share of Grey Wolf common stock for each $6.51 of principal
amount of Grey Wolf’s floating rate convertible notes that
is converted.
The following table illustrates the effect of possible
conversions of Grey Wolf’s convertible notes on the total
merger consideration, the resulting ownership of Holdings by
Basic stockholders and Grey Wolf stockholders, and
Holding’s long-term indebtedness, as if the mergers had
been completed at March 31, 2008:
Resulting Ownership
Aggregate Cash Merger Consideration
Percentage of Holdings
Long-Term
Basic
Grey Wolf
Basic
Grey Wolf
Debt of
Conversion Assumptions
Stockholders
Stockholders
Total
Stockholders
Stockholders
Holdings
(in thousands, except percentages)
No conversion of Grey Wolf convertible notes
$
276,000
$
326,000
$
602,000
46.6.
%
53.4
%
$
1,107,000
Conversion of Grey Wolf floating rate notes only
276,000
360,000
636,000
44.1
%
55.9
%
982,000
Conversion of Grey Wolf 3.75% convertible notes only
276,000
368,000
644,000
43.7
%
56.3
%
957,000
Conversion of all Grey Wolf convertible notes
276,000
403,000
679,000
41.5
%
58.5
%
832,000
If the holders of Grey Wolf’s convertible notes do not
convert their notes into Grey Wolf common stock prior to the
effective time of the Grey Wolf merger, the convertible notes
will be assumed by, and become indebtedness of, Holdings. After
the effective time of the mergers, the exercise price of the
convertible notes will be adjusted to give effect to the Grey
Wolf merger and will thereafter will be convertible (assuming a
conversion privilege then exists) into the number of shares of
Holdings common stock and cash that the holder would have
received if the holder had converted the convertible notes into
Grey Wolf common stock immediately before the Grey Wolf merger.
Before completing the mergers, Basic and Grey Wolf must make
merger filings with, and in some cases obtain clearances or
consents from, United States federal antitrust authorities, as
described below. Although Basic and Grey Wolf believe that they
will receive the required consents and clearances described
below to complete the mergers, we cannot assure you whether or
when these consents and clearances will be obtained or that they
will be obtained on satisfactory terms and conditions.
Hart-Scott-Rodino
Act
The mergers are subject to the requirements of the HSR Act. The
HSR Act provides that certain transactions may not be
consummated until premerger notifications and required
information have been furnished to the Antitrust Division of the
Department of Justice, or DOJ, and the Federal Trade Commission,
or FTC, and the relevant waiting periods have been early
terminated or have expired. Basic and Grey Wolf filed premerger
notification forms pursuant to the HSR Act with the DOJ and the
FTC on May 16, 2008 and received notice of early
termination on June 6, 2008. At any time before or after
consummation of the mergers, the Antitrust Division, the FTC or
any state attorneys general could take any action under the
antitrust laws deemed necessary or desirable in the public
interest, including seeking to enjoin consummation of the
mergers or seeking divestiture of particular assets or
businesses of Basic or Grey Wolf. Pursuant to the merger
agreement, completion of the mergers is subject to expiration or
early termination of any applicable waiting period under the HSR
Act. The expiration or early termination of the applicable HSR
Act waiting period, and the consummation of the mergers, does
not preclude the Antitrust Division or the FTC from challenging
the mergers on antitrust grounds and seeking divestiture of
businesses or assets or rescission of the transaction. Private
parties also may take legal action under the antitrust laws in
certain circumstances. It is possible that Basic and Grey Wolf
may not prevail in any such challenge.
At the time of the Basic merger, each outstanding stock option
granted under the Basic equity incentive plans, whether vested
or unvested, will be assumed by Holdings and converted into an
option to acquire, on the same terms and conditions as were
applicable under that Basic stock option (after taking into
account the transactions contemplated by the merger agreement),
shares of Holdings common stock with appropriate adjustments to
the number of shares and the exercise price. Likewise, at the
time of the Basic merger, each restricted share of Basic common
stock, whether vested or unvested, will be converted into 0.9195
of a share of Holdings common stock and $6.70 in cash or, at the
holder’s election, into shares of Holdings common stock.
Each share of Holdings common stock and the cash consideration
paid to anyone other than a non-continuing director, with
respect to such shares of Basic restricted stock, will be
subject to the same vesting or risk of forfeiture provisions
that shares of Basic restricted stock were subject to. Each
share of Holdings common stock and the cash consideration
received by a non-continuing director will be fully vested.
Grey
Wolf
At the time of the Grey Wolf merger, each outstanding stock
option granted under the Grey Wolf equity incentive plans,
whether vested or unvested, will be assumed by Holdings and
converted into an option to acquire, on the same terms and
conditions as were applicable under that Grey Wolf stock option
(after taking into account the transactions contemplated by the
merger agreement), shares of Holdings common stock with
appropriate adjustments to the number of shares and the exercise
price. Likewise, at the time of the Grey Wolf merger, each
restricted share of Grey Wolf common stock, whether vested or
unvested, will be converted into 0.2500 of a share of Holdings
common stock and $1.82 in cash or, at the holder’s
election, into shares of Holdings common stock. Each share of
Holdings common stock and the cash consideration paid to anyone
other than a non-continuing director, with respect to such
shares of Grey Wolf restricted stock, will be subject to the
same vesting or risk of forfeiture provisions that shares of
Grey Wolf restricted stock were subject to.
The Basic and Grey Wolf equity plans that will be assumed by
Holdings pursuant to the mergers include the Basic Energy
Services, Inc. Third Amended and Restated 2003 Incentive Plan,
as may be amended, which we refer to as the Basic Incentive
Plan, the Grey Wolf, Inc. 2003 Incentive Plan, and the Grey
Wolf, Inc. 1996 Employee Stock Option Plan, as amended,
effective as of July 29, 1996. If the Holdings incentive
plan is approved by stockholders of both Basic and Grey Wolf, as
described on pages 117 and 122, then no further grants of
awards will be made under any of the Basic and Grey Wolf equity
plans assumed by Holdings in connection with the mergers, and
the outstanding awards shall continue subject to the plans as
adjusted pursuant to the merger agreement.
Under the Basic Incentive Plan, awards of stock options (both
incentive stock options or nonqualified stock options),
restricted stock, performance awards, bonus shares, phantom
shares, and other stock-based awards are permitted. After the
mergers, any employee or consultant of Holdings and its
affiliates (as that term is defined in the Basic Incentive Plan)
or directors of Holdings is eligible to be designated a
participant and receive an award under the plan. As a result of
adjustments as required under the plan and in connection with
the assumption of the plan in mergers, a total of up to
2,012,000 shares of Holdings common stock may be granted
under the plan. Pursuant to the terms of the plan, the maximum
number of shares for options that may be granted to any
participant in any calendar year is 100,000 which will be
adjusted to Holdings common stock and will be 91,950 shares.
The Grey Wolf, Inc. 2003 Incentive Plan authorizes the issuance
of options (nonstatutory stock options and incentive stock
options), restricted stock, performance-based awards or other
stock-based awards, or any combination of the foregoing. As a
result of the assumption of this plan by Holdings, after the
mergers, employees and consultants of Holdings (or its corporate
parent or subsidiaries with the meaning of Section 424 of
the Internal Revenue Code), or outside directors of Holdings,
may be granted awards under this plan. Consultants and outside
directors, however, are not eligible to be granted any incentive
stock options. As a result of adjustments pursuant to the plan
and in connection with the assumption of the plan by Holdings in
the mergers, 1.3 million shares of Holdings common stock
will be available for awards under the plan. The total amount of
shares available under the plan are available for grants of
incentive stock awards.
No new awards may be granted under the Grey Wolf, Inc. 1996
Employee Stock Option Plan, and outstanding awards under that
plan will be adjusted as provided in the merger agreement.
As a result the assumption of these plans by Holdings in the
mergers, any settlement of awards outstanding or new equity
awards made under these plans after the mergers are completed
will be in Holdings common stock.
DLJ Merchant Banking Partners III, L.P. and certain affiliated
funds beneficially own approximately 44% of the outstanding
shares of Basic common stock and have entered into an agreement
with Grey Wolf to vote all of the shares of Basic common stock
that they beneficially own in favor of adoption of the merger
agreement. This voting agreement will terminate if the merger
agreement is terminated or Basic’s board of directors
recommends another acquisition proposal.
DLJ Merchant Banking Partners III, L.P. and certain affiliated
funds and each director and executive officer of Basic and Grey
Wolf have entered into a
lock-up
agreement stating that they will not sell or otherwise dispose
of the Holdings common stock that they receive in the mergers.
These
lock-up
agreements will terminate 60 days after the closing of the
mergers.
Pursuant to the merger agreement, Grey Wolf entered into
Amendment No. 1 to its Rights Agreement with American Stock
Transfer & Trust Company, a New York corporation,
to provide that Basic, Holdings and certain of their affiliates
would not become an acquiring person or beneficial owner, as
those terms are defined in the rights agreement, as a result of
the execution of the merger agreement or the consummation of the
transactions contemplated by the merger agreement. Additionally,
the rights agreement was amended such that it will terminate
upon the earlier of September 18, 2008 (its original
expiration date) or immediately prior to the effective time of
the mergers.
Pursuant to the terms of a stockholders’ agreement among
Basic, DLJ Merchant Banking and certain affiliated funds and
other Basic stockholders, subject to certain restrictions, DLJ
Merchant Banking has rights to require Basic to register shares
of its common stock. These stockholders may require Basic to
register shares of its common stock on up to three occasions,
provided that the proposed offering proceeds for the offering
equal or exceed $10.0 million (or $5.0 million if
Basic is able to register on
Form S-3).
Basic has agreed to pay most offering fees and expenses
associated with the registration and offering of these shares,
other than underwriting fees, discounts or commissions. Basic
has also agreed to indemnify these stockholders and their
officers, directors, partners, legal counsel and other listed
representatives against certain losses, claims, damages or
liabilities in connection with the registered offering of their
shares. These stockholders also have certain piggyback rights
pursuant to the stockholders’ agreement. Basic’s
obligations under the stockholders’ agreement will be
assumed by Holdings upon the consummation of the mergers.
The mergers will be accounted for using the purchase method of
accounting. Although the business combination of Basic and Grey
Wolf is a merger of equals, generally accepted accounting
principles require that one of the two companies in the
transaction be designated as the acquirer for accounting
purposes. After a review of relevant factors, Grey Wolf has been
determined to be the accounting acquirer based on the fact that
its stockholders are expected to hold more than 50% of the
Holdings common stock after the mergers. The purchase price will
be allocated to Basic’s identifiable assets and liabilities
based on their estimated fair values at the date of the
consummation of the mergers, and any excess of the purchase
price over those fair values will be accounted for as goodwill.
The results of final valuations of property and equipment, and
intangible and other assets and the finalization of any
potential plans of restructuring have not yet been completed. We
will revise the allocation of the purchase price based on
Basic’s net assets at the time of the mergers and when
additional information becomes available.
Section 262 of the DGCL grants appraisal rights to
stockholders who are required, by the terms of a merger, to
accept any consideration other than shares of stock in the
surviving company, shares of stock listed on a national
securities exchange or cash received as payment for fractional
shares. Article 5.12 of the TBCA grants dissenters’
rights to stockholders who are required, by the terms of a
merger, to accept any consideration other than shares of stock
in the surviving company, shares of stock listed on a national
securities exchange or cash received as payment for fractional
shares. Because Basic and Grey Wolf stockholders will receive
cash as part of their merger consideration, Basic and Grey Wolf
stockholders will have appraisal rights as a result of the
mergers. The full text of Section 262 of the DGCL and
Article 5.12 of the TBCA are attached to this joint proxy
statement/prospectus as Annex H and Annex I,
respectively.
The shares of Holdings common stock issued in the mergers will
not be subject to any restrictions on transfer arising under the
Securities Act except for shares issued to any Basic or Grey
Wolf stockholder who is, or is expected to be, an
“affiliate” of Holdings for purposes of Rule 144
under the Securities Act upon
completion of the mergers. Persons who may be deemed to be
“affiliates” of Holdings for these purposes generally
include individuals or entities that control, are controlled by
or are under common control with Holdings, and will include
officers and directors of Holdings. This joint proxy
statement/prospectus does not cover resales of Holdings common
stock received by any person upon consummation of the mergers,
and no person is authorized to make any use of this joint proxy
statement/prospectus in connection with any resale.
It is a condition to the consummation of the mergers that the
Holdings common stock issuable to Basic and Grey Wolf
stockholders pursuant to the merger agreement be approved for
listing on the New York Stock Exchange, subject to official
notice of issuance.
If the mergers are consummated, Basic will delist its common
stock from the New York Stock Exchange, Grey Wolf will delist
its common stock from the American Stock Exchange, and both
companies may deregister their respective common stock under the
Exchange Act. The stockholders of each of Basic and Grey Wolf
will become stockholders of Holdings, and their rights as
stockholders will be governed by Delaware law and by
Holdings’ certificate of incorporation and bylaws.
Basic and Grey Wolf may cease filing periodic reports pursuant
to the Exchange Act with the SEC following deregistration of
their common stock, subject to securities laws requirements and
the companies’ obligations under their respective debt
instruments.
Neither Basic nor Grey Wolf ever has declared a dividend on its
common stock. Both parties’ bank credit facilities restrict
the parties’ respective ability to declare or pay any
dividend on, or make similar payments with respect to, their
capital stock. In addition, the merger agreement prohibits the
parties from declaring, setting aside or paying any dividend
with respect to their capital stock while the mergers are
pending.
We expect that, after the consummation of the mergers, Holdings
will adopt a policy not to pay dividends as well. The payment of
any dividend by Holdings would be subject to approval and
declaration by the Holdings board of directors and would depend
on a variety of factors, including business, financial and
regulatory considerations as well as any limitations in any
agreements governing indebtedness of Holdings that may then be
in existence.
On April 25, 2008, Natalie Gordon filed an Original
Petition in a case Natalie Gordon, on behalf of Herself and
All Others Similarly Situated v. Basic Energy Services,
Inc., Steven A. Webster, Kenneth V. Huseman, James S.
D’Agostino, Jr., William E. Chiles, Robert F. Fulton,
Sylvester P. Johnson, IV, H.H. Wommack, III, Thomas
Moore, Jr., and Grey Wolf, Inc. (Cause
No. CV46465), in the District Court of Midland County,
Texas, 238th Judicial District. This original petition
alleges that she is a stockholder of Basic and is brought as a
putative class action. This lawsuit alleges that the proposed
merger consideration is inadequate and that Basic and its
individual directors breached fiduciary duties owed to the
stockholders of Basic in connection with the proposed merger.
Additionally, the plaintiff alleges that Grey Wolf aided and
abetted the alleged breach of fiduciary duty by Basic and its
board of directors. The plaintiff seeks certification of its
lawsuit as a class action, seeks to enjoin the proposed merger
and also ask for other legal and equitable relief, including an
award of attorneys’ fees and costs of court. This
litigation is in its very early stages; however, each of Basic
and Grey Wolf believe that this lawsuit is without merit with
respect to it and intend to defend the lawsuit vigorously.
On June 8, 2008, Grey Wolf received a letter from the board
of trustees of Precision Drilling Trust, which we refer to as
the “Trust,” making an unsolicited proposal to acquire
Grey Wolf. Grey Wolf understands that the Trust is an
unincorporated open-ended investment trust established under the
laws of the Province of Alberta, Canada and that its Trust units
are traded on the Toronto Stock Exchange under the symbol
“PD.UN” and on the New York Stock Exchange under the
symbol “PDS.” The Trust’s letter states that it
proposes to acquire all of the common stock of Grey Wolf for
total consideration of USD $9.00 per share on a fully diluted
basis, consisting of cash and Trust units at the election of
Grey Wolf stockholders, subject to proration so that the cash
portion does not exceed
331/3%
of the equity purchase price. Other terms and conditions of the
Trust’s proposal letter include the following:
•
final agreement on a transaction would be conditioned on:
•
negotiation of acceptable legal documentation;
•
satisfactory completion of due diligence;
•
final approval of the transaction by the Grey Wolf board of
directors and the Precision board of directors;
•
Grey Wolf stockholder approval, but would not be conditioned on
Trust unitholder approval; and
•
regulatory approval under the HSR Act.
•
the Trust states that it expects to maintain Grey Wolf’s
principal offices and facilities and to offer opportunities to
Grey Wolf employees to have continued roles in the combined
company;
•
possible inclusion of Grey Wolf nominees on the board of
directors of Precision Drilling Corporation, the administrator
of the Trust;
•
possible completion of due diligence and signing of definitive
documents within two weeks of the date of the letter; and
•
attached letters from Deutsche Bank Securities Inc. and RBC
Royal Bank indicating that they were highly confident that they
could arrange for or provide financing to the Trust for the
proposed acquisition, subject in each case to numerous
conditions, some of which were unspecified or were to be met to
the satisfaction of the lender; however, each institution
indicated that their letter should not be considered a binding
commitment to provide such financing.
Due to the recent receipt of the Trust’s letter, Grey
Wolf’s board of directors intends to evaluate the
Trust’s proposal consistent with its fiduciary duties and
Grey Wolf’s obligations with respect to unsolicited third
party offers under the merger agreement with Basic and Holdings,
which remains in effect.
In order to finance substantially all of the cash component of
the merger consideration, the repayment of outstanding Basic
debt and transaction expenses, Holdings expects to incur
incremental indebtedness of up to $925 million. Under the
commitment letter among Grey Wolf, GSCP and the UBS Lenders,
dated April 20, 2008, GSCP and the UBS Lenders committed to
provide loans under a senior secured term loan facility to
Holdings of up to $600 million and a senior secured
revolving credit facility to Holdings of up to
$325 million, which we refer to as the Bank Facilities.
The financing commitments of GSCP and the UBS Lenders under the
Bank Facilities are subject to the satisfaction of certain
conditions including, among others, (1) the execution of
satisfactory documentation and (2) the absence of a
Material Adverse Effect (as defined in the merger agreement)
with respect to Basic, Grey Wolf and their respective
subsidiaries, taken as a whole. The commitments will terminate
on September 30, 2008, if the definitive documentation with
respect to the Bank Facilities has not been executed by all
parties prior to that date. The commitments may also terminate
prior to September 30, 2008, if the mergers are abandoned
or a material condition to the mergers is not satisfied or Grey
Wolf breaches its obligations under the commitment letter.
The Bank Facilities are expected to contain financial covenants
relating to maximum leverage and minimum fixed charge coverage.
Other covenants contained in the facility are expected to
restrict, among other things, asset dispositions, mergers and
acquisitions, dividends, stock repurchases and redemptions,
other restricted payments, indebtedness and preferred stock,
loans and investments, liens and affiliate transactions. Grey
Wolf anticipates that the Bank Facilities will contain customary
events of default.
While the parties currently expect to finance the approximate
$600 million of Holdings’ cash requirements in
connection with the mergers by term loans under the Bank
Facilities, Holdings may instead finance a portion of that
amount through the issuance of debt securities, depending on
market conditions.
The following discussion summarizes material U.S. federal
income tax consequences of the mergers to U.S. holders and
non-U.S. holders
(as defined below) of Basic and Grey Wolf common stock. This
discussion is based upon the Internal Revenue Code of 1986, as
amended, Treasury Regulations promulgated under the Internal
Revenue Code, court decisions, published positions of the
Internal Revenue Service and other applicable authorities, all
as in effect on the date of this document and all of which are
subject to change or differing interpretations, possibly with
retroactive effect. This discussion is limited to holders who
hold Basic and Grey Wolf common stock as capital assets for
U.S. federal income tax purposes (generally, assets held
for investment). This discussion does not address all of the
U.S. federal income tax consequences that may be relevant
to a holder in light of his particular circumstances or to
holders who may be subject to special treatment under
U.S. federal income tax laws, such as:
•
a financial institution;
•
a tax-exempt organization;
•
an S corporation or other pass-through entity;
•
an insurance company;
•
a mutual fund;
•
a dealer in stocks and securities, or foreign currencies;
•
a trader in securities who elects the mark-to-market method of
accounting;
•
a holder of Basic or Grey Wolf common stock subject to the
alternative minimum tax provisions of the Internal Revenue Code;
a holder of Basic or Grey Wolf common stock who received such
common stock through the exercise of employee stock options or
otherwise as compensation or through a tax-qualified retirement
plan;
•
a holder of options granted under any Basic or Grey Wolf benefit
plan;
•
certain expatriates or a person that has a functional currency
other than the U.S. dollar;
•
a regulated investment company;
•
a real estate investment trust;
•
a controlled foreign corporation;
•
a passive foreign investment company; or
•
a holder of Basic or Grey Wolf common stock who holds such
common stock as part of a hedge, straddle, wash sale, synthetic
security, conversion transaction or other integrated transaction
comprised of Basic or Grey Wolf common stock and one or more
investments.
Further, this discussion does not address any aspect of
non-income taxation or any state, local or foreign taxation. No
ruling has been or will be obtained from the Internal Revenue
Service regarding any matter relating to the mergers. While
receipt of opinions of counsel on the tax consequences of the
mergers are conditions to the closing, an opinion of counsel is
not a guaranty of a result as it merely represents
counsel’s best legal judgment and is not binding on the
Internal Revenue Service or the courts. As a result, no
assurance can be given that the Internal Revenue Service will
not assert, or that a court will not sustain, a position
contrary to any of the tax aspects described below. Holders of
Basic or Grey Wolf common stock are urged to consult their own
tax advisors as to the U.S. federal income tax consequences
of the mergers, as well as the effects of non-income tax and all
state, local and foreign tax laws applicable to such holder.
As used in this summary, a “U.S. holder” is a
beneficial owner of Basic or Grey Wolf common stock who for
U.S. federal income tax purposes is:
•
an individual U.S. citizen or resident alien;
•
a corporation or other entity created or organized under
U.S. law (federal or state) and treated as a corporation
for U.S. federal income tax purposes;
•
an estate whose worldwide income is subject to U.S. federal
income tax; or
•
a trust if a court within the United States of America is able
to exercise primary supervision over the administration of the
trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust.
If a partnership (including for this purpose any entity or
arrangement treated as a partnership for U.S. federal
income tax purposes) is a beneficial owner of Basic or Grey Wolf
shares, the tax treatment of a partner in that partnership will
generally depend on the status of the partner and the activities
of the partnership. Holders of Basic or Grey Wolf shares that
are partnerships and partners in these partnerships are urged to
consult their tax advisors regarding the U.S. federal
income tax consequences of owning and disposing of such common
stock in the mergers.
A
“non-U.S. holder”
of Basic or Grey Wolf common stock is a holder, other than an
entity or arrangement treated as a partnership for
U.S. federal income tax purposes, that is not a
U.S. holder. For purposes of this summary,
“holder” means either a U.S. holder or a
non-U.S. holder
or both.
THIS SUMMARY IS NOT A SUBSTITUTE FOR AN INDIVIDUAL ANALYSIS
OF THE TAX CONSEQUENCES OF THE MERGERS TO YOU. WE URGE YOU TO
CONSULT A TAX ADVISOR REGARDING THE PARTICULAR FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGERS IN LIGHT OF
YOUR OWN SITUATION.
It is a condition to the closing of the mergers that
(1) Porter & Hedges, L.L.P. will deliver its
opinion, effective as of the date of closing, to Grey Wolf and
Holdings, and (2) that Andrews Kurth LLP will deliver its
opinion, effective as of the date of closing, to Basic and
Holdings, to the effect that (i) the mergers will be
treated for U.S. federal income tax purposes as a
“reorganization” within the meaning of
Section 368(a) of the Internal Revenue Code and
(ii) each of Grey Wolf, Basic and Holdings will be a party
to the reorganization within the meaning of Section 368(b)
of the Internal Revenue Code.
The opinions of Porter & Hedges, L.L.P., counsel to
Grey Wolf, and Andrews Kurth LLP, counsel to Basic are and will
be based on U.S. federal income tax law in effect as of the
date of these opinions. In rendering their opinions,
Porter & Hedges, L.L.P. and Andrews Kurth LLP will
rely on certain assumptions, including assumptions regarding the
absence of changes in existing facts and the completion of the
mergers strictly in accordance with the merger agreement and
this proxy statement/prospectus. The opinions will also rely
upon certain representations and covenants in the merger
agreement as well as representation letters provided by the
management of Grey Wolf, Basic and Holdings and will assume that
these representations are true, correct and complete without
regard to any knowledge limitation, and that these covenants
will be complied with. If any of these assumptions or
representations is inaccurate in any way, or any of the
covenants are not complied with, the opinions could be adversely
affected.
Assuming the mergers qualify as a “reorganization”
within the meaning of Section 368(a) of the Internal
Revenue Code, the material U.S. federal income tax
consequences to a U.S. holder are as follows (gain realized
is equal to the sum of the cash and value of Holdings common
stock received in the respective merger less your adjusted tax
basis in the shares cancelled in such merger):
•
You may recognize gain (but not loss) as a result of the mergers.
•
If your gain realized is less than the cash received in the
respective merger, then you will recognize gain only to the
extent of your realized gain and your tax basis in your Holdings
shares will be equal to their fair market value as of the date
of the applicable merger.
•
If your gain realized is more than the cash received in the
respective merger, then you will recognize gain equal to the
cash received as merger consideration and your tax basis in the
Holdings shares will be equal to your basis in the particular
shares exchanged in the applicable merger (which will be less
than fair market value of such shares as of the date of the
applicable merger).
•
Gain recognized upon the exchange generally will be capital
gain, unless the receipt of cash by a U.S. holder has the
effect of a distribution of a dividend, in which case the gain
will be treated as dividend income to the extent of the
U.S. holder’s ratable share of Basic or Grey Wolf
current or accumulated earnings and profits as calculated for
U.S. federal income tax purposes. In general, the
determination as to whether the receipt of cash has the effect
of a distribution of a dividend depends upon whether and to what
extent the transactions related to the mergers will be deemed to
reduce a U.S. holder’s percentage ownership of the
companies following the mergers. For purposes of that
determination, a U.S. holder will be treated as if it first
exchanged all of the U.S. holder’s Basic or Grey Wolf
common stock solely for Holdings common stock, and then a
portion of that stock was immediately redeemed by Holdings for
the cash that the U.S. Holder actually received in the
mergers. The Internal Revenue Service has indicated that a
reduction in the interest of a minority stockholder that owns a
small number of shares in a publicly and widely held corporation
and that exercises no control over corporate affairs would
result in capital gain (as opposed to dividend) treatment. In
determining whether or not the receipt of cash has the effect of
a distribution of a dividend, certain constructive ownership
rules must be taken into account. A U.S. holder is urged to
consult its tax
advisors about the possibility that all or a portion of any cash
received in exchange for Basic or Grey Wolf common stock will be
treated as a dividend. Any recognized capital gain will be
long-term capital gain if the U.S. holder has held its
Basic or Grey Wolf shares for more than one year.
•
If a U.S. holder receives cash in lieu of a fractional
share of Holdings common stock, subject to the discussion above
regarding possible dividend treatment, it will generally
recognize capital gain or loss equal to the difference between
the cash received in lieu of this fractional share and the
portion of its adjusted tax basis in Basic or Grey Wolf shares
surrendered that is allocable to this fractional share. The
capital gain or loss will be long-term capital gain or loss if
the holding period for Basic or Grey Wolf shares exchanged for
cash in lieu of the fractional share of Holdings stock is more
than one year as of the date of the mergers. The deductibility
of capital losses is subject to limitations.
•
If a U.S. Holder owns stock in both Basic and Grey Wolf it
will likely need to calculate its tax results separately with
respect to each company’s stock cancelled in the respective
merger, as well as for each block of company stock acquired at
different times. Additionally such holders may be subject to
special rules regarding dividend treatment discussed above.
•
U.S. Holders who hold shares in both Basic and Grey Wolf,
and/or with
differing bases or holding periods within the same company are
strongly urged to consult their tax advisors with regard to
(1) exposure to dividend treatment and (2) identifying
the bases or holding periods of the particular Holdings shares
received in the mergers.
Assuming the mergers qualify as a “reorganization”
within the meaning of Section 368(a) of the Internal
Revenue Code, a result of the mergers, a
non-U.S. holder
will recognize gain (all or part of which could be
recharacterized as a dividend) in the same manner as of that a
U.S. holder as described above under the heading
“— U.S. Holders.” Any gain a
non-U.S. holder
will recognize will generally not be subject to
U.S. federal income tax unless:
•
the
non-U.S. holder
is an individual present in the United States for 183 days
or more in the taxable year of the mergers and certain other
requirements are met;
•
such gain is effectively connected with the conduct of a trade
or business in the United States, and, if certain tax treaties
apply, is attributable to a U.S. permanent
establishment; or
•
Basic or Grey Wolf is or has been a “United States real
property holding corporation” for United States federal
income tax purposes and the non-U.S. holder owned more than 5%
of Basic’s or Grey Wolf’s common stock, as applicable,
at any time during the five years preceding the mergers.
However, neither Basic nor Grey Wolf believes it is or has been
a “United States real property holding corporation”
for U.S. federal income tax purposes.
If a
non-U.S. holder
is described in the first bullet above, it will be subject to a
flat 30% tax on any gain recognized, which may be offset by
U.S. source capital losses. If a
non-U.S. holder
is described in the second bullet above, it will be subject to
tax on any gain recognized at applicable U.S. federal
income tax rates and, if it is treated as a corporation for
U.S. federal income tax purposes, may be subject to a
branch profits tax equal to 30% (or lower rate under an
applicable income tax treaty) on its effectively connected
earnings and profits for the taxable year, which would include
such gain.
The material U.S. federal income tax consequences of the
mergers to a
non-U.S. holder
that is not described in either of the two bullet points above
are generally as follows:
•
Any gain recognized by the
non-U.S. holder
generally will not be subject to U.S. federal income tax,
subject to the following sentence. If all or part of the gain
recognized by a
non-U.S. holder
would be treated as a dividend rather than as capital gain
pursuant to the rules described above under the heading
“— U.S. Holders,” then the
non-U.S. holder
would be subject to a U.S. income tax of 30% of the amount
of such dividend, which rate may be reduced by an applicable
income tax treaty. A
non-U.S. holder
is urged to consult its tax advisor about the possibility that
all or a portion of any cash received in exchange for its Basic
or Grey Wolf common stock will be treated as a dividend.
•
A
non-U.S. holder
will have an aggregate tax basis in the Holdings common stock
received, if any, in the mergers equal to the aggregate tax
basis of its Basic or Grey Wolf common stock surrendered
decreased (but not below zero) by the amount of cash received by
the stockholder in the mergers.
•
The
non-U.S. holder’s
holding period for shares of Holdings common stock received in
exchange for shares of Basic or Grey Wolf common stock in the
mergers will include the holding period of the
non-U.S. holder’s
respective Basic or Grey Wolf common stock exchanged for
Holdings common stock.
•
Non-U.S. Holders
who hold shares of both Basic and Grey Wolf common stock,
and/or with
differing bases or holding periods within the same company are
strongly urged to consult their tax advisors with regard to
(1) exposure to dividend treatment and (2) identifying
the bases or holding periods of the particular Holdings shares
received in the mergers.
Dividends paid to a U.S. holder with respect to shares of
Holdings common stock (to the extent paid out of the higher of
Holdings’ current or accumulated earnings and profits,
which will include the earnings and profits of Basic and Grey
Wolf, all as determined for U.S. federal income tax
purposes) will be subject to tax at a rate as low as 15% for
certain individuals. Certain corporate recipients of dividends
may be eligible for a dividends received deduction.
A U.S. Holder will generally be subject to capital gains
tax upon the disposition of its shares of Holdings common stock.
The tax basis and holding period of such shares is discussed
above.
Dividends paid to a
non-U.S. holder
with respect to shares of Holdings common stock will be subject
to withholding at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. However, dividends
that are effectively connected with conduct of a trade or
business within the United States or, if certain tax treaties
apply, are attributable to a U.S. permanent establishment,
are not subject to withholding tax, but instead are subject to
U.S. federal income tax on a net income basis at applicable
graduated rates. Special certification and disclosure
requirements must be satisfied for effectively connected income
to be exempt from withholding. If a
non-U.S. holder
is treated as a corporation for U.S. federal income tax
purposes, any such effectively connected dividend received may
be subject to an additional branch profits tax at a 30% rate or
such lower rate as may be specified by an applicable income tax
treaty.
If a
non-U.S. holder
wishes to claim the benefit of an applicable treaty rate (and
avoid backup withholding as discussed below) for dividends, it
must provide the applicable withholding agent with a properly
executed IRS
Form W-8BEN
or other applicable form claiming exemption from, or reduction
in the rate of, withholding. If a
non-U.S. holder
is eligible for a reduced rate of U.S. withholding tax
pursuant to an income tax treaty, it may obtain a refund of any
excess amount withheld by filing an appropriate claim for refund
with the IRS.
Subject to the exceptions described above, a
non-U.S. holder
generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other disposition
of shares of Holdings common stock.
Holders of Basic or Grey Wolf common stock are entitled to
dissenters’ rights under Delaware or Texas law in
connection with the mergers. If a U.S. holder receives cash
pursuant to the exercise of dissenters’ rights, that
U.S. holder generally will recognize gain or loss measured
by the difference between the cash received and its adjusted tax
basis in its Basic or Grey Wolf shares. This gain should be
long-term capital gain or loss if the U.S. holder held
Basic or Grey Wolf shares for more than one year. Any holder of
Basic or Grey Wolf common stock that plans to exercise
dissenters’ rights in connection with the mergers is urged
to consult
a tax advisor to determine the related tax consequences. If a
non-U.S. holder
receives cash pursuant to the exercise of dissenters’
rights, that
non-U.S. holder
generally will not be subject to U.S. federal income tax on
any gain recognized.
Certain holders of Basic or Grey Wolf common stock may be
subject to backup withholding (currently at a rate of 28%) on
amounts received pursuant to the mergers. Backup withholding
will not apply, however, to a holder of Basic or Grey Wolf
common stock who provides a correct taxpayer identification
number or a certificate of foreign status and certain other
required information or comes within certain exempt categories
and, in each case, complies with applicable certification
requirements. In addition to being subject to backup
withholding, if a holder of Basic or Grey Wolf common stock does
not provide Holdings (or the exchange agent) with its correct
taxpayer identification number or a certificate of foreign
status or other required information, the holder may be subject
to penalties imposed by the Internal Revenue Service. Any
amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against the stockholder’s
U.S. federal income tax liability, provided that the holder
furnishes certain required information to the Internal Revenue
Service.
Significant stockholders of Basic and Grey Wolf, generally those
that own at least 5% of the relevant corporation, receiving
shares of Holdings common stock in the mergers and who are
required to file a U.S. federal income tax return should
file a statement with their U.S. federal income tax return
setting forth the fair market value of and their adjusted tax
basis in Basic or Grey Wolf shares exchanged in the mergers. In
addition, stockholders of Basic and Grey Wolf will be required
to retain permanent records of these facts and any relevant
facts regarding liabilities assumed or extinguished as part of
the mergers.
If the mergers are not treated as a “reorganization”
within the meaning of Section 368(a) of the Internal
Revenue Code, then (1) each holder would recognize gain or
loss equal to the difference between the sum of the fair market
value of the Holdings shares and the amount of cash received in
the mergers (including cash received in lieu of fractional
shares of Holdings common stock) and its tax basis in Basic or
Grey Wolf shares surrendered in exchange therefor, (2) each
U.S. holder generally will be subject to U.S. federal
income tax on such recognized gain, and (3) subject to the
exceptions described above under the heading
“— Non-U.S.
Holders”, a
non-U.S.
holder generally will not be subject to U.S. federal income tax
with respect to such recognized gain. Further, if the mergers
are not treated as a “reorganization” within the
meaning of Section 368(a) of the Internal Revenue Code,
Basic or Grey Wolf would be subject to tax on the deemed sale of
its assets to Holdings, with gain or loss for this purpose
measured by the difference between Basic or Grey Wolf’s tax
basis in its respective assets and the fair market value of the
respective consideration deemed to be received therefor, or, in
other words, the cash and shares of Holdings common stock. This
gain or loss would be reported on Grey Wolf
and/or
Basic’s final tax returns, subject to the effect of any tax
carryovers and the effect of its other income or loss for that
period, and Holdings would become liable for any such tax
liability by virtue of the mergers.
This discussion does not address tax consequences that may vary
with, or are contingent upon, the individual circumstances of
holders of Basic or Grey Wolf common stock. Moreover, it does
not address any non-income tax or any foreign, state or local
tax consequences of the mergers. Tax matters are very
complicated, and the tax consequences of the mergers to holders
of Basic and Grey Wolf common stock will depend upon the facts
of their particular situation. Accordingly, we strongly urge
each holder of Basic and Grey Wolf common stock to consult with
their tax advisors to determine the particular federal, state,
local or foreign income or other tax consequences to it as a
result of the mergers.
The following summary of the merger agreement is qualified in
its entirety by reference to the complete text of the merger
agreement, which is incorporated by reference and attached as
Annex A to this joint proxy statement/prospectus. The
rights and obligations of the parties are governed by the
express terms and conditions of the merger agreement and not by
this summary or any other information contained in this joint
proxy statement/prospectus. We urge you to read the merger
agreement carefully and in its entirety, as well as this joint
proxy statement/prospectus, before making any decisions
regarding the mergers.
The merger agreement has been included with this joint proxy
statement/prospectus to provide you additional information
regarding its terms. The merger agreement sets forth the
contractual rights of Basic and Grey Wolf but is not intended to
be a source of factual, business or operational information
about Basic or Grey Wolf. That kind of information can be found
elsewhere in this joint proxy statement/prospectus and in the
other filings each of Basic and Grey Wolf makes with the SEC,
which are available as described in “Where You Can Find
More Information.”
As a stockholder, you are not a third party beneficiary of
the merger agreement and therefore you may not directly enforce
any of its terms or conditions. The parties’
representations, warranties and covenants were made as of
specific dates and only for purposes of the merger agreement and
are subject to important exceptions and limitations, including a
contractual standard of materiality different from that
generally relevant to investors. In addition, the
representations and warranties may have been included in the
merger agreement for the purpose of allocating risk between
Basic and Grey Wolf, rather than to establish matters as facts.
Certain of the representations, warranties and covenants in the
merger agreement are qualified by information each of Basic and
Grey Wolf filed with the SEC prior to the date of the merger
agreement, as well as by disclosure letters each of Basic and
Grey Wolf delivered to the other party prior to signing the
merger agreement. The disclosure letters have not been made
public because, among other reasons, they include confidential
or proprietary information. The parties believe, however, that
all information material to a stockholder’s decision to
approve the mergers is included or incorporated by reference in
this document.
You should also be aware that none of the representations or
warranties has any legal effect among the parties to the merger
agreement after the effective time of the mergers, nor will the
parties to the merger agreement be able to assert the inaccuracy
of the representations and warranties as a basis for refusing to
close the transaction unless all such inaccuracies as a whole
would give rise to the failure of certain closing conditions.
Furthermore, you should not rely on the covenants in the
merger agreement as actual limitations on the respective
businesses of Basic and Grey Wolf, because either party may take
certain actions that are either expressly permitted in the
confidential disclosure letters to the merger agreement or as
otherwise consented to by the appropriate party, which may be
given without prior notice to the public.
The merger agreement provides for two mergers. Each of Basic and
Grey Wolf will merge simultaneously with and into Holdings, with
Holdings surviving in each case.
The closing of the mergers will take place in Houston, Texas on
the first business day after all of the conditions to the
mergers described below in “— Conditions to the
Mergers” are fulfilled or waived (other than those
conditions that by their nature are to be fulfilled at the
closing, but subject to the fulfillment or waiver of those
conditions). The Grey Wolf merger will be effective at the time
a certificate of merger is filed with the office of the
Secretary of State of the State of Delaware and articles of
merger are filed with the Secretary of State of the State of
Texas (or at such time thereafter as is agreed by Basic and Grey
Wolf and provided for in such certificate of merger and in such
articles of merger), and the Basic merger will be effective at
the time a certificate of merger is filed with the office of the
Secretary of State of Delaware (or at such time thereafter as is
agreed by Basic and Grey Wolf and provided for in such
certificate of merger).
Consideration
to be Received in the Grey Wolf Merger
In the Grey Wolf merger, each holder of shares of Grey Wolf
common stock (other than treasury shares and shares for which
stockholders have properly exercised dissenter’s rights)
will have the right to receive 0.2500 of a share of Holdings
common stock and $1.82 in cash in exchange for each share of
Grey Wolf common stock. No fractional shares of Holdings common
stock will be issued to holders of Grey Wolf common stock. All
fractional shares of Holdings common stock that a Grey Wolf
stockholder would be entitled to receive as a result of the Grey
Wolf merger will be aggregated and if a fractional share results
from such aggregation, the stockholder will be entitled to
receive, in lieu of such fractional share, an amount in cash
equal to such fraction of Holdings common stock multiplied by
the closing sales price of Holdings common stock on the New York
Stock Exchange on the first trading day following the effective
time of the mergers.
Consideration
to be Received in the Basic Merger
In the Basic merger, each holder of shares of Basic common stock
(other than treasury shares and shares for which stockholders
have properly exercised dissenter’s rights) will have the
right to receive 0.9195 of a share of Holdings common stock and
$6.70 in cash in exchange for each share of Basic common stock.
No fractional shares of Holdings common stock will be issued to
holders of Basic common stock. All fractional shares of Holdings
common stock that a Basic stockholder would be entitled to
receive as a result of the Basic merger will be aggregated and
if a fractional share results from such aggregation, the
stockholder will be entitled to receive, in lieu of such
fractional share, an amount in cash equal to such fraction of
Holdings common stock multiplied by the closing price of
Holdings common stock on the New York Stock Exchange on the
first trading day immediately following the effective time of
the mergers.
Treatment
of Equity Awards
Each outstanding option to purchase shares of Basic or Grey Wolf
common stock (whether or not vested or exercisable) that are
outstanding pursuant to either companies’ equity incentive
plans will remain outstanding following the effective time of
the mergers and will be assumed by Holdings. Each such option
will be exercisable for that whole number of shares of Holdings
common stock equal to the number of shares of either Basic or
Grey Wolf common stock, as applicable, subject to such option
multiplied by the applicable exchange ratio with an upwards
adjustment to reflect the cash portion of the merger
consideration and a corresponding change to the exercise price.
Each share of Basic and Grey Wolf restricted stock will be
converted into the right to receive shares of Holdings common
stock (based upon the applicable exchange ratio) and the amount
of cash consideration applicable to such restricted stock. At
the election of the holder of restricted stock, such holder will
be entitled to receive additional shares of Holdings restricted
stock in lieu of the cash portion of the merger consideration.
Such consideration, including any cash consideration, will be
subject to the same vesting or risk of forfeiture provisions to
which the shares of Basic or Grey Wolf restricted stock were
subject immediately prior to the effective time of the mergers.
Adjustment
to the Exchange Ratios
If, before the completion of the mergers, the outstanding shares
of Basic common stock or the outstanding shares of Grey Wolf
common stock are increased, decreased, changed into or exchanged
for a different number or class of shares, in each case, by
reason of any reclassification, recapitalization, stock split,
split-up,
combination or exchange of shares or a stock dividend or
dividend payable in other securities is declared with a record
date prior to the consummation of the mergers, or any other
similar transaction occurs, the consideration to be received in
the mergers will be adjusted appropriately to provide the
holders of Basic common stock or Grey Wolf common stock, as the
case may be, the same economic effect as contemplated by the
merger agreement prior to such event.
Holdings will choose a bank or trust company reasonably
satisfactory to Basic and Grey Wolf to act as exchange agent.
Holdings will deposit, or cause to be deposited, with the
exchange agent certificates (or evidence of book-entry shares of
Holdings common stock) representing the aggregate number of
shares of common stock of Holdings to be issued as merger
consideration pursuant to the merger agreement, the aggregate
amount of cash to be paid as merger consideration pursuant to
the merger agreement and sufficient cash, when and as needed, to
pay cash in lieu of fractional shares of Holdings common stock
in accordance with the merger agreement. Promptly after the
effective time of the mergers, Holdings will cause the exchange
agent to mail to each holder of record of shares of common stock
of Basic or Grey Wolf:
•
a letter of transmittal (which will specify that delivery will
be effected, and risk of loss and title to the certificates will
pass, only upon delivery of the certificates or transfer of
uncertificated shares to the exchange agent and will be in such
form and have such other provisions as Holdings may reasonably
specify); and
•
instructions for use in effecting the surrender of the
certificates or transfer of uncertificated shares in exchange
for shares of Holdings common stock, the cash consideration, any
unpaid dividends and distributions on those shares and cash in
lieu of any fractional shares.
Upon surrender of a certificate or transfer of uncertificated
shares representing the common stock of Basic or Grey Wolf, as
the case may be, for cancellation to the exchange agent,
together with the letter of transmittal described above, duly
executed and completed in accordance with the instructions that
accompany the letter of transmittal, the holder will be entitled
to receive (1) shares of Holdings common stock and
(2) a check representing the amount of cash consideration
and cash in lieu of fractional shares of Holdings common stock,
if any, and unpaid dividends and distributions, if any, the
holder has the right to receive pursuant to the provisions of
the merger agreement, after giving effect to any required
withholding tax. Surrendered certificates will then be canceled.
No interest will be paid or accrued on the cash consideration to
be received in the mergers, cash in lieu of fractional shares
and unpaid dividends and distributions, if any, payable to
holders of Basic common stock or Grey Wolf common stock.
Further, no dividends or other distributions declared or made
after the effective time of the mergers with respect to shares
of Holdings common stock with a record date after the effective
time of the mergers will be paid to any holder of any shares of
common stock of Basic or Grey Wolf that have not been
surrendered or transferred to the exchange agent with respect to
the shares of Holdings common stock issuable upon the surrender
or transfer until such surrender or transfer.
In the event of a transfer of ownership of common stock of Basic
or Grey Wolf that is not registered in the transfer records of
Basic or Grey Wolf, respectively, the proper number of shares of
Holdings common stock, together with a check for the cash
consideration and cash to be paid in lieu of fractional shares
and unpaid dividends, if any, may be issued to the transferee if
the certificate or uncertificated share representing such common
stock of Basic or Grey Wolf, as the case may be, is presented to
the exchange agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
Any former stockholders of Basic or Grey Wolf who have not
surrendered their Basic or Grey Wolf common stock within one
year after the effective time of the mergers should only look to
Holdings, not the exchange agent, for their shares of Holdings
common stock, their cash consideration and cash in lieu of any
fractional shares and for any unpaid dividends and distributions
on the shares of Holdings common stock deliverable to those
former stockholders pursuant to the merger agreement.
Each of Basic and Grey Wolf has agreed to customary covenants
that place restrictions on it and its subsidiaries until the
effective time of the mergers. Except as set forth in the
disclosure schedules provided by
each of Basic and Grey Wolf, as expressly permitted or
contemplated by the merger agreement, as required by applicable
laws or with the written consent of the other party, each of
Basic and Grey Wolf has agreed that it will:
•
conduct its operations and cause each of its subsidiaries to
conduct its operations in all material respects in the usual,
regular and ordinary course in substantially the same manner as
previously conducted;
•
use its commercially reasonable efforts consistent with past
practice to:
•
preserve intact its business organization and goodwill,
•
keep available the services of its executive officers, directors
and key employees, and
•
preserve their relationships with customers, suppliers, agents
and creditors;
•
not amend or propose to amend its organizational documents;
•
not adjust, split, combine, reclassify or dispose of any of its
equity securities;
•
not issue any shares of its capital stock or other equity
securities, effect any stock split or otherwise change its
capitalization as it existed on the date of the merger
agreement, except pursuant to the exercise of options existing
on the date of the merger agreement, pursuant to Grey
Wolf’s Rights Agreement, as amended, and upon the
conversion of any of Grey Wolf’s outstanding convertible
notes in accordance with their terms or pursuant to the grant or
exercise of awards granted after the date of the merger
agreement and expressly permitted under the merger agreement;
•
not, and will not permit any of its subsidiaries to, grant any
option, warrant, conversion right or other right not existing on
the date of the merger agreement to acquire or otherwise with
respect to shares of its capital stock or other equity
securities, or grant or issue any restricted stock or
securities, except for awards under the Basic or Grey Wolf
benefit plans in existence as of the date of the merger
agreement to any newly hired employees in the ordinary course of
business consistent with past practices, as long as the vesting
or exercisability of any award made after the date of the merger
agreement does not accelerate as a result of the pendency,
approval or consummation of the transactions contemplated by the
merger agreement;
•
not declare, set aside or pay any dividend on or make other
distributions or payment with respect to any shares of its
capital stock;
•
not, and will not permit any of its subsidiaries to, amend or
modify any option, warrant, conversion right or other right to
acquire shares of its capital stock existing on the date of the
merger agreement;
•
not, and will not permit any of its subsidiaries to, increase
any compensation or benefits, award or pay any bonuses,
establish any bonus plan or arrangement or enter into, amend or
extend any employment or consulting agreement with any former,
present or future officers, directors or employees, except in
the ordinary course of business consistent with past practices;
•
not, and will not permit any of its subsidiaries to, adopt any
new employee benefit plan or agreement (including any stock
option, stock benefit or stock purchase plan) or amend any
existing employee benefit plan in any material respect, except
as expressly required or permitted by the merger agreement;
•
not, and will not permit any of its subsidiaries to, permit any
holder of an option or other award to acquire shares of common
stock of Basic or Grey Wolf to have shares withheld upon
exercise, vesting or payment for tax purposes, in excess of the
number of shares needed to satisfy the minimum federal and state
tax withholding requirements;
•
not purchase, redeem or otherwise acquire any shares of its
capital stock or the capital stock of any of its subsidiaries,
except (1) by or among direct or indirect wholly-owned
subsidiaries, (2) pursuant to the terms of the Grey Wolf
Convertible Notes and (3) shares withheld to satisfy tax
withholding requirements;
not liquidate,
wind-up,
dissolve or adopt any plan to liquidate,
wind-up or
dissolve;
•
not, and will not permit any of its subsidiaries to, sell,
lease, license or otherwise dispose of, any assets (including
capital stock of subsidiaries) that are, individually or in the
aggregate, material to it and its subsidiaries as a whole,
except:
•
sales of surplus or obsolete equipment,
•
sales of other assets in the ordinary course of business or
sales of assets pursuant to contractual rights existing as of
the date of the merger agreement that were entered into in the
ordinary course of business consistent with past practices,
•
sales, leases or other transfers between itself and its wholly
owned subsidiaries or between such subsidiaries,
•
sales, dispositions or divestitures required by or in
conformance with applicable laws in order to permit or
facilitate the consummation of the mergers in accordance with
the terms of the merger agreement, or
•
arm’s-length sales or transfers for aggregate consideration
not exceeding $30 million for each of Basic and Grey Wolf;
•
not, and will not permit any of its subsidiaries to, acquire or
agree to acquire by merging or consolidating with, or by
purchasing an equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any
corporation, partnership, association or other business
organization or division thereof, except in each case for
acquisitions that:
•
are not in excess of $50.0 million aggregate cash
consideration less the aggregate amount of any unbudgeted
capital expenditures made pursuant to the terms of the merger
agreement, and
•
would not require historical or pro forma financial statements
with respect to such acquisitions to be included in this joint
proxy statement prospectus;
•
not make any loans, advances, capital contributions to or
investments in any person, other than to its wholly-owned
subsidiaries or from its wholly-owned subsidiaries, customer
loans and advances to employees consistent with past practices
or short-term investment of cash in the ordinary course of
business in accordance with its cash management procedures;
•
not terminate or amend any material contract or waive or assign
any of its rights under a material contract in a manner that
would be materially adverse to it, or enter into any material
contract other than customer contracts entered into in the
ordinary course of business;
•
not, and will not permit any of its subsidiaries to, incur any
indebtedness in excess of $7.5 million, in the aggregate,
or guarantee any such indebtedness, issue or sell any debt
securities or warrants or rights to acquire any of its or its
subsidiary’s debt securities, or guarantee any debt
securities of others, except for borrowings from its credit
facility in the ordinary course of business, borrowings to repay
or repurchase its other indebtedness or borrowings in respect of
intercompany debt;
•
not, and will not permit any of its subsidiaries to, enter into
any material lease or create any material liens or encumbrances
(other than certain permitted liens) on any of its property,
except in the ordinary course of business or with or between its
subsidiaries;
•
not, and will not permit any of its subsidiaries to:
•
make or rescind any material tax election,
•
settle or compromise any material tax claim or
controversy, or
•
materially change its methods of reporting relating to taxes
from those employed in the preparation of its tax return for the
most recent taxable year for which a return has been filed;
not incur or commit to any capital expenditures that in the
aggregate exceed its capital expenditure budget by more than
$50.0 million in the aggregate less the aggregate amount
actually spent on acquisitions as permitted by the merger
agreement;
•
not enter into any material new line of business;
•
not enter into any contract that subjects Holdings to any
material non-compete or similar agreement;
•
not, and will cause its subsidiaries not to, change any material
accounting principle or practice used by it except as required
by a change in generally accepted accounting principles;
•
not compromise, settle or grant any waiver or release related to
any litigation or proceeding, other than settlements or
compromises of such litigation or proceedings where the full
amount to be paid is covered by insurance or where the amount to
be paid does not exceed $3.0 million individually or
$7.5 million in the aggregate;
•
not willfully or intentionally breach any representation or
warranty set forth in the merger agreement or take any action
that is reasonably likely to materially delay or impair the
ability of the parties to the merger agreement to consummate the
transactions contemplated by the merger agreement;
•
subject to certain exceptions, not engage in any transaction or
enter into any agreement with any of its affiliates; and
•
not enter into any contract or obligation with respect to any of
the foregoing.
Regulatory
Filings and Related Matters
Pursuant to the merger agreement, Basic and Grey Wolf have also
agreed to take all action and do all things necessary,
appropriate or desirable under applicable law (including the HSR
Act) so as to enable the closing to occur as soon as reasonably
practicable including:
•
using commercially reasonable efforts to obtain all necessary
waivers, consents and approvals;
•
identifying and making any necessary regulatory filings;
•
using reasonable best efforts to avoid the entry of, or to have
vacated or terminated, any decree, order, ruling or injunction
that would restrain, prevent or delay the consummation of the
mergers;
•
furnishing each other with information and reasonable assistance
that the other party reasonably requests in connection with the
preparation of necessary filings, registrations or submissions
of information to any governmental authorities;
•
responding promptly to requests for additional information made
by the FTC or the DOJ and causing the waiting periods under the
HSR Act to terminate or expire at the earliest possible date
after the initial HSR filing;
•
promptly notifying each other of any communication from any
authority concerning the mergers and permit the other party to
review in advance any proposed communication to any authority
concerning the mergers; and
•
not participating or agreeing to participate in any meeting or
discussion with any authority in respect to any filing,
investigation or other inquiry about the mergers unless the
other party is consulted in advance and, to the extent allowed,
given the opportunity to attend and participate.
Basic, Grey Wolf and Holdings are not required to take or agree
to dispose of any of their respective assets or to limit their
freedom of action with respect to any of their businesses, to
obtain any approvals or to remove any antitrust-related
impediments to the mergers, except those actions, to which the
other party agrees, that are conditioned upon the consummation
of the mergers and that, individually or in the aggregate, do
not have or cause and would not reasonably be expected to have
or cause a material adverse effect on Holdings after the mergers.
Pursuant to the merger agreement, each of Basic and Grey Wolf
also has agreed to:
•
to the extent permitted by law, provide the other party
reasonable access to its properties, records, files,
correspondence, audits and other information;
•
to the extent permitted by law and applicable stock exchange
listing arrangements, consult with one another before issuing
any press releases and other announcements regarding the mergers;
•
promptly prepare and file this joint proxy statement/prospectus,
promptly respond to any comments made by the SEC and ensure that
the information provided by each of them for inclusion in this
proxy statement/prospectus will not include any untrue statement
of a material fact or omit a material fact required to make the
statements therein, in light of the circumstances under which
they were made, not misleading, at the time of the mailing of
this proxy statement/prospectus and at the time of the
respective special meetings of the stockholders of Basic and
Grey Wolf;
•
use its commercially reasonable best efforts to enable Holdings
to obtain, before the effective time, the New York Stock
Exchange’s approval for the listing of shares of Holdings
common stock;
•
use its commercially reasonable best efforts to have timely
delivered to the other party a “comfort” letter from
its independent public accounting firm; and
•
pay all costs and expenses incurred by them in connection with
the merger agreement, regardless of whether the mergers are
consummated, other than costs that are specified to be shared or
reimbursed under the merger agreement.
Pursuant to the merger agreement and in addition to the
applicable covenants of Holdings listed above, Holdings has
agreed:
•
to prepare and submit to the New York Stock Exchange a listing
application covering the shares of Holdings common stock
issuable in connection with the mergers;
•
for a period of six years after the effective time of the
mergers, to indemnify, defend, hold harmless and advance
expenses to, to the greatest extent permitted by law, each
person who is, or has been at any time prior to the effective
time of the mergers, an officer, director, employee, controlling
stockholder or agent of Basic, Grey Wolf or their respective
subsidiaries, from any damages based in or arising out of the
fact that such person was serving in such capacity and
pertaining to any matter existing or arising out of actions or
omissions (or alleged actions or omissions) occurring at or
prior to the effective time of the mergers;
•
to honor all indemnification agreements, advancement and
expenses and exculpation agreements or other obligations of
Basic or Grey Wolf with respect to any of the current or former
officers and directors of Basic or Grey Wolf (including under
Basic’s or Grey Wolf’s certificate of incorporation or
bylaws) in effect as of the date of the merger agreement;
•
for a period of at least six years after the effective time of
the mergers, to use reasonable best efforts to maintain
officers’ and directors’ liability insurance covering
the individuals who are covered by Basic’s or Grey
Wolf’s existing officers’ and directors’
liability insurance policies at the effective time of the
mergers on terms substantially no less advantageous to such
individuals than the existing policies, provided that Holdings
will not be required to pay an annual premium in excess of 250%
of the last annual premium paid by Basic or Grey Wolf, whichever
premium was higher, prior to the date of the merger agreement,
but in such case will purchase as much coverage as reasonably
obtainable for such amount; and
•
to assume the Basic stock incentive plans and the Grey Wolf
stock incentive plans.
The merger agreement provides that during the period from the
date of the merger agreement until the effective time of the
mergers or the earlier termination of the merger agreement,
subject to limited exceptions described below, each of Basic and
Grey Wolf will not, and will cause their respective subsidiaries
and representatives not to:
•
solicit, initiate, encourage or facilitate (including by way of
furnishing or disclosing non-public information) any inquiries,
offers or proposals that constitute, or are reasonably likely to
lead to, another acquisition proposal;
•
engage in discussions or negotiations with, furnish or disclose
any non-public information or data relating to itself or any of
its subsidiaries to, or in response to a request, give access to
the properties, assets or books and records of itself or any of
its subsidiaries to, any person who has made or may be
considering making another acquisition proposal or take any
action that may otherwise lead to another acquisition proposal;
•
approve, endorse or recommend another acquisition
proposal; or
•
enter into any agreement in principle, letter of intent,
arrangement, understanding or other contract relating to another
acquisition proposal.
Except as permitted below, each party is required to cease and
terminate all solicitations, discussions, negotiations or other
activity with any person with respect to another acquisition
proposal or which could reasonably be expected to lead to
another acquisition proposal and will inform its subsidiaries
and representatives to do the same.
Nothing in the merger agreement prevents either Basic or Grey
Wolf, prior to obtaining its required stockholder approval of
the merger agreement, from doing any of the following, subject
to compliance with notifications to the other party with respect
to the receipt of any third party acquisition proposal as
described below:
•
engaging in discussions or negotiations with, furnishing or
disclosing any information or data relating to itself or any of
its subsidiaries to, or in response to a request therefore,
giving access to the properties, assets or books and records of
itself or its subsidiaries to, any third party who has made an
unsolicited bona fide written acquisition proposal after the
date of the merger agreement that did not result from a
violation of its no solicitation covenant, provided that prior
to doing any of the foregoing its board of directors determines
that the acquisition proposal is reasonably likely to result in
a superior proposal (as defined in the merger agreement) and
(2) that such person has the financial and legal capacity
to consummate such acquisition proposal and, provided further,
that such party executes a confidentiality agreement with the
third party with material terms that are no more favorable than
those contained in the confidentiality agreement between Basic
and Grey Wolf;
•
withdrawing or amending (or publicly proposing to withdraw or
amend) the approval, recommendation or declaration of
advisability by its board of directors or any committee thereof
of the merger agreement, the mergers or the other transactions
contemplated by the merger agreement, provided that, if such
withdrawal or amendment (1) does not involve a third party
acquisition proposal, the board determines that the failure to
take such actions is reasonably likely to be inconsistent with
its fiduciary duties, or (2) does involve a third party
acquisition proposal, the board determines that such alternative
proposal constitutes a superior proposal and it complies with
the five-business day renegotiation period described below;
•
recommending, adopting or approving (or publicly proposing to
recommend, adopt or approve) another acquisition proposal so
long as the board determines that such alternative proposal
constitutes a superior proposal and it complies with the
five-business day renegotiation period described below; or
•
entering into any agreement, including any agreement in
principle, which constitutes, relates to, is intended to lead to
or could reasonably be expected to lead to another acquisition
proposal so long as
the board determines that such alternative proposal constitutes
a superior proposal and complies with the five-business day
renegotiation period; and, provided further, that concurrently
with entering into such an agreement, it terminates the merger
agreement and pays the $30 million termination fee.
Each party, upon receipt of an acquisition proposal or an
inquiry that is likely to lead to an acquisition proposal from a
third party, has agreed to inform the other party of the
acquisition proposal within 24 hours of receipt of the
proposal, the identity of the third party making the acquisition
proposal and the material terms and conditions of the
acquisition proposal. The parties have agreed to promptly
provide one another with written notice of any changes in the
price or form of consideration or other material changes in the
status or terms of the acquisition proposal.
Each party, upon a board determination that an acquisition
proposal is a superior proposal, has agreed to notify the other
party of such determination, at which time the notified party
has five-business days to submit a revised offer to enable the
transaction to proceed, and any amendments to the acquisition
proposal in response to a party’s revised offer triggers an
additional three-business day renegotiation period for the
notified party to submit another revised offer.
Nothing contained in the no-solicitation provisions of the
merger agreement prohibits Basic or Grey Wolf or their boards of
directors from taking and disclosing to their respective
stockholders a position with respect to another acquisition
proposal pursuant to
Rule 14d-9
and 14e-2(a)
under the Exchange Act or from making any similar disclosure, in
either case to the extent required by applicable law.
Basic, on the one hand, and Grey Wolf, on the other hand, have
made various representations and warranties in the merger
agreement which are substantially reciprocal. Those
representations and warranties are subject to qualifications and
limitations agreed to by the parties in connection with
negotiating the terms of the merger agreement, including, in
many cases, a material adverse effect standard, as defined
below. Some of the more significant of these representations and
warranties pertain to:
•
the organization, good standing and foreign qualification of the
parties and the corporate authority to own, operate and lease
their respective properties and to carry on their respective
businesses as currently conducted;
•
the authorization, execution, delivery and enforceability of the
merger agreement and related matters;
Mutual
Conditions to Each Party’s Obligation to Effect the
Mergers
The obligations of each of Basic, Grey Wolf and Holdings to
complete the mergers are subject to the satisfaction or waiver
of the following conditions:
•
each of Basic and Grey Wolf has obtained the approval of its
stockholders to approve and adopt the merger agreement;
•
any waiting period applicable to the completion of the mergers
under the HSR Act has expired or been terminated;
•
no governmental authority has taken any action that prohibits
the consummation of the mergers;
•
no decree, order or injunction of a governmental authority
prohibits the consummation of the mergers;
•
the SEC has declared the registration statement, of which this
joint proxy statement/prospectus forms a part, to be effective,
and no stop order concerning the registration statement is in
effect;
•
the New York Stock Exchange has authorized for listing the
shares of Holdings common stock to be issued pursuant to the
mergers, subject to official notice of issuance;
•
all conditions to the funding under the financing or a
commitment with respect to alternative financing will have been
satisfied so that, at the time of the closing under the merger
agreement, sufficient funds will be available at and after the
closing to fund the payment of the Grey Wolf cash consideration
and the Basic cash consideration, and to pay all fees and
expenses associated with the transactions contemplated by the
merger agreement; and
•
the parties have obtained all required governmental consents,
except where the failure to obtain any such consents has not had
and would not reasonably be expected to have or cause a material
adverse effect on Holdings assuming the mergers have taken place.
For purposes of the merger agreement, the term “material
adverse effect” means, with respect to any party, a
material adverse effect on the business, results of operations
or condition (financial or otherwise) of such party and its
subsidiaries, taken as a whole, except to the extent any such
effect results from:
•
changes in the industry in which such person operates or in the
economy or the financial, securities or credit markets in the
U.S. or elsewhere in the world, including any regulatory or
political conditions or developments, or any outbreak or
escalation of hostilities or declared or undeclared acts of war,
terrorism, insurrection or natural disasters that do not
disproportionately affect such person, relative to other
industry participants, in any material respect;
•
changes in law, GAAP or the interpretation thereof (after the
date of the merger agreement) that, in any case, do not
disproportionately affect such person, relative to other
industry participants, in any material respect;
•
the execution or public disclosure of the merger agreement or
the consummation of the mergers;
•
any change in the trading prices or trading volume of the stock
of such party (but not any change or effect underlying such
change in prices or volume);
•
any legal proceedings made or brought by any of the current or
former stockholders of such party arising out of or related to
the mergers; or
•
the failure of a party to meet any published analyst estimates
or expectations regarding such person’s revenue, earnings
or other financial performance or results of operations or any
failure to meet internal budgets, plans or forecasts regarding
its revenues, earnings or other financial performance or results
of operations (but not any change or occurrence underlying such
failure).
Additional
Conditions to Each Party’s Obligation to Effect the
Mergers
In addition to the conditions described above, neither Basic, on
the one hand, nor Grey Wolf, on the other hand, is obligated to
effect the mergers unless the following conditions are satisfied
or waived by that party on or before the closing date:
•
subject to certain materiality standards, the representations
and warranties of the other party are true and correct as of the
date of the merger agreement and as of the closing date (except
to the extent such representations and warranties expressly
relate to an earlier date, in which case as of such earlier
date);
•
the other party has performed in all material respects its
covenants and agreements under the merger agreement;
•
since the date of the merger agreement, no event, occurrence or
development has occurred that has had, caused or would
reasonably be expected to have or cause a material adverse
effect on the other party; and
•
such party’s tax counsel has provided the tax opinion
described under “Material U.S. Federal Income Tax
Consequences of the Mergers” beginning on page 87.
The merger agreement may be terminated by written notice at any
time prior to the effective time of the mergers in any of the
following ways:
•
by mutual written consent of Basic and Grey Wolf;
•
by either Basic or Grey Wolf if:
•
the mergers have not been consummated by November 30, 2008,
provided that a party may not terminate upon occurrence of this
event if that party’s failure to fulfill its obligations
under the merger agreement has caused or resulted in the mergers
not occurring before November 30, 2008,
any governmental authority has issued an order, decree or ruling
or taken any other action permanently prohibiting the
consummation of the mergers or making the mergers illegal and
such order, decree or ruling or other action will have become
final and nonappealable, or
•
the stockholders of either company fail to adopt the merger
agreement by the requisite vote.
•
by Basic or Grey Wolf if:
•
there has been a material breach by the other party of any of
its covenants, representations or warranties which would give
rise to the failure of certain closing conditions and the breach
is incapable of being cured within 60 days following
receipt of written notice of the breach,
•
prior to the adoption of the merger agreement by its
stockholders, a party enters into an agreement with respect to a
superior proposal, or
•
the other party has breached its no-solicitation covenant in any
material respect, the other party’s board of directors has
resolved to withdraw or change adversely its recommendation of
the mergers or has recommended any other acquisition
transaction, the other party or the other party’s
subsidiaries has entered into another acquisition agreement, or
the other party has publicly announced its intention to take any
of the foregoing actions.
Termination
Fees and Expenses
All costs and expenses incurred in connection with the merger
agreement and the transactions contemplated thereby (other than
certain costs related to the printing of this joint proxy
statement/prospectus and the filing fees with respect to the HSR
Act) will be paid by the party incurring the costs or expenses,
except for termination fees set forth in the merger agreement
and described below or damages resulting from a party’s
willful or intentional breach of its representations,
warranties, covenants or agreements under the merger agreement.
A $30 million termination fee is payable to Basic or Grey
Wolf, as the case may be, by the other party upon a termination
of the merger agreement in the following situations:
•
the party terminates the merger agreement due to the a material
breach by the other party of its no-solicitation covenant (or a
public announcement of its intent to do the foregoing);
•
the party terminates the merger agreement due to the withdrawal
or adverse change by the other party’s board of directors
of its recommendation of the merger (or a public announcement of
its intent to do the foregoing);
•
prior to obtaining the requisite vote of its stockholders
regarding the adoption or approval of the merger agreement, the
party terminates the merger agreement due to entry into an
agreement regarding an alternative acquisition proposal and is
otherwise in compliance in all material respects with its
no-solicitation
covenant;
•
the party terminates the merger agreement due to the
recommendation by the other party’s board of directors of
an alternative acquisition proposal (or a public announcement of
its intent to do the foregoing);
•
the other party’s entry into an agreement regarding an
alternative acquisition proposal (or a public announcement of
the other party’s intent to do the foregoing);
•
the other party’s stockholders fail to adopt the merger
agreement by the requisite vote and prior to such stockholder
vote the board of directors of that party had withdrawn or
adversely changed their recommendation; or
•
(1) the merger fails to close on or before
November 30, 2008 or the other party’s stockholders
fail to adopt or approve the merger agreement by the requisite
vote, (2) prior to such termination the other party
publicly announces an alternative acquisition proposal and
(3) a definitive agreement is entered
into with respect to any alternative acquisition proposal or any
alternative acquisition proposal is consummated within
365 days of such termination.
Additionally, if the merger agreement is terminated solely
because the stockholders of either party fail to approve the
mergers (and prior to the stockholders’ meeting, there was
no withdrawal or adverse board recommendation or recommendation
for an alternative acquisition proposal by the party’s
board whose stockholders failed to approve the mergers, in which
case the $30 million fee applies), that party will pay the
other party a fee of $5 million for out-of-pocket expenses
incurred in connection with the mergers and the transactions
contemplated by the merger agreement.
The parties may amend the merger agreement, by action taken or
authorized by their boards of directors, at any time before or
after approval of the mergers by the stockholders of Basic or
Grey Wolf. After the stockholders adopt the merger agreement,
however, no amendment to the merger agreement may be made that
by law requires the further approval of stockholders unless that
further approval is obtained.
The merger agreement is governed by and will be construed and
enforced in accordance with the laws of the State of Delaware
without regard to the conflicts of law provisions of Delaware
law that would cause the laws of other jurisdictions to apply.
Horsepower Holdings, Inc., a Delaware corporation, is an equally
owned subsidiary of Basic and Grey Wolf, formed on
April 15, 2008 solely for the purpose of engaging in the
mergers and the other transactions contemplated by the merger
agreement. Holdings has not conducted any business operations
other than incidental to its formation and in connection with
the transactions contemplated by the merger agreement. In the
mergers, Basic and Grey Wolf will merge with and into Holdings
and thereafter cease to exist. Following the mergers, Holdings
will have no significant assets other than the stock or other
voting securities of its subsidiaries. Holdings’ corporate
name will be changed to “Grey Wolf, Inc.” upon
consummation of the mergers. Its common stock is expected to be
listed for trading on the New York Stock Exchange under the
symbol “GW.”
Basic provides a wide range of well site services to oil and gas
drilling and producing companies, including well servicing,
fluid services, contract drilling, completion and remedial
services and well site construction services. These services are
fundamental to establishing and maintaining the flow of oil and
gas throughout the productive life of a well. Basic’s broad
range of services enables Basic to meet multiple needs of its
customers at the well site. Basic’s operations are managed
regionally and are concentrated in the major United States
onshore oil and gas producing regions in Texas, New Mexico,
Oklahoma, Arkansas, Kansas, Louisiana and the Rocky Mountain
states. Basic provides its services to a diverse group of over
2,000 oil and gas companies. Basic operates the third-largest
fleet of well servicing rigs (also commonly referred to as
workover rigs) in the United States, representing over 14% of
the overall available U.S. fleet, with Basic’s two
larger competitors controlling approximately 33% and 20%,
respectively, according to the Association of Energy Services
Companies and other publicly available data. All rig and truck
counts are as of March 31, 2008.
Basic currently conducts its operations through the following
four business segments:
•
Well Servicing. Basic’s well servicing
segment currently operates its fleet of 395 well servicing
rigs and related equipment. This business segment encompasses a
full range of services performed with a mobile well servicing
rig, including the, installation and removal of downhole
equipment, and elimination of obstructions in the well bore to
facilitate the flow of oil and gas. These services are performed
to establish, maintain and improve production throughout the
productive life of an oil and gas well and to plug and abandon a
well at the end of its productive life. Basic’s well
servicing equipment and capabilities are essential to facilitate
most other services performed on a well.
•
Fluid Services. Basic’s fluid services
segment currently utilizes its fleet of 648 fluid services
trucks and related assets, including specialized tank trucks,
storage tanks, water wells, disposal facilities and related
equipment. These assets provide, transport, store and dispose of
a variety of fluids. These services are required in most
workover, completion and remedial projects and are routinely
used in daily producing well operations.
•
Completion and Remedial Services. Basic’s
completion and remedial services segment currently operates its
fleet of pressure pumping units, an array of specialized rental
equipment and fishing tools, air compressor packages specially
configured for underbalanced drilling operations, and cased-hole
wireline units. The largest portion of this business segment
consists of pressure pumping services focused on cementing,
acidizing and fracturing services in niche markets. Basic
entered the rental and fishing tool business through an
acquisition in the first quarter of 2006.
Contract Drilling. Basic’s contract
drilling segment currently operates nine drilling rigs and
related equipment. Basic uses these assets to penetrate the
earth to a desired depth and initiate production from a well.
Basic greatly increased its presence in this line of business
through the Sledge Drilling acquisition in the second quarter of
2007.
For more information regarding Basic, please see “Where You
Can Find More Information” beginning on page 147.
Grey Wolf, a Texas corporation formed in 1980, is a leading
provider of contract land drilling services in the United
States. Grey Wolf’s customers include independent producers
and major oil and natural gas companies. Grey Wolf conducts all
of its operations through its subsidiaries. At March 31,2008 Grey Wolf had a rig fleet of 121 rigs, all of which
were marketed. Grey Wolf currently conducts its operations
primarily in the Ark-La-Tex, Gulf Coast, Mississippi/Alabama,
South Texas, Rocky Mountain and Mid-Continent domestic drilling
markets.
Grey Wolf continually evaluates opportunities to enter foreign
markets in which it can enter into term contracts to support
such a commitment. Consistent with that strategy, in 2007 Grey
Wolf signed three-year term contracts with a major oilfield
services company for two of its rigs to go to work in Mexico.
These two rigs began operations in Mexico in the third quarter
of 2007.
Most of the wells Grey Wolf drills for its customers were
drilled in search of natural gas. Larger natural gas reserves
are typically found in deeper geological formations and
generally require premium equipment and quality crews to drill
the wells. In addition, with continued technological advances in
the industry, oil and natural gas companies are drilling an
increasing number of directional and horizontal wells. Drilling
directional and horizontal wells generally requires larger rigs
capable of drilling to depths in excess of 15,000 feet.
Grey Wolf’s fleet of rigs consists of 90 rigs, or 74% of
the total fleet, capable of drilling to 15,000 feet or
deeper and fit well with the trend in the industry.
The following is a summary of the deployment of Grey Wolf’s
rigs throughout the geographic market areas where it operates.
All rig deployment counts are as of March 31, 2008:
Louisiana, Southern Arkansas and the Mississippi/Alabama
market. Grey Wolf has 29 marketed rigs in this
division consisting of 19 diesel electric rigs and 10 mechanical
rigs. One of the diesel electric rigs and two of the mechanical
rigs are trailer-mounted rigs. Grey Wolf also operates a fleet
of 27 trucks in this division which is used exclusively to move
its rigs.
Gulf Coast Division. Grey Wolf’s Gulf
Coast division provides drilling services in Southern Louisiana
and along the upper Texas Gulf Coast. Grey Wolf has 25 marketed
rigs in this division consisting of 20 diesel electric rigs and
five mechanical rigs. Grey Wolf had an average of 23 rigs
working in its Gulf Coast division during 2007.
South Texas Division. Grey Wolf has 31
marketed rigs in this division. These marketed rigs consist of
16 diesel electric rigs and 15 mechanical rigs. Of the
mechanical rigs, 10 are trailer-mounted. Grey Wolf also operates
a fleet of 34 trucks in this division which is used exclusively
to move its rigs. Grey Wolf had an average of 28 rigs working in
the South Texas division during 2007.
Rocky Mountain Division. Grey Wolf’s
Rocky Mountain division provides drilling services in the market
area which consists of Wyoming, Colorado, Northwest Utah and
Northern New Mexico. Grey Wolf has 16 marketed rigs in this
division consisting of nine diesel electric rigs and seven
mechanical rigs. During 2007, Grey Wolf had an average of 13
rigs working.
Mid-Continent District. Grey Wolf’s
Mid-Continent district provides drilling services in West Texas,
Southeast New Mexico, the Barnett Shale area in North Texas, and
the Mid-Continent region.
Grey Wolf has 18 marketed rigs in this district, including 11
diesel electric rigs and seven mechanical rigs. One of the
mechanical rigs is trailer-mounted. During 2007, Grey Wolf had
an average of 15 rigs working.
Mexico. Grey Wolf began operations of two of
diesel electric rigs in Mexico during the third quarter of 2007.
For more information regarding Grey Wolf, please see “Where
You Can Find More Information” beginning on page 147.
Shares of Basic common stock are listed for trading on the New
York Stock Exchange. Shares of Grey Wolf common stock are listed
for trading on the American Stock Exchange. The following
information is presented for comparative purposes only and does
not represent the value of the consideration that Basic and Grey
Wolf stockholders will receive per share as a result of the
mergers. The following table sets forth the closing sales prices
per share of Basic common stock and Grey Wolf common stock, on
an actual and equivalent per share basis, on April 18,2008, the last full trading day prior to the public announcement
of the mergers, and on June 9, 2008, the last trading day
for which this information could be calculated prior to the
filing of this joint proxy statement/prospectus:
The Basic equivalent price per share is calculated as the sum of
(i) the closing price of Basic common stock on each date
divided by 0.9195, the Basic exchange ratio, plus
(ii) $6.70 in cash, the Basic cash merger consideration.
(2)
The Grey Wolf equivalent price per share is calculated as the
sum of (i) the closing price of Grey Wolf common stock on
each date divided by 0.2500, the Grey Wolf exchange
ratio, plus (ii) $1.82 in cash, the Grey Wolf cash
merger consideration.
Neither Basic nor Grey Wolf has ever declared or paid any cash
dividends on its common stock. The board of directors of
Holdings will determine the dividend policy of Holdings after
consummation of the mergers. Holdings’ payment of dividends
will be restricted by the expected terms of the new Holdings
credit agreement as part of the financing for the mergers and by
the terms of Basic’s 7.125% senior notes which
Holdings will assume.
The following table sets forth, for the periods indicated, the
high and low sales prices per share of Basic common stock on the
New York Stock Exchange composite transaction reporting system
and the Grey Wolf common stock on the American Stock Exchange
composite transaction reporting system. For current price
Below is a summary of the Horsepower Holdings 2008 Equity
Incentive Plan, which we refer to as the “Holdings
incentive plan,” that you will be asked to approve at your
company’s special meeting of stockholders. A copy of the
Holdings incentive plan is attached to this joint proxy
statement/prospectus as Annex G, and this summary is
qualified in its entirety by reference to the full text of the
plan.
If the stockholders of Basic and Grey Wolf approve the Holdings
incentive plan proposal and the mergers are consummated,
Holdings will not issue any further equity incentive awards
under the existing Basic and Grey Wolf equity incentive plans.
If the stockholders of Basic and Grey Wolf do not approve the
Holdings incentive plan proposal and the mergers are
consummated, Holdings intends to use the remaining availability
under Basic’s and Grey Wolf’s existing equity plans
for additional equity incentive awards in Holdings common stock
following the consummation of the mergers.
The maximum number of shares of common stock of Holdings that
will be available for issuance under the Holdings incentive plan
is 4,250,000 shares and of such amount the total number of
shares will be available for incentive stock options. If awards
under the Holdings incentive plan expire or are cancelled,
forfeited, settled in cash, or withheld for taxes or the
purchase price or otherwise terminated without issuing the
underlying shares of common stock of Holdings, such shares will
again become available for future awards under the Holdings
incentive plan, and if issued but unvested shares of restricted
stock are forfeited or withheld for the purchase price or taxes,
such shares will again become available for future awards under
the Holdings incentive plan; provided, however, that shares
withheld for the purchase price or taxes for an option or stock
appreciation right will be counted against the aggregate
limitation of shares available under the Holdings incentive plan
and will not be available for future awards. The maximum number
of shares of common stock of Holdings that may be subject to
awards granted to any one individual during any twelve-month
period may not exceed 4,000,000 shares. The maximum amount
of cash compensation that may be paid under awards intended to
qualify for the “performance-based compensation
exception” under Section 162(m) of the Internal
Revenue Code granted to any one individual during any
twelve-month period may not exceed $5 million.
The Holdings incentive plan will be administered by
Holdings’ Compensation Committee or such other committee as
designated by the Holdings’ board of directors, which will
have full authority, subject to the terms of the Holdings
incentive plan, to make all determinations necessary or
advisable for administering the Holdings incentive plan. The
Holdings Compensation Committee may delegate to the board or a
senior officer of Holdings the authority to grant awards to
employees who are not subject to Section 16(b) of the
Exchange Act. The Holdings Compensation Committee may delegate
to the Nominating and Governance Committee of Holdings’
board of directors the authority to make awards to directors.
With respect to any director or employee who is resident outside
of the United States, the Holdings Compensation Committee may
amend or vary the terms of the Holdings incentive plan to
conform such terms to the requirements of local law and to meet
the goals and objectives of the Holdings incentive plan. In
addition, the Holdings Compensation Committee may establish
administrative rules and procedures to facilitate the operation
of the Holdings incentive plan in such
non-U.S. jurisdictions.
The Holdings Compensation Committee may establish one or more
sub-plans of
the Holdings incentive plan for these purposes.
Subject to any delegation of power as described in the paragraph
captioned “Administration” above, the Holdings
Compensation Committee in its sole discretion may from time to
time grant awards to any individual who, at the time of grant,
is an employee or director of Holdings or an employee of an
affiliate of Holdings.
The Holdings incentive plan will become effective upon the
effective date of the mergers, provided that the Holdings
incentive plan has been approved by the stockholders of each of
Basic and Grey Wolf. Notwithstanding any provision in the
Holdings incentive plan, no award will be granted prior to Basic
and Grey Wolf stockholder approval. No additional awards may be
granted under the Holdings incentive plan after the tenth
anniversary of the effective date of the Holdings incentive
plan. The Holdings incentive plan will remain in effect until
all awards granted thereunder have been vested or forfeited and
exercised or expired.
Options entitle the participant to purchase shares of common
stock of Holdings at a price no less than the fair market value
of the common stock of Holdings on the date of grant. Options
may be either incentive stock options or non-qualified stock
options; provided that only employees may be granted incentive
stock options and such options will be subject to the applicable
restrictions on such type of option. The option price is payable
(1) in cash; (2) at the discretion of the Holdings
Compensation Committee in a manner as determined by the Holdings
Compensation Committee in the award notice (i) by the
delivery of a number of already-owned shares of the common stock
of Holdings having a fair market value equal to such option
price, or (ii) by withholding shares subject to the option
equal to the option price; or (3) any combination of
(1) or (2). No stock option may be exercised more than ten
years from the date of grant or such shorter period, if any, as
may be determined by the Holdings Compensation Committee. Each
grant may specify a period of continuous employment or service
with Holdings that is necessary before the stock option or any
portion thereof will become exercisable.
Restricted
Stock
Restricted stock awarded under the Holdings incentive plan
results in the immediate transfer of stock, subject to certain
restrictions by Holdings, to the participant. Unless otherwise
provided in the award notice, the participant is immediately
entitled to voting, dividend and other ownership rights in such
shares, except that: (1) Holdings will retain custody of
the restricted stock until the restrictions have expired;
(2) the participant may not sell, transfer, pledge,
exchange, hypothecate or otherwise dispose of the restricted
stock until the restrictions have expired; and (3) a breach
of the terms and conditions established by the Holdings
Compensation Committee pursuant to the award notice will cause a
forfeiture of the restricted stock. For restrictions to lapse,
one or more of the following conditions must be met, as
determined by the Holdings Compensation Committee: (1) the
attainment of one or more performance measures; (2) the
participant’s continued employment with Holdings and its
affiliates or continued service as a director for a specified
period of time; (3) the occurrence of any event or the
satisfaction of any other condition specified by the Holdings
Compensation Committee in its sole discretion; or (4) a
combination of any of the foregoing. Each grant of restricted
stock may have different restrictions as established in the sole
discretion of the Holdings Compensation Committee.
Restricted
Stock Units
Restricted stock units will be subject to a restriction on
disposition by the participant and an obligation of the
participant to forfeit the restricted stock units under certain
circumstances, and any other restrictions determined by the
Holdings Compensation Committee, in its sole discretion, on the
date of grant; provided, however, that such restrictions will
lapse upon: (1) the attainment of one or more performance
measures; (2) the participant’s continued employment
with Holdings and its affiliates or continued service as a
director for a specified period of time; (3) the occurrence
of any event or the satisfaction of any other condition
specified by the Holdings Compensation Committee in its sole
discretion; or (4) a combination of any of the foregoing.
Each grant of restricted stock units may have different
restrictions as established in the sole discretion of the
Holdings Compensation Committee. The participant will not be
entitled to vote the shares of common stock of Holdings
underlying the restricted stock units or enjoy any other
stockholder rights unless and until the restrictions have lapsed
and the shares have been registered in the participant’s
name. Upon the lapse of the restrictions described in the award
notice, the participant will then receive the shares of stock or
will receive a payment equal to the fair market value of the
shares of common stock of Holdings underlying the restricted
stock units on the vesting date, less applicable withholding.
Settlement of restricted stock units may be in the form of
shares of common stock of Holdings, cash, other equity
compensation, or a combination thereof, as determined by the
Holdings Compensation Committee.
Stock
Appreciation Rights
Stock appreciation rights (“SARs”) will be subject to
a restriction on disposition by the participant and an
obligation of the participant to forfeit the stock appreciation
rights under certain circumstances, and any other restrictions
determined by the Holdings Compensation Committee, in its sole
discretion, on the date of grant; provided, however, that such
restrictions will lapse upon: (1) the attainment of one or
more performance measures; (2) the participant’s
continued employment with Holdings and its affiliates or
continued service as a director for a specified period of time;
(3) the occurrence of any event or the satisfaction of any
other condition specified by the Holdings Compensation Committee
in its sole discretion; or (4) a combination of any of the
foregoing. Each award of stock appreciation rights may have
different restrictions as established in the sole discretion of
the Holdings Compensation Committee. The exercise price of the
stock appreciation rights will not be less than the fair market
value of the shares of common stock of Holdings underlying the
stock appreciation rights on the date of grant. Upon exercise of
the stock appreciation rights, the participant will then be
entitled to receive payment in an amount equal to: (1) the
difference between the fair market value of the underlying
shares of common stock of Holdings subject to the stock
appreciation rights on the date of exercise and the exercise
price; multiplied by (2) the number of shares of common
stock of Holdings with respect to which the stock appreciation
rights are exercised; less (3) any applicable withholding
taxes. Settlement of stock appreciation rights may be in the
form of shares of common stock of Holdings or cash, or a
combination thereof, as determined by the Holdings Compensation
Committee. The exercise price will be payable by the participant
in cash; provided, however, that the Holdings Compensation
Committee in its sole discretion may allow the participant to
pay the exercise price by the withholding shares of common stock
of Holdings otherwise issuable upon exercise or with shares of
common stock of Holdings previously owned by the participant or
any combination of any of the foregoing.
The Holdings Compensation Committee will establish, with respect
to and at the time of each performance award, the maximum value
of the performance award and the performance period over which
the performance applicable to the performance award will be
measured. A performance award will be contingent upon future
performance of Holdings or any affiliate, or a division or
department of Holdings or any affiliate thereof during the
performance period. With respect to any performance award
intended to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code, the Holdings
Compensation Committee will establish the performance measures
applicable to such performance either (1) prior to the
beginning of the performance period or (2) within ninety
days after the beginning of the performance period if the
outcome of the performance targets is substantially uncertain at
the time such targets are established, but not later than the
date that 25% of the performance period has elapsed. The vesting
of the performance award will be based upon the
participant’s continued employment with Holdings and its
affiliates or continued service as a director for a specified
period of time and (1) the attainment of one or more
performance measures; (2) the occurrence of any event or
the satisfaction of any other condition specified by the
Holdings Compensation Committee in its sole discretion; or
(3) a combination of any of the foregoing. Following the
end of the performance period, the holder of a performance award
will be entitled to receive payment of an amount not exceeding
the maximum value of the performance award, based on the
achievement of the performance measures for such performance
period, as determined and certified in writing by the Holdings
Compensation Committee. Payment of a performance award may be
made in cash, Holdings common stock, stock options or other
equity compensation, or a combination thereof, as determined by
the Holdings Compensation Committee. If a performance award
covering shares of common stock of Holdings is to be paid in
cash, such payment will be based on the fair market value of a
share of common stock of Holdings on the payment date.
Other
Stock-Based Awards
The Holdings Compensation Committee may also grant to
participants other stock-based awards, which will consist of a
right which is an award denominated or payable in, valued in
whole or in part by reference to, or otherwise based on or
related to, shares of common stock as is deemed by the Holdings
Compensation Committee to be consistent with the purposes of the
plan and will be payable in cash or common stock as determined
by the Holdings Compensation Committee in the award notice. The
Holdings Compensation Committee will determine the terms and
conditions of any such other stock-based award including,
without limitation, vesting provisions as provided in the award
notice.
Acceleration
of Vesting
If a participant’s termination of service is due to his or
her death or disability, all then outstanding awards will
immediately vest in full and all restrictions applicable to such
awards will terminate as of such date with all performance
criteria, if any, applicable to such awards deemed met at 100%
of target. Upon a participant’s retirement, all stock
options then outstanding will immediately vest in full. The
Holdings Compensation Committee may, in its discretion and as of
a date determined by the Holdings Compensation Committee, fully
vest any portion or all of a participant’s awards under the
Holdings incentive plan (except with respect to awards designed
to meet the exception for performance-based compensation under
Section 162(m) of the Code as determined by the Holdings
Compensation Committee in its sole discretion such awards may
only be modified in accordance with Code Section 162(m)).
Adjustments
and Corporate Change
If there is any change in the common stock of Holdings by reason
of a stock split, consolidation, stock dividend,
recapitalization, reorganization, merger, spin-off, exchange of
shares or other similar event or any distribution to the holders
of common stock of Holdings other than a regular cash dividend,
the Holdings Compensation Committee has the authority to adjust
or substitute the number of or class of shares which may be
issued under the Holdings incentive plan and further adjust or
substitute the number, class, price or terms of the shares
underlying any outstanding awards as it deems appropriate.
Except as otherwise provided in an
award notice, in the event of a corporate change (as defined in
the plan), including, but not limited to, a merger,
consolidation, or reorganization of Holdings or the sale, lease
or other disposition of all or substantially all of the assets
of Holdings and its subsidiaries, taken as a whole (other than
to an entity wholly owned, either directly or indirectly, by
Holdings), if a participant is terminated without cause or for
good reason within two years after the corporate change, any
outstanding performance awards under the Holdings incentive plan
will become fully vested and immediately exercisable or payable
at such percentage of their respective target levels determined
by the Holdings Compensation Committee.
Amendments
The board of directors of Holdings in its discretion may
terminate the Holdings incentive plan (except with respect to
awards that are then outstanding) at any time except that it may
not, without approval of the stockholders of Holdings, increase
the maximum number of shares issuable (except to reflect changes
in capitalization as discussed above), change the class of
individuals eligible to receive awards, or amend any outstanding
award notice to lower the exercise price or replace any
outstanding award with an award having a lower exercise price.
The following is a brief summary of the U.S. federal income
tax consequences applicable to awards granted under the Holdings
incentive plan based on U.S. federal income tax laws in
effect as of the date of this joint proxy statement/prospectus.
This summary is not intended to be exhaustive and does not
address all matters which may be relevant to a particular
participant based on his or her specific circumstances,
including, without limitation, foreign, state or local tax laws
or any estate tax laws.
Non-Qualified
Options
Non-qualified options granted under the Holdings incentive plan
will not be taxable to a participant at grant, but generally
will result in taxation at exercise. At such time, the
participant will recognize ordinary income in an amount equal to
the difference between the exercise price and the fair market
value of the shares of Holdings common stock on the exercise
date. Holdings will be entitled to deduct a corresponding amount
as a business expense in the year the participant recognizes
this income.
Incentive
Stock Options
Generally, a participant will not recognize ordinary income at
the time of grant or exercise of an incentive stock option so
long as he or she has been an employee of Holdings or its parent
or subsidiary corporation from the date the incentive stock
option was granted until three months before the date of
exercise. However, the amount by which the fair market value of
the shares on the exercise date exceeds the exercise price is an
adjustment in computing the participant’s alternative
minimum tax in the year of exercise. If the participant holds
the shares of Holdings common stock received on exercise of an
incentive stock option for one year after the date of exercise
and for two years from the date of grant, any difference between
the amount realized upon the disposition of the shares and the
amount paid for the shares will be treated as long-term capital
gain (or loss, if applicable) to the participant. If the
participant exercises an incentive stock option and satisfies
these holding period requirements, Holdings may not deduct any
amount in connection with the incentive stock option.
If a participant exercises an incentive stock option but engages
in a “disqualifying disposition” by selling the shares
acquired on exercise before the expiration of the one-year and
two-year holding periods described in the previous paragraph,
the participant generally will recognize ordinary income in the
year of the disqualifying disposition equal to the difference
between the fair market value of the shares on the date of
exercise and the exercise price. Any excess of the amount
realized on the disposition over the fair market value on the
date of exercise will be taxed as long-term or short-term
capital gain (as applicable). If, however, the amount realized
on the disposition on the date of the disqualifying disposition
is less than the fair market value of the shares on the date of
exercise, the participant will recognize ordinary income equal
to the
difference between the amount realized on the disqualifying
disposition and the exercise price. In either event, Holdings
will be entitled to deduct an amount equal to the amount
constituting ordinary income to the participant in the year of
the disqualifying disposition.
Restricted
Stock
In general, a participant who receives a restricted stock award
will not recognize taxable income at the time of grant. Instead,
a participant will recognize taxable ordinary income in the
first taxable year that the participant’s interest in the
shares becomes either: (1) freely transferable; or
(2) no longer subject to a substantial risk of forfeiture.
The amount of taxable ordinary income is equal to the fair
market value of the shares less the amount (if any) paid for the
shares. In certain circumstances, a participant may elect to
recognize taxable income at the time of grant in an amount equal
to the fair market value of the restricted stock (less any
amount paid for the shares) at the time of grant. Holdings will
be entitled to a compensation expense deduction equal to the
ordinary income recognized by the participant in the taxable
year in which the participant recognizes such taxable income.
Under Section 83(b) of the Internal Revenue Code, a
participant may elect to be taxed at the time of receipt of the
restricted shares rather than upon lapse of restrictions on
transferability or substantial risk of forfeiture, but if the
participant subsequently forfeits such shares or property, the
participant would not be entitled to any tax deduction,
including as a capital loss, for the value of the shares or
property on which he previously paid tax. The participant must
file such election with the Internal Revenue Service and
Holdings within 30 days of the receipt of the shares or
other property. Holdings generally will be entitled to a
deduction in an amount equal to the ordinary income recognized
by the participant.
Restricted
Stock Units
In general, a participant who receives an award of restricted
stock units will not recognize taxable income at the time of
grant. Instead, a participant will recognize taxable ordinary
income in the year in which the participant becomes vested in
the restricted stock units. The taxable amount will equal the
fair market value of the shares issued to the participant (or
the amount of cash paid to the participant where the restricted
stock units are settled in cash). Holdings will be entitled to a
compensation expense deduction equal to the ordinary income
recognized by the participant in the taxable year in which the
participant recognizes such taxable income.
Stock
Appreciation Rights
There are no tax consequences to a participant upon the grant or
vesting of SARs. Upon exercise, the participant will recognize
as compensation income the fair market value of the shares of
common stock of Holdings or the cash received, as the case may
be. Holdings will be entitled to deduct the same amount as a
business expense in the year of exercise.
Performance
Awards and Other Stock-Based Awards
Generally, an individual who has been granted a performance
award or other stock-based award will not be taxable at the time
of grant, but will be taxable on the fair market value of the
shares of Holdings common stock, or cash, as the case may be, at
the time the award becomes vested and is paid to the
participant. Generally, Holdings will be entitled to deduct as a
business expense the amount the participant includes as income
in the year of payment.
Section 162(m)
of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code, in general,
precludes a public corporation from taking a deduction for
compensation in excess of $1 million paid to “covered
employees.” However, compensation that qualifies under
Section 162(m) of the Internal Revenue Code as
“performance-based” is specifically exempt from the
deduction limit. In general, based on Section 162(m) of the
Internal Revenue Code and the regulations issued thereunder,
Holdings’ ability to deduct compensation income generated
in connection with
the exercise of options and stock appreciation rights granted
under the Holdings incentive plan should not be limited by
Section 162(m) of the Internal Revenue Code. Generally,
Holdings believes that compensation income generated in
connection with certain other types of awards granted under the
Holdings incentive plan should not be limited by
Section 162(m) of the Internal Revenue Code provided the
vesting of such awards are based solely on the achievement of
performance measures and targets established for such grants
that are intended to comply with Section 162(m) of the
Internal Revenue Code. However, Holdings’ Compensation
Committee at its discretion may grant awards that do not meet
the performance-based exception under Section 162(m) of the
Internal Revenue Code. The Holdings incentive plan has been
designed to provide flexibility with respect to the performance
measures that may be used in establishing performance targets
for these awards.
Section 401(a)
of the Internal Revenue Code
The Holdings incentive plan is not qualified under
Section 401(a) of the Internal Revenue Code.
Deferred
Compensation
Any deferrals made under the Holdings incentive plan, including
awards granted under the plan that are considered to be deferred
compensation, must satisfy the requirements of Section 409A
of the Internal Revenue Code to avoid adverse tax consequences
to participants. These requirements include limitations on
election timing, acceleration of payments and the timing of
distributions. Holdings intends to structure any awards under
the Holdings incentive plan to avoid the application of
Section 409A of the Internal Revenue Code.
Section 280G
of the Internal Revenue Code
Generally, awards that are granted, accelerated or enhanced upon
the occurrence of a change in control may give rise, in whole or
in part, to excess parachute payments within the meaning of
Section 280G of the Internal Revenue Code and, to such
extent, will be non-deductible by Holdings and subject to a 20%
excise tax by the participant.
Awards will not be transferable except (1) by will or the
laws of descent and distribution, (2) a qualified domestic
relations order, or (3) if vested, with the consent of the
Holdings Compensation Committee, provided that any such transfer
is permitted under the applicable securities laws. Based upon
current law and published interpretations, Holdings does not
believe that the Holdings incentive plan is subject to any of
the provisions of the Employee Retirement Income Security Act of
1974, as amended.
The Basic board of directors has sent these proxy materials to
you to solicit your vote at the Special Meeting of Stockholders,
which is referred to herein as the “Basic special
meeting.” The Basic special meeting will begin promptly at
9:00 a.m. local time on Tuesday, July 15, 2008, at the
Hyatt Regency Houston, 1200 Louisiana Street, Houston,
Texas.
Agenda
The Basic special meeting will be held for the following
purposes:
2. to approve the Holdings 2008 Equity Incentive Plan;
3. to approve the adjournment of the Basic special meeting,
if necessary or appropriate, to solicit additional proxies in
favor of the foregoing proposals; and
4. to transact such other business as may properly come
before the Basic special meeting or any adjournment or
postponement thereof.
All of these items are discussed in more detail in this joint
proxy statement/prospectus.
Stockholders
Entitled to Vote
Owners of Basic common stock at the close of business on
June 6, 2008, are entitled to notice of and to vote at the
Basic special meeting. At the close of business on June 6,2008, there were 41,305,222 shares of Basic common stock
issued and outstanding. Each share of Basic common stock
entitles the holder to one vote on all matters submitted to a
vote at the Basic special meeting and any adjournment or
postponement of the meeting. A complete list of the Basic
stockholders entitled to vote will be available for examination
at the meeting and for at least 10 days prior to the
meeting at Basic’s principal executive offices.
Quorum
and Required Votes
A quorum of stockholders is necessary for a valid meeting. The
presence in person or by proxy of the holders of a majority of
the outstanding shares of Basic common stock as of the record
date will constitute a quorum for the Basic special meeting.
Under Basic’s amended and restated bylaws and under
Delaware law, abstentions and “broker non-votes” are
counted as present in determining whether the quorum requirement
is satisfied. A “broker non-vote” occurs when a broker
holding shares for a beneficial owner does not vote on a
particular proposal because the broker does not have
discretionary voting power for that proposal and has not
received instructions from the beneficial owner.
The table below shows the vote required to approve the proposals
described in this joint proxy statement/prospectus.
Proposal
Required Vote
Proposal 1 — Adoption of the merger agreement
Adoption of the merger agreement requires the affirmative vote
of a majority of the shares of common stock outstanding and
entitled to vote as of the record date. “Broker
non-votes” and abstentions will have the same effect as a
vote against the merger proposal.
Note: Approval of Proposal 1 is a condition precedent to
implementation of Proposal 2.
Proposal 2 — Approval of the Holdings 2008 Equity
Incentive Plan
Approval of Proposal 2 requires the affirmative vote of the
holders of a majority of the Basic common stock present in
person or by proxy and entitled to vote as of the record date.
“Broker non-votes” will not be treated as votes cast,
but abstentions will have the same effect as a vote against
Proposal 2.
Proposal 3 — Adjournment of the Basic Special Meeting
Adjournment of the Basic special meeting to solicit additional
proxies in favor of adopting the merger agreement requires the
affirmative vote of a majority of votes cast. “Broker
non-votes” will not be treated as votes cast, but
abstentions will have the same effect as a vote against Proposal
3.
How to
Vote Your Proxy
Because many stockholders cannot attend the Basic special
meeting in person, it is necessary that a large number of
stockholders be represented by proxy. You can vote your proxy by
the following three methods:
•
over the Internet,
•
by calling a toll-free telephone number, or
•
by completing the enclosed proxy card and mailing it in the
postage-paid envelope provided in these materials.
Basic stockholders whose shares are registered in the name of a
bank or brokerage firm may be eligible to vote through the
Internet or by telephone. For more information on how to vote
your proxy, see “Summary — Voting by Internet,
Telephone or Mail” beginning on page 7.
You may receive more than one proxy card depending on how you
hold your shares. You should vote each proxy provided to you.
Please refer to your proxy card or the information forwarded by
your bank, broker or other nominee to determine which options
are available for voting the proxy. The internet and telephone
voting procedures are designed to authenticate Basic
stockholders by use of a control number and to allow you to
confirm that your instructions have been properly recorded.
When a properly executed proxy is received prior to the Basic
special meeting, the shares represented will be voted at the
meeting in accordance with the directions noted on the proxy. If
a Basic stockholder of record signs, dates and returns the
enclosed proxy card but does not specify how to vote, his, her
or its shares will be voted (1) for the adoption of the
merger agreement, (2) for the approval of the Holdings 2008
Equity Incentive Plan, and (3) for adjournment of the Basic
special meeting to solicit additional proxies in favor of
adopting the merger agreement.
Revocation
of a Proxy
A proxy may be revoked at any time before it is voted by
(1) sending written notice of revocation to Basic’s
Corporate Secretary, (2) delivering a later dated proxy (by
one of the methods described above) so that it is received prior
to the Basic special meeting or (3) voting in person at the
Basic special meeting.
The Corporate Secretary may be contacted at the following
address: 500 West Illinois, Suite 100, Midland, Texas79701, Attention: Corporate Secretary.
Proxy
Solicitation
This solicitation is made on behalf of Basic’s board of
directors. Basic has agreed with Grey Wolf to each pay one-half
of the costs and expenses of printing and mailing this joint
proxy statement/prospectus and all fees paid to the SEC. Basic
will pay the cost of soliciting proxies from its stockholders.
Proxies are being solicited by mail and may be solicited by
telephone, telegram, facsimile, or in person by Basic employees,
who will not receive additional compensation for any such
solicitation. Georgeson, Inc. has been retained to assist in the
solicitation of proxies at a fee of approximately $10,000, plus
reimbursement for
out-of-pocket
expenses. Basic will also request brokers and other fiduciaries
to forward proxy soliciting material to the beneficial owners of
shares of Basic common stock that are held of record by such
brokers and fiduciaries and Basic will reimburse their
reasonable
out-of-pocket
expenses. Grey Wolf will pay the cost of soliciting proxies and
all other expenses related to the Grey Wolf special meeting.
Proposal 1
Adoption Of The Merger
Agreement
As discussed elsewhere in this joint proxy statement/prospectus,
holders of Basic common stock are considering the approval of
the merger agreement. Holders of Basic common stock should read
carefully this joint proxy statement/prospectus, including the
annexes, in its entirety for more detailed information
concerning the merger agreement and the mergers. In particular,
holders of Basic common stock are directed to the merger
agreement, a copy of which is included as Annex A to this
joint proxy statement/prospectus.
The
Basic board of directors recommends that stockholders vote FOR
the adoption of the merger agreement.
Proposal 2
Approval Of The
Horsepower Holdings 2008 Equity Incentive Plan
At the Basic special meeting, the holders of Basic common stock
are being asked to approve the Holdings 2008 Equity Incentive
Plan, which we refer to herein as the “Holdings incentive
plan,” a copy of which is included in this joint proxy
statement/prospectus as Annex G. Holdings is the successor
company in the proposed merger of Basic and Grey Wolf, which is
more fully described beginning on page 33 under the caption
the “The Mergers.” For a description of the material
provisions of this plan, holders of Basic common stock should
read carefully “Description of Horsepower Holdings 2008
Equity Incentive Plan” beginning on page 109.
The Basic board of directors adopted the Holdings incentive plan
on April 20, 2008, subject to the approval of the
stockholders. In addition, the directors of Holdings approved
the Holdings incentive plan on April 20, 2008 and the
stockholders of Holdings approved the plan on April 20,2008. The consummation of the mergers is not conditioned on the
approval of the Holdings incentive plan, but the Holdings
incentive plan, if approved, would become effective only upon
the consummation of the mergers. If Basic’s (or Grey
Wolf’s) stockholders do not adopt the merger agreement, or
if the merger agreement is terminated or the mergers are not
consummated for any other reason, the Holdings incentive plan
will not be implemented.
If the mergers are approved by the stockholders of Basic and
Grey Wolf, but the Holdings incentive plan does not receive the
required Basic and Grey Wolf stockholder approval, no awards
will be granted under the Holdings incentive plan and Holdings
will continue to make equity grants under Grey Wolf’s and
Basic’s existing equity plans. If the Holdings incentive
plan becomes effective, Basic and Grey Wolf have agreed to
terminate the authority to make future grants under their
respective equity incentive plans upon the consummation of the
mergers.
The Basic board of directors is recommending stockholder
approval of the Holdings incentive plan in order to provide a
uniform plan document under which equity awards can be granted
to the employees of
Holdings and its affiliates following consummation of the
mergers. The Holdings incentive plan is designed to provide
Holdings and its affiliates with the means to attract and retain
highly qualified directors and employees with incentives that
provide an opportunity to acquire and maintain stock ownership,
thereby encouraging and rewarding individual performance that
should improve operating results and enhance stockholder value.
Accordingly, the Holdings incentive plan provides for
discretionary grants of options, restricted stock, restricted
stock units, stock appreciation rights, performance awards and
other stock-based awards, each type of grant will be referred to
as an “award.”
No benefits or amounts have been granted, awarded or received
under the Holdings incentive plan. Awards under the Holdings
incentive plan are discretionary; therefore, no awards are
determinable at this time. Since certain of Basic’s
directors and executive officers may be eligible to receive
awards under the Holdings incentive plan, such directors and
executive officers may be considered to have an interest in the
approval of the Holdings incentive plan. Stockholder approval of
the Holdings incentive plan is required for listing of the
shares of Holdings common stock for trading on the New York
Stock Exchange and as a condition to the effectiveness of the
Holdings incentive plan. Stockholder approval is also required
so that incentive stock options under the Holdings incentive
plan will qualify under Section 422 of the Internal Revenue
Code and so that certain awards under the Holdings incentive
plan will qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code. If the
stockholders of Basic and Grey Wolf approve the Holdings
incentive plan, Holdings intends to register the shares issuable
pursuant to the Holdings incentive plan under the Securities Act
of 1933 as soon as practicable.
The
Basic board of directors recommends that stockholders vote FOR
the approval of the Horsepower
Holdings 2008 Equity Incentive Plan.
Equity
Compensation Plan Information
The table below provides information as of December 31,2007 with respect to shares of Basic common stock that may be
issued under the Basic Energy Services, Inc. Third Amended and
Restated 2003 Stock Incentive Plan.
Number of
Weighted-
Number of Securities
Securities to be
Average Exercise
Remaining Available for
Issued Upon
Price of
Future Issuance Under
Exercise of
Outstanding
Equity Compensation
Outstanding
Options,
Plans (Excluding
Options, Warrants
Warrants
Securities Reflected in
and Rights
and Rights
Column (a))
Plan Category
(a)
(b)
(c)
Equity compensation plans approved by security holders
2,257,355
$
9.58
2,240,950
Equity compensation plans not approved by security holders
Approval Of The
Adjournment Of The Basic Special Meeting
Basic is asking its stockholders to vote on a proposal to
adjourn the Basic special meeting, if necessary or appropriate,
in order to allow for the solicitation of additional proxies.
The affirmative vote of a majority of the votes cast on this
matter is required to adjourn the Basic special meeting, if
necessary or appropriate, in order to allow for the solicitation
of additional proxies.
The
Basic board of directors recommends that stockholders vote FOR
the Basic proposal to approve
the adjournment of the Basic special meeting, if necessary or
appropriate, to solicit additional proxies.
This joint proxy statement/prospectus is available free of
charge on the Investor Relations section of the Basic website
through the “SEC Filings” link at
(http://www.basicenergyservices.com). Basic’s annual report
to stockholders covering the fiscal year ended December 31,2007 is available free of charge on the Investor Relations
section of its website through the “SEC Filings” link
at (http://www.basicenergyservices.com).
Grey Wolf’s board of directors solicits the accompanying
proxy for use at the special meeting to be held at
8:30 a.m., local time, on Tuesday, July 15, 2008, at
the Hyatt Regency Houston, 1200 Louisiana Street, Houston,
Texas. Giving a proxy means that a Grey Wolf stockholder of
record authorizes the persons indicated on the Grey Wolf proxy
card to vote his, her or its shares at Grey Wolf’s special
meeting in the manner directed. If a Grey Wolf stockholder of
record signs, dates and returns the enclosed proxy card but does
not specify how to vote, his, her or its shares will be voted
(1) for the adoption of the merger agreement, (2) for
the approval of the Holdings 2008 Equity Incentive Plan, and
(3) adjournment of the Grey Wolf special meeting to solicit
additional proxies in favor of adopting the foregoing proposals.
A Grey Wolf stockholder of record may revoke his, her or its
proxy at any time before it is voted at the special meeting by:
•
voting over the telephone or Internet if eligible to do so, in
which case a Grey Wolf stockholder’s latest dated vote
before the special meeting will be the vote counted;
•
delivering to Grey Wolf’s corporate secretary a signed
notice of revocation or a new proxy card with a later
date; or
•
voting in person at the special meeting.
For more information on how to vote your proxy, see
“Summary — Voting by Internet, Telephone or
Mail” beginning on page 7.
Grey Wolf stockholders whose shares are registered in the name
of a bank or brokerage firm may be eligible to vote through the
Internet or by telephone. The enclosed proxy card or voting
instruction form or information forwarded by your bank brokerage
firm provides instructions for eligible Grey Wolf stockholders.
Grey Wolf stockholders not wishing to vote through the Internet
or by telephone or who are not eligible to vote through the
Internet or by telephone should complete the enclosed paper
proxy card and return it in the enclosed postage-paid envelope.
Signing and returning the proxy card or submitting the proxy via
the Internet or by telephone does not affect a Grey Wolf
stockholder’s right to revoke his, her or its proxy or to
vote in person at the special meeting. A Grey Wolf
stockholder’s attendance at the special meeting by itself
does not constitute revocation of his, her or its proxy. Before
the Grey Wolf special meeting, any written notice of revocation
should be sent by a stockholder of record of Grey Wolf to Grey
Wolf, Inc., 10370 Richmond Avenue, Suite 600, Houston,
Texas77042, Attention: Corporate Secretary. Any notice of
revocation that is delivered at the special meeting by a
stockholder of record of Grey Wolf should be hand delivered to
the corporate secretary before a vote is taken. If you hold your
shares in “street name,” please follow the
instructions provided by your bank or brokerage firm to revoke
or change your vote. A Grey Wolf stockholder may be asked to
present documents for the purpose of establishing his or her
identity as a Grey Wolf stockholder.
On or about June 16, 2008, Grey Wolf commenced mailing this
joint proxy statement/prospectus and the enclosed form of proxy
to its stockholders entitled to vote at the meeting.
Grey Wolf and Basic have each agreed to pay one-half of the
costs and expenses of printing and mailing this joint proxy
statement/prospectus. Grey Wolf will pay the cost of soliciting
proxies from its stockholders. Proxies are being solicited by
mail and may be solicited by telephone, telegram, facsimile, or
in person by employees of Grey Wolf, who will not receive
additional compensation for their services. Grey Wolf has
retained Georgeson, Inc., the information agent, to assist in
the solicitation of proxies at a fee of approximately $10,000,
plus out-of-pocket expenses. Grey Wolf will also request brokers
and other fiduciaries to forward the proxy materials to the
beneficial owners of shares of Grey Wolf common stock and will
reimburse their reasonable out-of-pocket expenses.
Grey Wolf’s board of directors has established the close of
business on June 6, 2008 as the record date for determining
Grey Wolf stockholders entitled to receive notice of and to vote
on proposals at the special meeting or any adjournment or
postponement of the special meeting. Only holders of record of
Grey Wolf common stock on the record date are entitled to vote
at the special meeting. Each owner of record is entitled to one
vote on all matters submitted for a vote for each share of Grey
Wolf common stock held. As of the record date, there were
198,166,463 shares of Grey Wolf common stock issued and
outstanding (excluding 19,309,466 treasury shares).
A complete list of stockholders entitled to vote at the Grey
Wolf special meeting will be available for examination by any
Grey Wolf stockholder at Grey Wolf’s headquarters, 10370
Richmond Avenue, Suite 600, Houston, Texas77042 for
purposes pertaining to the Grey Wolf special meeting, during
normal business hours for a period of ten days before the Grey
Wolf special meeting, and at the time and place of Grey
Wolf’s special meeting.
Quorum,
Voting Requirements and Effect of Abstentions and
Non-votes
A quorum is necessary for the transaction of business at the
Grey Wolf special meeting. A quorum exists when holders of a
majority of the total number of issued and outstanding shares of
Grey Wolf common stock that are entitled to vote at the special
meeting are present in person or by proxy. At the special
meeting, inspectors of election will determine the presence of a
quorum and tabulate the results of the voting by Grey Wolf
stockholders. The inspectors will treat valid proxies marked
“abstain” or proxies required to be treated as
“non-votes” as present for purposes of determining
whether there is a quorum at the special meeting. A
“non-vote” occurs when a broker or nominee holding
shares for a beneficial owner votes on one proposal but does not
vote on another proposal, because the broker or nominee does not
have discretionary voting power and has not received
instructions from the beneficial owner of the shares. Broker
non-votes will not be treated as votes cast, except that they
will have the same effect as votes against the adoption of the
merger agreement. Brokers do not have discretionary authority to
vote on the merger proposal. Abstentions will have the same
effect as a vote against all of the proposals.
The approval of the merger agreement requires the approval of
the holders of a majority of the issued and outstanding shares
of Grey Wolf common stock. The approval of the Holdings
incentive plan and the proposal to adjourn the Grey Wolf special
meeting to solicit additional proxies in favor approving the
merger agreement requires the approval of a majority of the
votes cast.
Proposal 1
Approval Of The Merger
Agreement
As discussed elsewhere in this joint proxy statement/prospectus,
holders of Grey Wolf common stock are considering adoption of
the merger agreement. Holders of Grey Wolf common stock should
read carefully this joint proxy statement/prospectus, including
the annexes, in its entirety for more detailed information
concerning the merger agreement and the mergers. In particular,
holders of Grey Wolf common stock are directed to the merger
agreement, a copy of which is included as Annex A to this
joint proxy statement/prospectus.
The
Grey Wolf Board of Directors recommends that stockholders vote
FOR the approval of the merger agreement.
Proposal 2
Approval Of The
Horsepower Holdings 2008 Equity Incentive Plan
At the Grey Wolf special meeting, holders of Grey Wolf common
stock are being asked to approve the Holdings 2008 Equity
Incentive Plan, which we refer to as the “Holdings
incentive plan,” a copy of which is included in this joint
proxy statement/prospectus as Annex G. Holdings is the
successor company in the proposed merger of Basic and Grey Wolf,
which is more fully described beginning on page 33 under
the
caption “The Mergers.” For a description of the
material provisions of this plan, holders of Grey Wolf common
stock should read carefully “Description of the Horsepower
Holdings 2008 Equity Incentive Plan” beginning on
page 109.
The Grey Wolf board of directors approved the Holdings incentive
plan on April 20, 2008, subject to the approval of the
stockholders. In addition, the directors of Holdings approved
the Holdings incentive plan on April 20, 2008 and the
stockholders of Holdings approved the plan on April 20,2008. The consummation of the mergers is not conditioned on the
approval of the Holdings incentive plan, but the Holdings
incentive plan, if approved, would become effective only upon
the consummation of the mergers. If Grey Wolf’s (or
Basic’s) stockholders do not adopt the merger agreement, or
if the merger agreement is terminated or the mergers are not
consummated for any other reason, the Holdings incentive plan
will not be implemented.
If the mergers are approved by the stockholders of Basic and
Grey Wolf, but the Holdings incentive plan does not receive the
required Basic and Grey Wolf stockholder approval, no awards
will be granted under the Holdings incentive plan and Holdings
will continue to make equity grants under Grey Wolf’s and
Basic’s existing equity plans. If the Holdings incentive
plan becomes effective, Basic and Grey Wolf have agreed to
terminate the authority to make future grants under their
respective equity incentive plans upon the consummation of the
mergers.
The Grey Wolf board of directors is recommending approval of the
Holdings incentive plan in order to provide a uniform plan
document under which equity awards can be granted to employees
of Holdings and its affiliates following consummation of the
mergers. The Holdings incentive plan is designed to provide
Holdings and its affiliates with the means to attract and retain
highly qualified directors and employees by providing an
opportunity to acquire and maintain stock ownership, thereby
encouraging and rewarding individual performance that should
improve operating results and enhance stockholder value.
No benefits or amounts have been granted, awarded or received
under the Holdings incentive plan. Awards under the Holdings
incentive plan are discretionary; therefore, no awards are
determinable at this time. Since certain of Grey Wolf’s
directors and executive officers may be eligible to receive
awards under the Holdings incentive plan, such directors and
executive officers may be considered to have an interest in the
approval of the Holdings incentive plan. Stockholder approval of
the Holdings incentive plan is required for listing of the
shares for trading on the New York Stock Exchange and as a
condition to the effectiveness of the Holdings incentive plan.
Stockholder approval is also required so that incentive stock
options under the Holdings incentive plan will qualify under
section 422 of the Internal Revenue Code and so that
certain awards under the Holdings incentive plan will qualify as
performance-based compensation under Section 162(m) of the
Internal Revenue Code. If the stockholders of Basic and Grey
Wolf approve the Holdings incentive plan, Holdings intends to
register the shares issuable pursuant to the Holdings incentive
plan under the Securities Act of 1933 as soon as practicable.
The
Grey Wolf board of directors recommends that stockholders vote
FOR the approval of the
Horsepower Holdings 2008 Equity Incentive Plan.
Equity
Compensation Plan Information
The following table provides information as of December 31,2007 with respect to the number of shares of Grey Wolf common
stock remaining available for issuance under the Grey Wolf 1996
Employee Plan and the Grey Wolf 2003 Incentive Plan and other
equity compensation plans.
Number of
Weighted-
Number of Securities
Securities to be
Average Exercise
Remaining Available for
Issued Upon
Price of
Future Issuance Under
Exercise of
Outstanding
Equity Compensation
Outstanding
Options,
Plans (Excluding
Options, Warrants
Warrants
Securities Reflected in
and Rights
and Rights
Column (a))
Plan Category
(a)
(b)
(c)
Equity compensation plans approved by security holders
2,682,252
$
5.231
7,213,823
Equity compensation plans not approved by security holders(1)
700,500
3.154
—
Total
3,382,752
$
4.801
7,213,823
(1)
Reflects options granted to non-employee members of Grey
Wolf’s board of directors. These options have an exercise
price equal to the fair market value of the Grey Wolf common
stock on the date of grant and expire 10 years from the
date of grant.
Proposal 3
Approval Of The
Adjournment Of The Grey Wolf Special Meeting
Grey Wolf is asking its stockholders to vote on a proposal to
adjourn the Grey Wolf special meeting, if necessary or
appropriate, in order to allow for the solicitation of
additional proxies. The affirmative vote of a majority of the
votes cast on this matter is required to adjourn the Grey Wolf
special meeting, if necessary or appropriate, in order to allow
for the solicitation of additional proxies.
The
Grey Wolf board of directors recommends that stockholders vote
FOR the Grey Wolf proposal to
approve the adjournment of the Grey Wolf special meeting, if
necessary or appropriate, to solicit
additional proxies.
This joint proxy statement/prospectus is available free of
charge on the Investor Relations section of the Grey Wolf
website through the “SEC Filings” link at
(http://www.gwdrilling.com).
Grey Wolf’s annual report to stockholders covering the
fiscal year ended December 31, 2007 is available free of
charge on the Investor Relations section of its website through
the “Financial Reports” link at
(http://www.gwdrilling.com).
The unaudited pro forma condensed combined financial statements
of Holdings presented below are based on, and should be read
together with, the historical information that Basic and Grey
Wolf have presented in their respective filings with the SEC.
See “Where You Can Find More Information” on
page 147. The unaudited pro forma condensed combined
balance sheet as of March 31, 2008 gives effect to the
proposed mergers as if they had occurred on March 31, 2008,
and combines the historical balance sheets of Basic and Grey
Wolf as of March 31, 2008. The unaudited pro forma
condensed combined statements of operations for the three months
ended March 31, 2008 and the year ended December 31,2007 are presented as if the proposed mergers had occurred on
January 1, 2007, and combines the historical results of
Basic and Grey Wolf for the year ended December 31, 2007
and for the three-months ended March 31, 2008. The
historical financial information is adjusted to give effect to
pro forma events that (1) are directly attributable to the
mergers, (2) are factually supportable and (3) with
respect to the statements of operations, are expected to have a
continuing impact on combined results.
Immediately after the mergers, the financial statements of Grey
Wolf will become the financial statements of Holdings. The
mergers will be accounted for using the purchase method of
accounting. Under GAAP, Grey Wolf has been determined to be the
accounting acquirer based on the fact that its shareholders are
expected to hold greater than 50% of the Holdings common stock
after the mergers. The pro forma adjustments are based on a
preliminary purchase price allocation whereby the cost to
acquire Basic was allocated to the assets acquired and the
liabilities assumed, based upon their estimated fair values.
Actual adjustments will be based on the final purchase price and
analyses of fair values of identifiable tangible and intangible
assets, deferred tax assets and liabilities, and estimates of
the useful lives of tangible and amortizable intangible assets,
which will be finalized after completion of the valuation and
assessment process using all available data. The final purchase
price allocation will be performed using estimated fair values
as of the date of the completion of the mergers. Differences
between the preliminary and final purchase price allocations
could have a material impact on the accompanying unaudited pro
forma condensed combined financial statements and Holdings’
future results of operations and financial position.
The unaudited pro forma condensed combined financial statements
do not reflect the realization of potential cost savings, or any
related restructuring or integration costs. Although Basic and
Grey Wolf believe that certain cost savings may result from the
mergers, there can be no assurance that these cost savings will
be achieved.
The unaudited pro forma condensed combined financial statements
are presented for illustrative purposes only and are not
necessarily indicative of the combined financial position or
results of operations in future periods or the results that
actually would have been realized if the proposed mergers had
been completed as of the dates indicated.
The unaudited financial statements assume that the holders of
Grey Wolf’s 3.75% convertible notes and floating rate
convertible notes do not exercise a special conversion privilege
entitling them to convert the principal amount of their notes
into Grey Wolf common stock prior to the effective time of the
mergers. For a summary of certain effects of possible
conversions of Grey Wolf’s convertible notes on the merger
consideration, see “The Mergers — Effect of
Conversion of Grey Wolf Convertible Notes” on page 81.
The estimated purchase price of $1.3 billion has been
calculated as follows (in thousands, except per share data and
the conversion ratio):
Basic common stock outstanding
41,252
Multiplied by the cash merger consideration per share
$
6.70
Cash merger consideration for outstanding common stock
$
276,388
Less: Cash merger consideration for restricted stock excluded
from the purchase price in accordance with GAAP
$
3,298
Total cash merger consideration
$
273,090
Basic common stock outstanding
41,252
Less: Shares of Basic restricted stock outstanding
567
Estimated number of Basic shares of common stock to be converted
40,685
Multiplied by the per share exchange ratio of 0.9195
37,410
Assumed market price of a share of Holdings’ common stock
that will be issued
$
21.84
Estimated value of the shares of Holdings’ common stock
that will be issued
$
817,035
Estimated value of the shares of Holdings’ restricted stock
included in the purchase price in accordance with GAAP
$
1,499
Estimated value of Holdings’ stock options included in the
purchase price in accordance with GAAP
$
37,374
Total stock merger consideration
$
855,908
Retirement of Basic revolving credit facility
150,000
Pro forma transaction costs
35,000
Total pro forma purchase price
$
1,313,998
Immediately prior to the effective time of the Merger, each
outstanding common share of Grey Wolf will be converted into the
right to receive (1) 0.2500 shares of Holdings’
common stock and (2) $1.82 in cash. Immediately prior to
the effective time of the Merger, each outstanding common share
of Basic will be converted into the right to receive
(1) 0.9195 shares of Holdings’ common stock and
(2) $6.70 in cash.
An independent appraisal firm has been engaged to assist in
finalizing the allocation of the purchase price. The preliminary
purchase price allocations are subject to change based on
finalization of the fair values of the tangible and intangible
assets acquired and liabilities assumed as described above. The
estimated
The historical condensed combined balance sheet and statements
of income of Grey Wolf and Basic have been prepared in
accordance with accounting principles generally accepted in the
United States of America. Transactions between Grey Wolf and
Basic were not material individually or in the aggregate. The
following notes set forth the assumptions used in preparing the
unaudited pro forma condensed combined financial statements. The
pro forma adjustments are based on estimates made by Grey
Wolf’s and Basic’s management that are preliminary and
subject to change based upon the final purchase price allocation.
The adjustments to the accompanying unaudited pro forma
condensed combined balance sheet as of March 31, 2008 are
described below:
(a) To record the payment of estimated cash consideration
to Basic stockholders of $273.1 million, estimated cash to
Grey Wolf stockholders of $326.0 million, and an estimate
of Grey Wolf’s out-of-pocket transaction costs associated
with the acquisition totaling $35.0 million.
(b) To reflect borrowings of approximately
$600.0 million under a proposed six-year, senior secured
term loan facility (the “Term Loan Facility”) to
satisfy the cash purchase price obligation to Basic stockholders
and cash to Grey Wolf stockholders.
(c) Reflects the adjustment to record debt issuance costs
of $15.0 million incurred under the Term Loan facility and
debt issuance costs of $8.1 million incurred under a
proposed five-year, $325.0 million revolving credit
facility (the “New Revolving Credit Facility”).
(d) To reflect the repayment of Basic’s outstanding
balances associated with a revolving credit facility that will
terminate upon consummation of the acquisition totaling
$150.0 million and to write-off Basic’s remaining
long-term deferred debt issuance costs related to the facility
in the amount of $1.6 million.
(e) To record a preliminary estimate of separately
identifiable intangible assets related primarily to customer
relationships with an expected useful life of approximately
15 years.
(f) Reflects the adjustment to record the difference
between the preliminary estimate of the fair value and the
historical amount of Basic’s property, plant and equipment.
(g) To record the excess purchase price over the estimated
fair value of Basic’s net assets.
(h) To reflect the adjustment of approximately
$223.3 million required under Statement of Financial
Accounting Standards No. 109, “Accounting for Income
Taxes,” to record the estimated incremental deferred income
taxes. The adjustment reflects the difference between the
preliminary fair value of Basic’s assets, other than
goodwill, and liabilities recorded under purchase accounting and
the carryover tax basis of those assets and liabilities. A
combined statutory federal and blended state income tax rate of
38.0% was used for these adjustments.
(i) To record the issuance of approximately
37.4 million shares of Holdings’ common stock, par
value $0.01, at an assumed price of $21.84, which was based on
the average closing price of Grey Wolf common stock for the two
trading days before through the two trading days after the
announcement of the mergers on April 21, 2008. In addition
to the common stock issuance, approximately $37.4 million
and $1.5 million was recorded to additional paid-in capital
related to the conversion of certain of Basic’s stock
options and restricted stock awards, respectively.
(j) Reflects the adjustment to eliminate Basic’s
historical equity accounts.
The adjustments to the accompanying unaudited pro forma
condensed combined statement of operations for the three months
ended March 31, 2008 are described below:
(k) To reflect the additional depreciation expense of
$3.5 million for the increase in estimated fair value of
the acquired assets. For purposes of this adjustment,
Basic’s historical carrying values of its fixed assets were
analyzed and these historical carrying values were adjusted to
estimated fair value.
(l) To reflect interest expense of $11.3 million
related to the Term Loan Facility to satisfy approximately
$600.0 million of cash obligations associated with the
merger estimated at 7.50% per annum.
NOTES TO
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS —
(Continued)
(m) To reflect the increase to interest expense associated
with the amortization, over a six-year term, of the anticipated
debt issuance costs incurred with the Term Loan Facility; the
amortization, over a five-year term, of the anticipated debt
issuance costs incurred with the New Revolving Credit Facility;
and letter of credit fees and commitment fees associated with
the New Revolving Credit Facility.
(n) Reflects the adjustment to eliminate $2.3 million
of Basic’s historical interest expense, letter of credit
fees, and amortization of debt issuance costs associated with
Basic’s existing revolving credit facility that were
assumed to be repaid at the beginning of the period presented.
(o) To record amortization expense over an estimated useful
life of 15 years for the estimated intangible assets
separately identified primarily related to customer
relationships.
(p) To record the income tax benefit related to the effect
of the pro forma adjustments at a combined statutory federal and
blended state income tax rate of 38.0%.
(q) Pro forma weighted average shares outstanding have been
adjusted to reflect the conversion of Basic’s outstanding
common stock, stock options and restricted stock to shares of
Holdings’ common stock and reflect the Grey Wolf exchange
ratio, which is deemed to be a reverse stock split, associated
with the acquisition assuming the transaction was consummated at
the beginning of the period presented.
(r) Historical shares outstanding and earnings per share
are restated to reflect the deemed reverse stock split resulting
from the transaction. Restated shares outstanding are calculated
based on the ratio of 0.2500 for each share outstanding in
accordance with the merger agreement.
The adjustments to the accompanying unaudited pro forma
condensed combined statement of operations for the twelve months
ended December 31, 2007 are described below:
(s) To reflect additional depreciation expense of
$32.5 million for the increase in estimated fair value of
the acquired assets. For purposes of this adjustment,
Basic’s historical carrying values of its fixed assets were
analyzed and these historical carrying values were adjusted to
estimated fair value.
(t) To reflect interest expense of $45.0 million
related to the Term Loan Facility to satisfy approximately
$600.0 million of cash obligations associated with the
merger estimated at 7.50% per annum.
(u) To reflect the increase to interest expense associated
with the amortization, over a six-year term, of the anticipated
debt issuance costs incurred with the Term Loan Facility; the
amortization, over a five-year term, of the anticipated debt
issuance costs incurred with the New Revolving Credit Facility;
and letter of credit fees and commitment fees associated with
the New Revolving Credit Facility.
(v) Reflects the adjustment to eliminate $7.8 million
of Basic’s historical interest expense, letter of credit
fees, and amortization of debt issuance costs associated with
Basic’s existing revolving credit facility that were
assumed to be repaid at the beginning of the period presented.
(w) To record amortization expense over an estimated useful
life of 15 years for the estimated intangible assets
separately identified primarily related to customer
relationships.
(x) To record the income tax benefit related to the effect
of the pro forma adjustments at a combined statutory federal and
blended state income tax rate of 38.0%.
(y) Pro forma weighted average shares outstanding have been
adjusted to reflect the conversion of Basic’s outstanding
common stock, stock options and restricted stock to shares of
Holdings’ common stock and reflect the Grey Wolf exchange
ratio, which is deemed to be a reverse stock split, associated
with the acquisition assuming the transaction was consummated at
the beginning of the period presented.
(z) Historical Grey Wolf shares outstanding and earnings
per share are restated to reflect the deemed reverse stock split
resulting from the transaction. Restated shares outstanding are
calculated based on the Grey Wolf exchange ratio of 0.2500 for
each Grey Wolf share outstanding in accordance with the merger
agreement.
The following summary of the capital stock of Holdings is
subject in all respects to the applicable provisions of the DGCL
and the restated certificate of incorporation of Holdings to be
in effect on the effective date of the mergers. Additional
information regarding the capital stock of Basic and Grey Wolf
is incorporated by reference as set forth in “Where You Can
Find More Information” beginning on page 147; a
comparison of your rights before and after the proposed mergers
is set forth in “Comparison of Stockholder Rights”
beginning on page 135. Prior to the consummation of the
mergers, Holdings will adopt a restated certificate of
incorporation and amended and restated bylaws. The following
discussion is a summary of the restated certificate of
incorporation and the amended and restated bylaws of Holdings
that will be in effect following the consummation of the mergers
and is qualified in its entirety by reference to the forms
thereof as of the effective time of the mergers attached as
Exhibits 2.3(a) and 2.3(b), respectively, to the copy of
the merger agreement included as Annex A to this joint
proxy statement/prospectus.
Upon consummation of the mergers, the total number of authorized
shares of capital stock of Holdings will consist of
290 million shares of common stock, par value $0.01 per
share, and 10 million shares of preferred stock, par value
$0.01 per share.
The board of directors of Holdings is authorized, subject to any
limitations prescribed by law, to provide by resolution for the
issuance of authorized and unissued shares of preferred stock in
one or more series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, which certificate is
referred to in this joint proxy statement/prospectus as a
“preferred stock designation,” to establish from time
to time the number of shares to be included in each such series,
and to fix the designation, powers, preferences, and rights, and
any qualifications and limitations of the shares of each such
series including, among other things, voting rights and
restrictions thereon, rights upon any liquidation of Holdings,
the provision of a sinking fund payment for the redemption of a
given series of preferred shares, dividends or the making of
distributions and imposing restrictions thereon, the terms of
conversions or exchanges of a given series of preferred shares
into other securities of Holdings, and grant other special
rights to the full extent permitted by Delaware law.
The shares of Holdings common stock to be issued in the mergers
will be duly authorized, validly issued, fully paid and
non-assessable. Except as otherwise required by applicable law
and subject to the rights of the holders of any series of
preferred stock, each registered holder of common stock will be
entitled to one vote for each share of common stock held by such
holder on each matter properly submitted to the stockholders of
Holdings for their vote; provided, however, that, except as
otherwise required by applicable law, holders of common stock of
Holdings will not be entitled to vote on any amendment to the
restated certificate of incorporation of Holdings (including any
preferred stock designation) that relates solely to the terms of
one or more outstanding series of preferred stock if the holders
of that affected series of preferred stock are entitled, either
separately or together as a class with the holders of one or
more other series of preferred stock, to vote thereon by law or
pursuant to Holdings’ restated certificate of incorporation
(including any preferred stock designation).
Holdings’ restated certificate of incorporation does not
permit cumulative voting. Holders of Holdings common stock are
not entitled to any sinking fund provisions or preemptive rights
to subscribe for additional shares of Holdings common stock, nor
are they liable to further capital calls or to assessments by
Holdings.
Subject to any preferential rights with respect to any series of
outstanding preferred stock and any restrictions that may be
imposed by instruments governing any indebtedness of Holdings or
its subsidiaries, holders of Holdings common stock are entitled
to receive dividends when and as declared by board of directors
of Holdings at its discretion out of legally available funds. On
liquidation, dissolution, sale or
winding up of Holdings, holders of common stock are entitled to
share ratably in all assets remaining after payment of
liabilities and satisfaction of preferential rights.
Application will be made to list the common stock of Holdings on
the New York Stock Exchange under the trading symbol
“GW.”
Under the Holdings restated certificate of incorporation, the
board of directors of Holdings has the full authority permitted
by Delaware law to determine the voting rights, if any, and
designations, preferences, limitations and special rights of any
series of the preferred stock. The issuance of preferred stock
could adversely affect the voting power of holders of Holdings
common stock and restrict their rights to receive payments upon
liquidation of Holdings. Further, the Holdings restated
certificate of incorporation provides that a director may be
removed from office only for cause. In addition, subject to
applicable law, if the board of directors were to establish a
series of preferred stock and provide that series with the right
to elect a director in the preferred stock designation, that
director could be removed without cause only by the holders of a
majority of the shares of that series of preferred stock.
Holdings’ restated certificate of incorporation provides
that any action required or permitted to be taken by the
stockholders must be effected at a duly called annual or special
meeting and may not be taken by written consent. The amended and
restated bylaws of Holdings further provide that special
meetings of the stockholders of Holdings may be called only by
the Chairman of the board of directors of Holdings, the Chief
Executive Officer of Holdings, or by the board of directors of
Holdings acting pursuant to a resolution adopted by a majority
of the total number of authorized directors on the board of
directors of Holdings (regardless of whether there exist any
vacancies in the authorized directorships). Stockholders are not
entitled to call special meetings of the stockholders of
Holdings. The provisions of Holdings’ restated certificate
of incorporation and amended and restated bylaws
(1) conferring on the Holdings board of directors the full
authority to issue preferred stock, (2) limiting the right
to remove a director without cause, (3) limiting the right
to remove a director elected by the holders of any series of
preferred stock, (4) requiring that stockholders act at a
duly called meeting and (5) prohibiting stockholders from
calling a special meeting, in certain instances could have the
effect of delaying, deferring or preventing a change in control
of Holdings or the removal of existing management.
The restated certificate of incorporation of Holdings provides
that a director of Holdings will not be personally liable to
Holdings or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for any of
the following:
•
any breach of the director’s duty of loyalty to Holdings or
its stockholders,
•
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
•
payments of unlawful dividends or unlawful stock repurchases or
redemptions, or
•
any transaction from which the director derived an improper
personal benefit.
Holdings’ restated certificate of incorporation further
provides that if the DGCL is amended to authorize corporate
action further eliminating or limiting the personal liability of
directors, then the liability of a director of Holdings will be
eliminated or limited to the fullest extent permitted by the
DGCL, as so amended. Any repeal or modification of the
limitation of the directors’ liability to Holdings by the
stockholders of Holdings will not adversely affect any right or
protection of a director of Holdings existing at the time of
such repeal or modification. Holdings’ restated certificate
of incorporation and bylaws also provide that Holdings will
indemnify and advance expenses to its officers and directors to
the fullest extent permitted by applicable law. The inclusion of
these provisions in Holdings’ restated certificate of
incorporation and amended and restated bylaws may have the
effect of reducing the likelihood of derivative litigation
against directors and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach
of their
fiduciary duty as a director, even though such an action, if
successful, might otherwise have benefited Holdings and the
holders of Holdings common stock.
Basic and Holdings are incorporated under the laws of the State
of Delaware. Grey Wolf is incorporated under the laws of the
State of Texas. In accordance with the merger agreement, upon
the consummation of the mergers, the holders of Basic common
stock and Grey Wolf common stock will receive the right to
exchange their respective shares of common stock for Holdings
common stock in accordance with their respective exchange ratios
and cash. Your rights as a stockholder of Holdings will be
governed by Delaware law, Holdings’ restated certificate of
incorporation and Holdings’ amended and restated bylaws.
The following is a comparison of the material rights of
stockholders under each company’s organizational documents
and the Delaware and Texas statutory framework. The forms of the
Holdings’ restated certificate of incorporation and amended
and restated bylaws are included in this joint proxy
statement/prospectus as Exhibits 2.3(a) and 2.3(b),
respectively, to the merger agreement that is included as
Annex A to this joint proxy statement/prospectus. Copies of
the restated certificate of incorporation of Basic, the amended
and restated articles of incorporation of Grey Wolf, and the
amended and restated bylaws of each of Basic and Grey Wolf were
previously filed with the SEC. See “Where You Can Find More
Information” on page 147. The following description
does not purport to be complete and is qualified by reference to
the DGCL, the TBCA and other Delaware and Texas laws, the
amended and restated articles of incorporation of Grey Wolf, the
amended and restated certificate of incorporation of Basic, the
restated certificate of incorporation of Holdings, and the
amended and restated bylaws of each of Grey Wolf, Basic and
Holdings.
501 million, of which (1) 500 million are
shares of common stock, par value $0.10 per share,
and (2) 1 million are shares of preferred stock,
par value $1.00 per share.
85 million, of which (1) 80 million are shares of common stock,
par value $0.01 per share, and (2) 5 million are shares of
preferred stock, par value $0.01 per share.
300 million, of which (1) 290 million are shares of common
stock, par value $0.01 per share, and (2) 10 million are shares
of preferred stock, par value $0.01 per share.
Grey Wolf currently has 7 directors. The Grey Wolf bylaws
provide that the number of directors can be increased or
decreased from time to time by the board of directors of Grey
Wolf.
Basic currently has 8 directors. The number of directors
on the Basic board of directors will be fixed from time to time
by the board of directors, but shall consist of not less than 3
nor more than 10 (except in certain circumstances as necessary
to allow preferred stockholders to elect directors). The
maximum number of directors may not be increased by the Basic
board of directors to exceed 10 members without the affirmative
vote of
662/3%
of the members of the entire board of directors.
Holdings’ restated certificate of incorporation provides
that at the effective time of the mergers Holdings will have
nine directors, five designated by Grey Wolf and four designated
by Basic, pursuant to the merger agreement. Holdings’
amended and restated bylaws provide that the number of directors
shall be fixed from time to time as set forth in Holdings’
restated certificate of incorporation, but that the maximum
number of directors may not be increased by the Holdings board
of directors to exceed ten members without the affirmative vote
of two-thirds of the total number of authorized directors
whether or not there exist any vacancies in previously
authorized directorships.
A Grey Wolf director may be removed from office only for cause
and then only by the affirmative vote of the holders of at least
662/3%
of the voting power of all of the then-outstanding shares of
capital stock of Grey Wolf entitled to vote generally in the
election of directors, voting together as a single class;
provided, however, these requirements do not apply to directors
elected by holders of preferred stock.
A Basic director may be removed from office only for cause by
the holders of not less than a majority of the shares then
entitled to vote in an election of directors. The Basic board
of directors may not remove a director and may not recommend to
the Basic stockholders that a director be removed unless the
recommendation is approved by the affirmative vote of not less
than
662/3%
of the directors then in office. Basic directors elected by
holders of any class or series of preferred stock may be removed
with or without cause by the affirmative vote of not less than a
majority of all outstanding shares of such class or series of
preferred stock.
A Holdings director may be removed from office only for cause
and then only by a resolution adopted by the affirmative vote of
not less than a majority of the holders of the voting power of
the outstanding Holdings shares entitled to vote generally in
the election of directors.
Until the date one year after the effective date of the mergers,
the consent of at least two-thirds of the number of Holdings
directors then in office shall be required for (1) the election
of any person other than Kenneth V. Huseman as Chief Executive
Officer of Holdings, and of any person other than Thomas A.
Richards as Chairman of the Holdings board, and (2) the removal,
with or without cause, of either Mr. Huseman as Chief Executive
Officer or Mr. Richards as Chairman.
Subject to the rights of holders of preferred stock to elect
additional directors under certain circumstances, there are
three classes of Grey Wolf directors, designated Class I,
Class II and Class III, as nearly equal in number as
possible. One class of directors is elected each year, and the
term of each class of directors expires at the third succeeding
annual meeting of stockholders after their election by the
stockholders.
Same as Grey Wolf.
Same as Basic and Grey Wolf, except that initially Class I and
Class III will each consist of one director designated by
Basic and two directors designated by Grey Wolf and
Class II will consist of one director designated by Grey
Wolf and two directors designated by Basic.
Subject to the rights of the holders of any series of Grey Wolf
preferred stock outstanding, vacancies and newly created
directorships may be filled by the vote of a majority of the
remaining directors in office, even though less than a quorum,
or by the sole remaining director.
Same as Grey Wolf.
Same as Basic and Grey wolf, except that any vacancy on the
board of directors that occurs prior to the date that is one
year after the date of Holdings’ restated certificate of
incorporation will be filled: (1) if the vacancy is due to the
death, resignation or removal of a director designated by Grey
Wolf, by designation by a committee constituted by the remaining
Grey Wolf directors to fill such vacancy or (2) if the vacancy
is due to the death, resignation or removal of a director
designated by Basic, by designation by a committee constituted
by the remaining Basic directors to fill such vacancy.
A majority of the total number of Grey Wolf directors then in
office constitutes a quorum. The affirmative vote of a majority
of directors present at meeting at which there is a quorum
constitutes action by the Grey Wolf board of directors.
Same as Grey Wolf.
A majority of the total number of authorized Holdings directors
(whether or not there vacancies exist in previously authorized
directorships) constitutes a quorum. The affirmative vote of a
majority of Holdings directors present at a meeting at which
there is a quorum constitutes action by the Holdings board of
directors.
The date, time and place of the annual meeting are determined by
the Grey Wolf board of directors. Notice of the annual meeting
must be mailed to the Grey Wolf stockholders no less than 10 and
no more than 60 days prior to the meeting.
The date and time of the annual meeting are determined by the
Basic board of directors (the date of the annual meeting will be
no later than 13 months after the date of the last annual
meeting of the stockholders). Notice of the annual meeting must
be mailed to Basic stockholders no less than 10 and no more than
60 days prior to the meeting.
The date and time of the annual meeting are determined by the
Holdings board of directors. Notice of the annual meeting must
be mailed to Holdings stockholders no less than 10 and no more
than 60 days prior to the meeting.
Except as otherwise required by law or Grey Wolf’s articles
of incorporation, special meetings of the Grey Wolf stockholders
may be called by the Chairman of the Board, the Vice Chairman of
the Board, the Chief Executive Officer, the President, by a
resolution approved by a majority of the entire Grey Wolf board
of directors or by the holders of at least 50% of all the shares
entitled to vote at such meeting.
Special meetings of the Basic stockholders may be called by the
Chairman of the Board (if any), the Chief Executive Officer or
by the board of directors upon an affirmative vote of a majority
of the directors then in office; except as otherwise provided by
applicable law, Basic’s certificate of incorporation or
Basic’s bylaws, stockholders may not call special meetings
of stockholders.
Special meetings of the Holdings stockholders may be called by
the Chairman of the Board (if any), the Chief Executive Officer
or by the Holdings board of directors upon an affirmative vote
of a majority of the total number of authorized directors
whether or not there exist any vacancies in previously
authorized directorships; except as otherwise provided by
applicable law, stockholders may not call special meetings of
stockholders.
The holders of at least one half of all of the shares of the
stock entitled to vote, present at the meeting in person or by
proxy, constitute a quorum for all purposes, unless otherwise
provided by law, Grey Wolf’s articles of incorporation or
Grey Wolf’s bylaws.
The holders of a majority of all the shares of Basic stock
entitled to vote generally in the election of directors, present
in person or by proxy, constitute a quorum at any meeting of the
stockholders unless otherwise provided by applicable law,
Basic’s certificate of incorporation or Basic’s bylaws.
The affirmative vote of a majority of the shares having voting
power represented, present in person or by proxy, at the meeting
and voting for or against or expressly abstained on any matter,
will decide all matters (even those requiring more than a
majority vote by the TBCA) unless otherwise required by law,
Grey Wolf’s articles of incorporation or Grey Wolf’s
bylaws. Pursuant to the TBCA, directors shall be elected by a
plurality of the votes cast by the holders of shares entitled to
vote in the election of directors.
The affirmative vote of a majority of the shares of voting stock
entitled to vote on such matters represented at a meeting of
stockholders, present in person or by proxy, constitute the act
of the stockholders in all matters other than the election of
directors unless otherwise provided by applicable law,
Basic’s certificate of incorporation or Basic’s
bylaws. Directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at the
meeting and entitled to vote on the election of directors,
except as otherwise provided in Basic’s certificate of
incorporation or Basic’s bylaws.
To bring a matter before an annual meeting or to nominate a
candidate for director, a stockholder’s notice of the
proposed matter or nomination must be received at Grey
Wolf’s principal executive office not less than 60 and not
more than 120 days prior to the anniversary date of the
mailing to stockholders of the notice of meeting for the
immediately preceding annual meeting.
In the event that the date of the annual meeting is changed by
more than 30 days from the anniversary date of the
immediately preceding annual meeting, the stockholder’s
notice must be received at Grey Wolf’s principal executive
office no later than the close of business on the 10th day
following the earlier of the date on which a written statement
setting forth the date of such meeting was mailed to
stockholders or the date on which it is first disclosed to the
public. In the case of a special meeting at which directors are
to be elected, a stockholder nomination notice must be received
at Grey Wolf’s principal executive office not less than 50
nor more than 120 days prior to the date of such meeting.
To bring business before an annual meeting, a stockholder’s
notice of the proposed business must be received at Basic’s
principal executive office not less than 120 days in
advance of the first anniversary of the date of Basic’s
proxy statement released to stockholders in connection with the
previous year’s annual meeting of stockholders.
If no annual meeting was held in the previous year or the date
of the annual meeting has been changed by more than 30 days
from the date contemplated at the time of the previous
year’s proxy statement, the notice must be received by
Basic at least 80 days prior to the date Basic intends to
distribute its proxy statement with respect to such meeting.
In the case of a special meeting at which directors are to be
elected, notice must be received by Basic not earlier than the
close of business on the 10th day following the day on
which public announcement is first made of the date of the
special meeting and of the nominees proposed by Basic’s
board of directors to be elected at such special meeting;
stockholders are not entitled to bring matters other than
nominations of directors before a special meeting.
To bring business before an annual meeting, a stockholder’s
notice of the proposed business must be received at
Holdings’ principal executive office not less than
120 days nor more than 150 days prior to the first
anniversary date of the date of Holdings’ proxy statement
released to stockholders in connection with the previous
year’s annual meeting of stockholders.
If no annual meeting was held in the previous year or the date
of the annual meeting has been changed by more than 30 days
from the date contemplated at the time of the previous
year’s proxy statement, the notice must be received by
Holdings no earlier than 150 days prior to the date of the
meeting and no later than 120 days prior to the meeting or
the 10th day following the day on which public announcement
of the meeting was first made.
Stockholders may not nominate persons for election as directors
at any special meeting unless the business to be transacted at
such meeting, as set forth in the notice of such meeting,
includes the election of directors. To be timely in the case of
a special meeting, a stockholder nomination notice in connection
with such special meeting must be received at the principal
executive office of Holdings not later than the close of
business on the 10th day following the day on which public
announcement is first made of the date of the special meeting.
None. Grey Wolf’s articles of incorporation contain a
clause stating that if, with respect to any action to be taken
by the stockholders of Grey Wolf, any provision of the TBCA
would require a vote of more than a majority of stockholders,
the vote of the holders of shares having only a majority will be
required with respect to any such action.
Subject to certain exceptions, Section 203 of the DGCL generally
prohibits public corporations from engaging in significant
business transactions, including mergers, with a holder of 15%
or more of the corporation’s stock, referred to as an
interested stockholder, for a period of three years after the
interested stockholder becomes an interested stockholder. Basic
has not elected to not be governed by Section 203 of the DGCL.
Grey Wolf has a stockholder rights plan exercisable only if
affiliated persons acquire (or there is an announcement of a
tender offer under which such persons would acquire) 15% or more
of the outstanding common stock of Grey Wolf. In such case, each
holder of one share of Grey Wolf stock would be entitled to
purchase, from Grey Wolf, 1/1000 of a share of Series B
Participating Preferred Stock, par value $1.00 per share,
at an exercise price of $11.00 per 1/1000 of a share. Grey Wolf
has entered into an amendment to this rights plan the effect of
which is to ensure that the mergers do not trigger any
provisions under the rights agreement.
Grey Wolf’s articles of incorporation do not contain any
special provisions regarding amendments, generally, except
that: (1) the articles may not be amended in any
manner which would materially and adversely alter the powers,
preferences or special rights of the Series B Preferred
Stock without the affirmative vote of the holders of at least
662/3%
of the outstanding shares of Series B Preferred Stock
voting as a single class and (2) the provision in the
articles relating to amendments to Grey Wolf’s bylaws
cannot be amended without the affirmative vote of 75% of the
holders of all shares of Grey Wolf stock entitled to vote,
voting as a single class.
Basic’s certificate of incorporation does not contain any
special provisions regarding the approval of amendments to
Basic’s certificate of incorporation. Under Delaware law,
approval of a majority of the outstanding stock entitled to vote
is required to amend a corporations’ certificate of
incorporation.
Holdings’ restated certificate of incorporation requires a
vote of stockholders holding at least
662/3%
of the outstanding shares present in person or represented by
proxy at a meeting and entitled to vote generally in the
election of directors in order to amend the following Articles
of Holdings’ restated certificate of incorporation: FIFTH
(stockholder vote requirements), SIXTH (directors), SEVENTH
(amendment to bylaws), EIGHTH (limitation on liability of
directors), NINTH (indemnification of directors and officers)
and ELEVENTH (amendment to certificate of incorporation). Under
Delaware law, approval of a majority of the outstanding stock
entitled to vote is required to amend a corporations’
certificate of incorporation.
The Grey Wolf board of directors is expressly and exclusively
empowered to adopt, amend or repeal Grey Wolf’s bylaws.
Basic’s bylaws may be altered, amended or repealed, and new
bylaws may be adopted by the affirmative vote of a majority of
the board of directors then in office, provided that no such
action may be taken at a special meeting of the board unless
notice of such meeting is contained in the notice of the
meeting, or by the affirmative vote of not less than
662/3%
of all authorized shares of voting stock entitled to vote
generally in the election of directors of Basic voting together
as a single class. According to Basic’s certificate of
incorporation, Basic’s bylaws may be amended by a majority
of the board, but bylaws adopted by the board may be amended
“by the stockholders entitled to vote thereon.”
Holdings’ amended and restated bylaws may not be altered,
amended or rescinded, nor may new bylaws be adopted except (1)
by the board of directors by the affirmative vote of a majority
of the total number of authorized directors whether or not there
exist any vacancies in previously authorized directorships,
provided that no such action may be taken at a special meeting
of the board unless notice of such action is contained in the
notice of the meeting, (2) until the date that is one year from
the date of Holdings’ amended and restated bylaws,
amendments to certain sections of the bylaws dealing with the
number, qualification, classes, election, term and committees of
directors as well as certain sections dealing with officers, by
the affirmative vote of not less than
662/3%
of the number of directors then in office or (3) by the
stockholders by the affirmative vote of holders of not less than
662/3%
of all authorized shares entitled to vote generally in the
election of directors, voting together as a single class.
No director of Grey Wolf will be liable to Grey Wolf or its
stockholders for an act or omission in the director’s
capacity as director except for: (1) a breach of the
director’s duty of loyalty to Grey Wolf or its
stockholders, (2) an act or omission not in good faith
that constitutes a breach of duty of the director to Grey Wolf
or an act or omission that involves intentional misconduct or
knowing violation of the law, (3) a transaction from
which the director received improper benefit, whether or not the
benefit resulted from an action taken within the scope of the
director’s office or (4) an act or omission for
which the liability of a director is expressly provided by
applicable statutes.
If Texas law is amended to authorize corporate action further
eliminating or limiting the personal liabilities of directors,
then the liability of a director of Grey Wolf will be eliminated
or limited to the fullest extent permitted by such laws, as so
amended.
A director of Basic will not be personally liable to Basic or
its stockholders for breach of fiduciary duty except for: (1)
any breach of the director’s duty of loyalty to Basic or
its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (3) willful or negligent violation of provisions of the
DGCL governing payment of dividends and stock purchases or
redemptions (Section 174 of the DGCL) or (4) any transaction
from which the director derived an improper personal benefit.
If the DGCL is amended to authorize a corporation to further
eliminate or limit the personal liabilities of directors, then
the liability of a director of Basic will be eliminated or
limited to the fullest extent permitted by the DGCL, as so
amended.
Grey Wolf is required to indemnify its officers and directors
and may indemnify its employees and agents to the maximum extent
allowed under Texas law.
Under Texas law, Grey Wolf is permitted to provide advancement
of expenses and indemnification against judgments, penalties,
fines, settlement and reasonable expenses actually incurred by a
person in connection with proceedings against such person
because the person served as a director, officer employee or
agent of Grey Wolf if it is determined in accordance with
Article 2.02 of the TBCA that the
person (1) acted in good
faith, (2) reasonably believed that his conduct in his
official capacity as director or officer was in Grey Wolf’s
best interest or, with respect to conduct in other capacities,
was not opposed to Grey Wolf’s best interest
and (3) in the case of any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. In
addition, indemnification is not permitted if the person is
found liable to Grey Wolf or if the person is found liable on
the basis that he received an improper personal benefit.
With respect to its officers and directors, Basic is required
to, and with respect to its employees and agents, Basic may,
indemnify, to the maximum extent permitted by Delaware law,
every person who is or was a party or is or was threatened to be
made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of Basic)
by reason of the fact that such person is or was a director,
officer, employee or agent, as applicable, of Basic or any of
its subsidiaries or is or was serving at the request of Basic or
any its subsidiaries as a director, officer, fiduciary, employee
or agent, as applicable, of another entity, against expenses
(including counsel fees), judgments, fines and amounts paid or
owed in settlement actually and reasonably incurred in
connection with such action, suit or proceeding, if such person
acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of Basic,
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In
proceedings by or in the right of Basic, persons are indemnified
by Basic in accordance with the standards set forth above,
except that (1) such indemnity is only against expenses
(including counsel fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such
action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed
to the best interests of Basic and (2) no indemnification will
be made with respect to any claim, issue or matter as to which
such person is adjudged to be liable to Basic unless and to the
extent that such person is, despite such adjudication but in
view of all the circumstances of the case, fairly and reasonably
entitled to indemnification.
Section 203 of the DGCL generally prohibits significant business
transactions, including mergers, with a holder of 15% or more of
a public corporation’s stock for a period of three years
after such holder exceeds such ownership level, unless:
Same as Basic.
• the board approves either the transaction in
question or the acquisition of shares by the interested
stockholder prior to the time the stockholder becomes an
interested stockholder based on its direct or indirect ownership
of 15% of the corporation’s stock; or
• when the interested stockholder exceeds the fifteen
percent threshold, it acquires at least 85% of the outstanding
shares not held by certain affiliates, such as pursuant to a
tender offer; or
• the transaction is approved by the board of
directors and the holders of at least two-thirds of the
corporation’s shares entitled to vote thereon, excluding
the shares held by the interested stockholder, at a meeting of
stockholders. Delaware law does not require that this vote occur
within six month’s of the interested stockholder’s
share acquisition date.
The validity of the Holdings common stock offered by this joint
proxy statement/prospectus has been passed upon for Holdings by
Porter & Hedges, L.L.P., Houston, Texas. Certain
U.S. federal income tax consequences relating to the
mergers will be passed upon for Grey Wolf by Porter &
Hedges, L.L.P., Houston, Texas, and for Basic by Andrews Kurth
LLP, Houston, Texas.
The consolidated financial statements and schedule of Grey Wolf
as of December 31, 2007 and 2006, and for each of the years
in the three-year period ended December 31, 2007, and
management’s assessment of the effectiveness of internal
control over financial reporting as of December 31, 2007
have been incorporated by reference herein in reliance upon the
reports of KPMG LLP, independent registered public accounting
firm, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing. The audit
report covering the December 31, 2007 consolidated
financial statements refers to a change in the method of
accounting for income taxes as of January 1, 2007, and
accounting for stock-based compensation plans as of
January 1, 2006.
The balance sheet of Holdings as of May 5, 2008, has been
included herein in reliance upon the report of KPMG LLP,
independent registered public accounting firm, appearing
elsewhere herein, and upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements and schedule of Basic as
of December 31, 2007 and 2006, and for each of the years in
the three-year period ended December 31, 2007, and
management’s assessment of the effectiveness of internal
control over financial reporting as of December 31, 2007
have been incorporated by reference herein in reliance upon the
reports of KPMG LLP, independent registered public accounting
firm, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing. The audit
report covering the December 31, 2007 consolidated
financial statements refers to a change in accounting for
share-based payments effective January 1, 2006. The audit
report on the effectiveness of internal control over financial
reporting as of December 31, 2007, contains an explanatory
paragraph that states that Basic acquired JetStar Consolidated
Holdings, Inc., Sledge Drilling Holding Corp., and Wildhorse
Services, Inc. (collectively the 2007 Excluded Acquisitions)
during 2007, and management excluded from its assessment of the
effectiveness of Basic’s internal control over financial
reporting as of December 31, 2007, the 2007 Excluded
Acquisitions’ internal control over financial reporting
associated with total assets of $236.1 million and total
revenues of $85.8 million included in the consolidated
financial statements of Basic and subsidiaries as of and for the
year ended December 31, 2007. The audit of internal control
over financial reporting of Basic also excluded an evaluation of
the internal control over financial reporting of the 2007
Excluded Acquisitions.
Holdings filed a registration statement on
Form S-4
to register with the SEC the Holdings common stock to be issued
to Basic and Grey Wolf stockholders in connection with the
mergers. This joint proxy statement/prospectus is a part of that
registration statement and constitutes a prospectus of Holdings
in addition to being a joint proxy statement of Basic and Grey
Wolf. As allowed by SEC rules, this joint proxy
statement/prospectus does not contain all the information you
can find in Holdings’ registration statement or the
exhibits to the registration statement. Basic and Grey Wolf file
special, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any
reports, statements or other information that Basic and Grey
Wolf file with the SEC at the SEC’s public reference room
at the following location:
Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. These SEC
filings are also available to the public from commercial
document retrieval services and at the Internet web site
maintained by the SEC at
http://www.sec.gov.
Reports, proxy statements and other information concerning Basic
also may be inspected at the offices of the New York Stock
Exchange, which is located at 20 Broad Street, New York,
New York10005.
The SEC allows Basic and Grey Wolf to “incorporate by
reference” information into this joint proxy
statement/prospectus, which means that the companies can
disclose important information to you by referring you to other
documents filed separately with the SEC. The information
incorporated by reference is considered part of this joint proxy
statement/prospectus, except for any information superseded by
information contained directly in this joint proxy
statement/prospectus or in later-filed documents incorporated by
reference in this joint proxy statement/prospectus. This joint
proxy statement/prospectus incorporates by reference the
documents listed below that Basic and Grey Wolf have previously
filed with the SEC. These documents contain important business
and financial information about the companies.
Period
Basic Energy Services, Inc.
Filings (File No. 1-32693):
Annual Report on
Form 10-K,
as
amended by
Form 10-K/A
To the extent that any information contained in any Current
Report on
Form 8-K,
or any exhibit thereto, was furnished, rather than filed with,
the SEC, that information or exhibit is specifically not
incorporated by reference in this document.
This joint proxy statement/prospectus also incorporates by
reference all documents that may be filed by Basic and Grey Wolf
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act between the date of this joint proxy
statement/prospectus and the date of the Grey Wolf special
meeting and the date of the Basic special meeting (other than
portions of those documents that are furnished and not filed).
Those documents are considered to be part of this joint proxy
statement/prospectus, effective as of the date they are filed.
In the event of conflicting information in these documents, the
information in the latest-filed document should be considered
correct.
Basic has supplied all information relating to Basic, Grey Wolf
has supplied all information relating to Grey Wolf, and Basic
and Grey Wolf have jointly supplied all information contained or
incorporated by reference in this joint proxy
statement/prospectus relating to Holdings.
Basic and Grey Wolf stockholders can obtain any documents
incorporated by reference in this document from the SEC through
its website listed above or from the companies without charge,
excluding all exhibits other than those exhibits specifically
incorporated by reference as an exhibit in this joint proxy
statement/
prospectus, by requesting them in writing or by telephone from
the appropriate company at the following addresses:
Basic Energy Services, Inc. 500 W. Illinois, Suite 100 Midland, Texas79701
(432) 620-5500
Attention: Investor Relations
Grey Wolf, Inc. 10370 Richmond Avenue, Suite 600 Houston, Texas77042
(713) 435-6100
Attention: Investor Relations
You may also obtain documents incorporated by reference in this
joint proxy statement/prospectus by requesting them in writing
or by telephone from the information agent:
Basic and Grey Wolf stockholders call toll-free
(800) 561-3540
If you would like to request documents, please do so by
July 8, 2008, in order to receive them before your special
meeting. If you request any documents from Basic or Grey Wolf,
Basic or Grey Wolf will mail them to you by first class mail or
another equally prompt means within one business day of
receiving your request. You may also obtain these documents by
visiting our respective websites at www.basicenergyservices.com
or www.gwdrilling.com and clicking on “Investor
Relations” or at the SEC’s website described above.
Information contained on these websites does not constitute a
part of this joint proxy statement/prospectus.
You should rely only on the information contained or
incorporated by reference in this joint proxy
statement/prospectus. We have not authorized anyone to provide
you with information that is different from the information
contained in this joint proxy statement/prospectus. If you are
in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities
offered by this document or the solicitation of proxies is
unlawful, or if you are a person to whom it is unlawful to
direct these types of activities, then the offer presented in
this document does not extend to you. This joint proxy
statement/prospectus speaks only as of its date unless the
information specifically indicates that another date applies.
Neither the mailing of this joint proxy statement/prospectus to
Basic stockholders and Grey Wolf stockholders nor the issuance
of the Holdings common stock in the mergers creates any
implication to the contrary.
We have audited the accompanying balance sheet of Horsepower
Holdings, Inc. as of May 5, 2008. This financial statement
is the responsibility of the Company’s management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of
material misstatement. An audit of a balance sheet includes
examining, on a test basis, evidence supporting the amounts and
disclosures in that balance sheet, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents
fairly, in all material respects, the financial position of
Horsepower Holdings, Inc. as of May 5, 2008 in conformity
with U.S. generally accepted accounting principles.
Horsepower Holdings, Inc. (“Holdings”) is a Delaware
corporation formed in April 2008 for the purpose of facilitating
the mergers combining Grey Wolf, Inc. (“Grey Wolf”)
and Basic Energy Services, Inc. (“Basic” and together
with Grey Wolf, the “Purchasers”).
The Purchasers formed Holdings and both Grey Wolf and Basic
acquired 50 shares of Holdings common stock, $0.01 par
value, for $1.00 per share.
This Agreement and Plan of Merger (as amended, supplemented or
modified from time to time, this “Agreement”),
dated as of April 20, 2008, is by and among GREY WOLF,
INC., a Texas corporation (“Grey Wolf”), BASIC
ENERGY SERVICES, INC., a Delaware corporation
(“Basic”) and HORSEPOWER HOLDINGS, INC., a
Delaware corporation owned equally by Grey Wolf and Basic
(“Holdings”).
WHEREAS, the boards of directors of each of Basic, Grey
Wolf and Holdings have approved this Agreement and the mergers
of Basic and Grey Wolf with and into Holdings, with Holdings
continuing as the surviving corporation, upon the terms and
subject to the conditions of this Agreement, the Texas Business
Corporation Act, as amended, or any successor law thereto (the
“TBCA”), and the Delaware General Corporation
Law, as amended or any successor law thereto (the
“DGCL”);
WHEREAS, the boards of directors of each of Basic, Grey
Wolf and Holdings have determined that this Agreement, the
mergers herein provided for, and the other transactions
contemplated hereby are advisable and in the best interests of
their respective companies and stockholders;
WHEREAS, for federal income Tax purposes, it is intended
that (i) the Mergers qualify as a
“reorganization” within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the “Code”), (ii) Grey Wolf,
Basic and Holdings each will be parties to the reorganization
within the meaning of Section 368(b) of the Code and
(iii) this Agreement will constitute a plan of
reorganization within the meaning of
Section 1.368-2(g)
of the Treasury Regulations; and
WHEREAS, concurrent with the execution of this Agreement
and as a condition to and inducement of Grey Wolf’s and
Holdings’ willingness to enter into this Agreement, each of
the stockholders of Basic set forth on
Schedule A-1
is entering into a voting agreement (the “Basic Voting
Agreement”).
NOW, THEREFORE, for and in consideration of the foregoing
and the representations, warranties, covenants and agreements
set forth in this Agreement, the parties to this Agreement (each
a “Party,” and collectively, the
“Parties”) agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Defined
Terms.
(a) As used in this Agreement, capitalized terms shall have
the meanings set forth below:
“Acquisition Proposal” means for any Person any
Contract, proposal, offer or other inquiry or indication of
interest (regardless of whether in writing and regardless of
whether delivered to the stockholders) relating to any of the
following (other than the transactions contemplated by this
Agreement or the Mergers): (a) any merger, reorganization,
share exchange, take-over bid, tender offer, recapitalization,
consolidation, liquidation, dissolution or other business
combination, purchase or similar transaction or series of
transactions, directly or indirectly, involving 20% or more of
the assets, net revenues or net income of such Person and its
Subsidiaries taken as a whole; (b) the sale, lease,
exchange, transfer or other disposition, directly or indirectly,
of any business or assets that generate 20% or more of the
consolidated net revenues or net income, or of assets
representing 20% or more of the book value of the consolidated
assets, of such Person and its Subsidiaries, taken as a whole,
or any license, lease, exchange, mortgage, pledge or other
agreement or arrangement having a similar economic effect, in
each case in a single transaction or a series of related
transactions or (c) any direct or indirect acquisition of
beneficial ownership (as defined in Section 13(d) of the
Exchange Act) or any direct or indirect acquisition of the right
to acquire beneficial ownership (as defined in
Section 13(d) of the Exchange Act) by any Person or any
“group” (as defined in the Exchange Act) of 20% or
more of the shares of any class of the issued and outstanding
Equity Interests of such Person, whether in a single transaction
or a series of related transactions.
“Affiliate” means, with respect to any Person,
each other Person that, directly or indirectly, Controls, is
Controlled by or is under common Control with such Person.
Notwithstanding the foregoing, for purposes of this Agreement,
none of the Persons listed on
Schedule A-1
shall be considered an Affiliate of Basic.
“AMEX” means the American Stock Exchange LLC.
“Applicable Law” means with respect to any
Person, any international, federal, state, local or foreign
statute, code, ordinance, rule, regulation, consent, approval,
judgment, Order, writ, decree, injunction or other
authorization, treaty, convention, or governmental requirement
of any Governmental Authority that is binding upon, or
applicable to, such Person.
“Basic 2003 Plan” means the Basic Energy
Services, Inc. Second Amended and Restated 2003 Incentive Plan,
as such may be amended and restated by the Basic Energy
Services, Inc. Third Amended and Restated 2003 Incentive Plan
approved by the Basic Board in March 2008 if such plan is
approved by the stockholders of Basic prior to the consummation
of the Mergers.
“Basic Acquisition Proposal” means an
Acquisition Proposal involving Basic or the Basic Companies
taken as a whole, as the case may be.
“Basic Adjustment Fraction” means (a) the
average closing price of one share of Basic Common Stock on the
NYSE for the five consecutive day trading period ending on the
last trading day immediately preceding the Effective Time
divided by (b) the Notional Surviving Corporation Share
Fair Market Value.
“Basic Benefit Plan” means a Benefit Plan
(a) providing benefits to (i) any current or former
employee, officer or director of Basic or any of the Basic
Subsidiaries or ERISA Affiliates or (ii) any beneficiary or
dependent of any such employee, officer or director that is
sponsored, maintained or contributed to by Basic or any of the
Basic Subsidiaries or ERISA Affiliates or to which Basic or any
of the Basic Subsidiaries or ERISA Affiliates is a party or is
obligated to contribute; or (b) with respect to which Basic
or any of the Basic Subsidiaries or ERISA Affiliates has any
liability, whether direct or indirect, contingent or otherwise.
“Basic Board” means the board of directors of
Basic.
“Basic Certificate” means a certificate
representing a share or shares of Basic Common Stock or other
appropriate evidence of a share or shares of Basic Common Stock
issued in book-entry form.
“Basic Common Stock” means the common stock,
par value $0.01 per share, of Basic.
“Basic Companies” means Basic and each of the
Basic Subsidiaries.
“Basic Credit Agreement” means the Fourth
Amended and Restated Credit Agreement dated as of
October 3, 2003, amended and restated as of
February 6, 2007, among Basic, the subsidiary guarantors
party thereto, Bank of America, N.A., as syndication agent,
Capital One, National Association, as documentation agent, BNP
Paribas, as documentation agent, UBS AG, Stamford Branch, as
issuing bank, administrative agent and collateral agent, and the
lenders party thereto.
“Basic Deferred Compensation Plan” means the
Executive Deferred Compensation Plan of Basic Energy Services,
Inc. effective April 1, 2005.
“Basic Dissenting Shares” means any shares of
Basic Common Stock held by a Basic Dissenting Stockholder as of
the Effective Time.
“Basic Dissenting Stockholder” means any holder
of shares of Basic Common Stock who does not vote in favor of
the Basic Merger (or consent thereto in writing) and who is
entitled to demand and properly demands a judicial appraisal of
the fair value of such stockholder’s shares pursuant to,
and otherwise complies in all respects with, the provisions of
Section 262 of the DGCL.
“Basic Employees” means the individuals who are
employed as employees by Basic or any of the Basic Subsidiaries
immediately prior to the Effective Time who remain employed as
employees of Holdings or any of its Subsidiaries immediately
after the Effective Time.
“Basic Indenture Trustee” means The Bank of New
York, N.A., trustee of the Basic Senior Notes Indenture.
“Basic Leased Real Property” means all real
property leased by Basic or any of the Basic Subsidiaries.
“Basic Material Adverse Effect” means a
Material Adverse Effect with respect to Basic.
“Basic Meeting” means a meeting of the
stockholders of Basic duly called and held for the purposes set
forth in the Proxy Statement/Prospectus.
“Basic Merger Proposal” means the proposal to
adopt this Agreement which proposal is to be presented to the
stockholders of Basic in the Proxy Statement/Prospectus and
voted on at the Basic Meeting.
“Basic Owned Real Property” means all real
property owned by Basic or any of the Basic Subsidiaries.
“Basic Plan Proposal” means the proposal to
approve the Holdings Plan which proposal is to be presented to
the stockholders of Basic in the Proxy Statement/Prospectus and
voted on at the Basic Meeting.
“Basic Preferred Stock” means shares of
preferred stock, par value $0.01 per share, of Basic.
“Basic Proposals” means the Basic Merger
Proposal and the Basic Plan Proposal.
“Basic Real Property” means the Basic Leased
Real Property and the Basic Owned Real Property.
“Basic Representative” means a Representative
of Basic or the Basic Subsidiaries.
“Basic Restricted Stock” means the shares of
restricted Basic Common Stock issued pursuant to a Basic Stock
Plan.
“Basic Senior Notes Indenture” means the
Indenture dated as of April 12, 2006, among Basic, the
guarantors party thereto, and The Bank of New York,
Trust Company, N.A. as trustee pursuant to which Basic
issued $225 million principal amount of the Basic Senior
Notes, and all supplemental indentures thereto.
“Basic Subsidiary” means a Subsidiary of Basic.
“Basic Subsidiary Charter Documents” means the
certificate of incorporation, articles of incorporation,
certificate of formation, certificate of limited partnership,
bylaws, limited liability company agreement, operating
agreement, partnership agreement or other governing or
organizational documents of each of the Basic Subsidiaries.
“Basic Subsidiary Guarantors”means all of the
Subsidiaries of Basic that have guaranteed the Basic Senior
Notes.
“Basic Superior Proposal” means a Basic
Acquisition Proposal that is a Superior Proposal.
“Benefit Plan” means any qualified or
non-qualified employee benefit plan, program, policy, practice,
agreement, Contract or other arrangement, regardless of whether
written, regardless of whether
U.S.-based,
including any “employee welfare benefit plan” within
the meaning of Section 3(1) of ERISA (including
post-retirement medical and life insurance), any “employee
pension benefit plan” within the meaning of
Section 3(2) of ERISA (regardless of whether such plan is
subject to ERISA), including any multiemployer plan (as defined
in Section 3(37) of ERISA) or multiple employer plan
(within the meaning of Section 413(c) of the Code), any
employment or severance agreement or other arrangement, and any
employee benefit, bonus, incentive, deferred compensation,
profit sharing, vacation, stock, stock
purchase, stock option, severance, change of control, fringe
benefit or other plan, program, policy, practice, agreement,
Contract, or other arrangement, regardless of whether subject to
ERISA and regardless of whether funded.
“Business Day” means any day other than a
Saturday, Sunday or any day on which banks in the State of New
York are authorized or required by federal law to be closed in
New York, New York.
“Certificates” means certificates representing
shares of Grey Wolf Common Stock or Basic Common Stock, as
applicable.
“Certificate of Mergers” means the certificate
of mergers, prepared and executed in accordance with the
applicable provisions of the DGCL and this Agreement, filed with
the Secretary of State of Delaware to effect the Mergers in
Delaware.
“Commitment Letter” means the commitment letter
dated April 20, 2008, from the Joint Lead Arrangers to
provide a $600 million senior secured term loan facility
and a $325 million senior secured revolving credit facility
to provide debt financing for the transactions contemplated by
this Agreement, as such commitment letter may be amended,
supplemented or replaced from time to time.
“Confidentiality Agreement” means the
Confidentiality Agreement, dated as of March 8, 2008,
between Basic and Grey Wolf.
“Continuing Director” means an individual who
is a director of Basic or Grey Wolf immediately prior to the
Effective Time and who will become a director of Holdings at the
Effective Time in accordance with this Agreement. For the
avoidance of doubt, Steven A. Webster shall be deemed a
Continuing Director of both Basic and Grey Wolf.
“Contract” means any agreement, arrangement,
commitment or instrument, written or oral, including, without
limitation, any loan or credit agreement or other agreement
evidencing Indebtedness, promissory note, bond, mortgage,
indenture, guarantee, permit, lease, sublease, license,
agreement to render services, or other agreement, arrangement,
commitment or instrument evidencing rights or obligations of any
kind or nature, including all amendments, modifications,
supplements and options relating thereto.
“Control” (and related terms) means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management policies of a Person,
whether through the ownership of stock, by contract, credit
arrangement or otherwise.
“Disclosure Letter” means, as applicable, the
Grey Wolf Disclosure Letter or the Basic Disclosure Letter.
“DOJ” means the United States Department of
Justice.
“Environmental, Health and Safety Laws” means
any present or future Applicable Laws relating to
(a) emissions, discharges, releases or threatened releases
of Hazardous Materials into the environment, including into
ambient air, soil, sediments, land surface or subsurface,
buildings or facilities, surface water, groundwater,
publicly-owned treatment works, or septic systems, (b) the
generation, treatment, storage, disposal, use, handling,
manufacturing, recycling, transportation or shipment of
Hazardous Materials, (c) occupational health and safety, or
(d) the pollution of the environment, solid waste handling,
treatment or disposal, reclamation or remediation activities, or
protection of environmentally sensitive areas.
“Equity Interests” means (a) with respect
to a corporation, any and all shares, interests, participation,
phantom stock plans or arrangements or other equivalents
(however designated) of corporate stock, including all common
stock, preferred stock and other equity and voting interests,
and warrants, options, calls, subscriptions or other convertible
securities or other rights to acquire any of the foregoing, and
(b) with respect to a partnership, limited liability
company or similar Person, any and all units, membership or
other interests, including rights to purchase, warrants,
options, calls, subscriptions or other
equivalents of, or other interests convertible into, any
beneficial or legal ownership interest in such Person.
“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended, and any regulations
promulgated pursuant thereto.
“ERISA Affiliate” means any trade or business,
regardless of whether incorporated, which is required to be
treated as a single employer together with an entity pursuant to
Section 414(b), (c), (m) or (o) of the Code or
Section 4001(b)(1) of ERISA.
“Exchange Act” means the Securities Exchange
Act of 1934, as amended.
“Financing” means the debt financing to be
provided to Holdings pursuant to the Commitment Letter.
“FTC” means the United States Federal Trade
Commission.
“GAAP” means generally accepted accounting
principles, as recognized by the U.S. Financial Accounting
Standards Board (or any generally recognized successor).
“Governmental Authority” means any national,
state, local, county, parish or municipal government, domestic
or foreign, any agency, board, bureau, commission, court,
tribunal, subdivision, department or other governmental or
regulatory authority or instrumentality, or any arbitrator in
any case that has jurisdiction over any of the Grey Wolf
Companies or Basic Companies, as the case may be, or any of
their respective properties or assets.
“Grey Wolf 3.75% Notes Indenture” means
the Indenture dated as of May 7, 2003, between Grey Wolf,
JPMorgan Chase Bank and the guarantors party thereto pursuant to
which Grey Wolf issued $150,000,000 principal amount of the Grey
Wolf 3.75% Notes, and all supplemental indentures thereto.
“Grey Wolf Acquisition Proposal” means an
Acquisition Proposal involving Grey Wolf or the Grey Wolf
Companies taken as a whole, as the case may be.
“Grey Wolf Adjustment Fraction” means
(a) the average closing price of one share of Grey Wolf
Common Stock on the AMEX for the five consecutive day trading
period ending on the last trading day immediately preceding the
Effective Time divided by (b) the Notional Surviving
Corporation Share Fair Market Value.
“Grey Wolf Benefit Plan” means a Benefit Plan
(a) providing benefits to (i) any current or former
employee, officer or director of Grey Wolf or any of the Grey
Wolf Subsidiaries or ERISA Affiliates or (ii) any
beneficiary or dependent of any such employee, officer or
director that is sponsored, maintained or contributed to by Grey
Wolf or any of the Grey Wolf Subsidiaries or ERISA Affiliates or
to which Grey Wolf or any of the Grey Wolf Subsidiaries or ERISA
Affiliates is a party or is obligated to contribute, or
(b) with respect to which Grey Wolf or any of the Grey Wolf
Subsidiaries or ERISA Affiliates has any liability, whether
direct or indirect, contingent or otherwise.
“Grey Wolf Board” means the board of directors
of Grey Wolf.
“Grey Wolf Certificate” means a certificate
representing a share or shares of Grey Wolf Common Stock or
other appropriate evidence of a share or shares of Grey Wolf
Common Stock issued in book-entry form.
“Grey Wolf Common Stock” means the common
stock, par value $0.10 per share, of Grey Wolf.
“Grey Wolf Companies” means Grey Wolf and each
of the Grey Wolf Subsidiaries.
“Grey Wolf Credit Agreement” means the
Revolving Credit Agreement, dated as of January 14, 1999,
among Grey Wolf Drilling, LP (as borrower), Grey Wolf (as
guarantor), The CIT Group/Business Credit, Inc. (as agent) and
various financial institutions (as lenders), as amended.
“Grey Wolf Dissenting Shares” means any shares
of Grey Wolf Common Stock held by a Grey Wolf Dissenting
Stockholder as of the Effective Time.
“Grey Wolf Dissenting Stockholder” means any
holder of shares of Grey Wolf Common Stock who does not vote in
favor of the Grey Wolf Merger (or consent thereto in writing)
and who is entitled to demand and properly demands a judicial
appraisal of the fair value of such stockholder’s shares
pursuant to, and otherwise complies in all respects with, the
provisions of Article 5.12 of the TBCA.
“Grey Wolf Employees” means the individuals who
are employed as employees by Grey Wolf or any of the Grey Wolf
Subsidiaries immediately prior to the Effective Time who remain
employed as employees of Holdings or any of its Subsidiaries
immediately after the Effective Time.
“Grey Wolf Floating Rate Notes Indenture” means
the Indenture dated as of March 31, 2004, between Grey
Wolf, JPMorgan Chase Bank and the guarantors party thereto
pursuant to which Grey Wolf issued $125,000,000 principal amount
of the Grey Wolf Floating Rate Contingent Convertible Senior
Notes.
“Grey Wolf Indenture Trustee” means The Bank of
New York Trust Company, N.A., trustee of each of the Grey
Wolf Senior Notes Indentures.
“Grey Wolf Leased Real Property” means all real
property leased by Grey Wolf or any of the Grey Wolf
Subsidiaries.
“Grey Wolf Material Adverse Effect” means a
Material Adverse Effect with respect to Grey Wolf.
“Grey Wolf Meeting” means a meeting of the
stockholders of Grey Wolf duly called and held for the purposes
set forth in the Proxy Statement/Prospectus.
“Grey Wolf Merger Proposal” means the proposal
to approve this Agreement which proposal is to be presented to
the stockholders of Grey Wolf in the Proxy Statement/Prospectus
and voted on at the Grey Wolf Meeting.
“Grey Wolf Owned Real Property” means all real
property owned by Grey Wolf or any of the Grey Wolf Subsidiaries.
“Grey Wolf Plan Proposal” means the proposal to
approve the Holdings Plan which proposal is to be presented to
the stockholders of Grey Wolf in the Proxy Statement/Prospectus
and voted on at the Grey Wolf Meeting.
“Grey Wolf Preferred Stock” means shares of
preferred stock, par value $1.00 per share, of Grey Wolf.
“Grey Wolf Proposals” means the Grey Wolf
Merger Proposal and the Grey Wolf Plan Proposal.
“Grey Wolf Real Property” means Grey Wolf
Leased Real Property and Grey Wolf Owned Real Property.
“Grey Wolf Representative” means a
Representative of Grey Wolf or the Grey Wolf Subsidiaries.
“Grey Wolf Restricted Stock” means the shares
of restricted Grey Wolf Common Stock issued pursuant to a Grey
Wolf Stock Plan.
“Grey Wolf Senior Notes Indentures” means
(a) the Grey Wolf 3.75% Notes Indenture, and
(b) the Grey Wolf Floating Rate Notes Indenture.
“Grey Wolf Subsidiary” means a Subsidiary of
Grey Wolf.
“Grey Wolf Subsidiary Charter Documents” means
the certificate of incorporation, articles of incorporation,
certificate of formation, certificate of limited partnership,
bylaws, limited liability company agreement, operating
agreement, partnership agreement or other governing or
organizational documents of each of the Grey Wolf Subsidiaries.
“Grey Wolf Subsidiary Guarantors” means all of
the Subsidiaries of Grey Wolf that have guaranteed obligations
with respect to the Grey Wolf 3.75% Notes, the Grey Wolf
Floating Rate Notes or both the Grey Wolf 3.75% Notes and
the Grey Wolf Floating Rate Notes.
“Grey Wolf Superior Proposal” means a Grey Wolf
Acquisition Proposal that is a Superior Proposal.
“Hazardous Material” means any chemical,
pollutant, contaminant, material, waste or substance regulated
by any Governmental Authority under Environmental, Health and
Safety Law, including, but not limited to, any hazardous waste,
hazardous substance, toxic substance, radioactive material
(including any naturally occurring radioactive material),
asbestos-containing materials in any form or condition,
polychlorinated biphenyls in any form or condition, or
petroleum, petroleum hydrocarbons, petroleum products or any
fraction or byproducts thereof.
“Holdings Credit Facilities” means the credit
agreement entered into by Holdings pursuant to the Commitment
Letter or any definitive documentation with respect to an
Alternative Financing.
“Holdings Plan” means the Holdings 2008 Equity
Incentive Plan.
“Indebtedness” of any Person means and includes
any obligations consisting of (a) the outstanding principal
amount of and accrued and unpaid interest on, and other payment
obligations for, borrowed money, or payment obligations issued
or incurred in substitution or exchange for payment obligations
for borrowed money, (b) amounts owing as deferred purchase
price for property or services, including “earn out”
payments, (c) payment obligations evidenced by any
promissory note, bond, debenture, mortgage or other debt
instrument or debt security, (d) commitments or obligations
by which such Person assures a creditor against loss, including
contingent reimbursement obligations with respect to letters of
credit, (e) payment obligations secured by a Lien, other
than a Permitted Lien, on assets or properties of such Person,
(f) obligations to repay deposits or other amounts advanced
by and owing to third parties, (g) obligations under
capitalized leases, (h) obligations under any interest
rate, currency or other hedging agreement or derivatives
transaction, (i) guarantees or other contingent liabilities
with respect to any amounts of a type described in
clauses (a) through (h) above, and (j) any change
of control payments or prepayment premiums, penalties, charges
or equivalents thereof with respect to any indebtedness,
obligation or liability of a type described in clauses (a)
through (i) above that are required to be paid at the time
of, or the payment of which would become due and payable solely
as a result of, the execution of this Agreement or the
consummation of the transactions contemplated by this Agreement
at such time, in each case determined in accordance with GAAP;
provided, however, that Indebtedness shall not
include accounts payable to trade creditors and accrued expenses
arising in the ordinary course of business consistent with past
practices and shall not include the endorsement of negotiable
instruments for collection in the ordinary course of business.
“Intellectual Property” means all United States
and foreign (a) patents and patent applications and all
reissues, renewals, divisions, extensions, provisionals,
continuations and continuations in part thereof,
(b) inventions (regardless of whether patentable),
invention disclosures, trade secrets, proprietary information,
industrial designs and registrations and applications, mask
works and applications and registrations therefor,
(c) copyrights and copyright applications and corresponding
rights, (d) trade dress, trade names, logos, URLs, common
law trademarks and service marks, registered trademarks and
trademark applications, registered service marks and service
mark applications, (e) domain name rights and
registrations, (f) databases, customer lists, data
collections and rights therein, and (g) confidentiality
rights or other intellectual property rights of any nature, in
each case throughout the world.
“Joint Lead Arrangers” means UBS Loan Finance
LLC, UBS Securities LLC and Goldman Sachs Credit Partners L.P.
or, as applicable, any lead arranger or arrangers in connection
with the Alternative Financing.
“Lien” means any lien, mortgage, security
interest, indenture, deed of trust, pledge, deposit,
restriction, burden, lien, license, lease, sublease, right of
first refusal, right of first offer, charge, privilege,
easement, right of way, reservation, option, preferential
purchase right, right of a vendor under any title
retention or conditional sale agreement, or other arrangement
substantially equivalent thereto, in each case regardless of
whether relating to the extension of credit or the borrowing of
money.
“Material Adverse Effect” means, with respect
to any Person, a material adverse effect on the business,
results of operations, or condition (financial or otherwise) of
such Person and its Subsidiaries, taken as a whole, except to
the extent any such effect results from: (a) changes in the
industry in which such Person or its Subsidiaries operate or in
the economy or the financial, securities or credit markets in
the U.S. or elsewhere in the world, including any
regulatory or political conditions or developments, or any
outbreak or escalation of hostilities or declared or undeclared
acts of war, terrorism, insurrection or natural disasters, that
do not disproportionately affect the business, results of
operations or condition (financial or otherwise) of such Person
and its Subsidiaries, taken as a whole, relative to other
industry participants, in any material respect (b) the
execution or public disclosure of this Agreement or the
consummation or the pendency of the transactions contemplated
hereby, (c) fluctuations in the price or trading volume of
shares of any trading stock of such Person (provided,
however, that the exception in this clause (c) shall
not prevent or otherwise affect a determination that any fact,
circumstance, event, change, effect or occurrence underlying
such fluctuation has resulted in, or contributed to, a Material
Adverse Effect), (d) changes in Applicable Law or in GAAP
(or the interpretation thereof) after the date hereof that do
not disproportionately affect the business, results of
operations or condition (financial or otherwise) of such Person
and its Subsidiaries, taken as a whole, relative to other
industry participants, in any material respect, (e) any
legal proceedings made or brought by any of the current or
former stockholders of such Person (or on their behalf or on
behalf of such Persons) arising out of or related to this
Agreement or any of the transactions contemplated hereby, or
(f) any failure by such Person to meet any published
analyst estimates or expectations regarding such Person’s
revenue, earnings or other financial performance or results of
operations for any period or any failure by such Person to meet
its internal budgets, plans or forecasts regarding its revenues,
earnings or other financial performance or results of operations
(provided, however, that the exception in this
clause (f) shall not prevent or otherwise affect a
determination that any fact, circumstance, event, change, effect
or occurrence underlying such failure has resulted in, or
contributed to, a Material Adverse Effect with respect to such
Person).
“Notional Surviving Corporation Share Fair Market
Value”means (a) for purposes of determining the
Basic Adjustment Fraction (i) the average closing price of
one share of Basic Common Stock on the NYSE for the five
consecutive day trading period ending on the last trading day
immediately preceding the Effective Time minus
(ii) the Basic Cash Consideration, divided by
(iii) the Basic Exchange Ratio and (b) for
purposes of determining the Grey Wolf Adjustment Fraction
(i) the average closing price of one share of Grey Wolf
Common Stock on the AMEX for the five consecutive day trading
period ending on the last trading day immediately preceding the
Effective Time minus (ii) the Grey Wolf Cash
Consideration, divided by (iii) the Grey Wolf
Exchange Ratio.
“NYSE” means the New York Stock Exchange, Inc.
“Order” means any order, writ, fine,
injunction, decree, judgment, award or enforceable determination
of any Governmental Authority.
“Permitted Liens” means (a) Liens for
Taxes, assessments or other governmental charges or levies that
are not yet due and payable or that are being contested in good
faith by appropriate proceedings and for which adequate reserves
in accordance with GAAP have been established and described in
the applicable Disclosure Letter, (b) Liens in connection
with workmen’s compensation, unemployment insurance or
other social security, old age pension or public liability
obligations not yet due or which are being contested in good
faith by appropriate proceedings and for which adequate reserves
in accordance with GAAP have been established and described in
the applicable Disclosure Letter, (c) operators’,
vendors’, suppliers’, carriers’,
warehousemen’s, repairmen’s, mechanics’,
workmen’s, materialmen’s, or construction Liens
(during repair or upgrade periods) or other like Liens arising
by operation of Applicable Law in the ordinary course of
business or statutory landlord’s Liens, each of which is in
respect of obligations that have not been outstanding more than
90 days (so long as no action has been
taken to file or enforce such Liens within said
90-day
period) or which are being contested in good faith, or
(d) any other Lien, encumbrance or other imperfection of
title that does not materially affect the value or use of the
property subject thereto.
“Person” means any natural person, corporation,
company, limited or general partnership, joint stock company,
joint venture, association, limited liability company, trust,
bank, trust company, land trust, business trust or other entity
or organization.
“Proxy Statement/Prospectus” means a joint
proxy statement in definitive form relating to Basic Meeting and
the Grey Wolf Meeting, which joint proxy statement will be
included in the prospectus contained in the Registration
Statement.
“Registration Statement” means the Registration
Statement on
Form S-4
under the Securities Act to be filed by Holdings with respect to
the shares of Holdings Common Stock issuable in the Mergers.
“Representative” means any director, officer,
employee, agent, advisor (including legal, accounting and
financial advisors) or other representative.
“Responsible Officers” means (a) for
Basic, each of the Chief Executive Officer and Chief Financial
Officer of Basic, and (b) for Grey Wolf, each of the Chief
Executive Officer and Chief Financial Officer of Grey Wolf.
“SEC” means the United States Securities and
Exchange Commission.
“Securities Act” means the Securities Act of
1933, as amended.
“SOX” means the Sarbanes-Oxley Act of 2002, as
amended, and the rules and regulations promulgated thereunder.
“Subsidiary” means for any Person at any time
(a) any corporation of which such Person owns, either
directly or through its Subsidiaries, more than 50% of the total
combined voting power of all classes of voting securities of
such corporation, or (b) any partnership, association,
joint venture, limited liability company or other business
organization, regardless of whether such constitutes a legal
entity, in which such Person directly or indirectly owns more
than 50% of the total Equity Interests.
“Superior Proposal” means a bona fide written
Acquisition Proposal (with all percentages used in the
definition of Acquisition Proposal increased to 50% for purposes
of this definition) made by a Third Party after the date of this
Agreement through the Effective Time (or such earlier date that
this Agreement is terminated in accordance with the terms set
forth herein), if the Grey Wolf Board or the Basic Board, as the
case may be, determines in good faith and after consultation
with a financial advisor of nationally recognized reputation,
and taking into account all legal, financial, regulatory and
other aspects of the Acquisition Proposal that such Acquisition
Proposal (a) would, if consummated in accordance with its
terms, be more favorable, from a financial point of view, to the
holders of the common stock of Grey Wolf or Basic, as the case
may be, than the transactions contemplated by this Agreement
(taking into account any amounts payable pursuant to
Section 7.3 and any Grey Wolf Revised Offer made
under Section 5.4(e) or any Basic Revised Offer made
under Section 5.5(e), as the case may be),
(b) contains conditions which are all reasonably capable of
being satisfied in a timely manner, and (c) is not subject
to any financing contingency or, to the extent financing for
such proposal is required, that such financing is then committed
in writing by financially sound financial institutions of
national reputation.
“Tax” or “Taxes” (including
with correlative meaning, “Taxable”) means
(a) any federal, foreign, state or local tax, including any
income, gross income, gross receipts, ad valorem, excise, sales,
use, value added, admissions, business, occupation, license,
franchise, margin, capital, net worth, customs, premium, real
property, personal property, intangibles, capital stock,
transfer, profits, windfall profits, environmental, severance,
fuel, utility, payroll, social security, employment,
withholding, disability, stamp, rent, recording, registration,
alternative minimum, add-on minimum, or other tax, assessment,
duty, fee, levy or other governmental charge of any kind
whatsoever imposed by a Governmental Authority (a “Tax
Authority”), together with and including, without
limitation, any and all interest, fines, penalties, assessments
and additions to tax resulting from, relating to, or incurred in
connection with any such tax or any contest or dispute thereof,
(b) any liability for the payment of any amount of the type
described in the immediately preceding clause (a) as a
result of being a member of a consolidated, affiliated, unitary
or combined group with any other corporation or entity at any
time prior to and through the Closing Date, and (c) any
liability for the payment of any amount of the type described in
the preceding clauses (a) or (b) as a result of a
contractual obligation to any other Person or of transferee,
successor or secondary liability.
“Tax Return” means any report, return,
document, declaration or other information (including any
attached schedules and any amendments to such report, return,
document, declaration or other information) required to be
supplied to or filed with any Tax Authority with respect to any
Tax, including an information return and any document with
respect to or accompanying payments, deposits or estimated
Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return,
document, declaration or other information.
“Third Party” means a Person other than any of
the Grey Wolf Companies or any of the Basic Companies.
“Treasury Regulations” means the regulations
promulgated by the United States Treasury Department under the
Code.
“Uncertificated Shares” means shares of Basic
Common Stock or Grey Wolf Common Stock, as applicable, that are
held in book-entry form.
(a) All references in this Agreement to Exhibits,
Schedules, Articles, Sections, subsections and other
subdivisions refer to the corresponding Exhibits, Schedules,
Articles, Sections, subsections and other subdivisions of or to
this Agreement, unless expressly provided otherwise. Titles
appearing at the beginning of any Articles, Sections,
subsections or other subdivisions of this Agreement are for
convenience only, do not constitute any part of this Agreement,
and shall be disregarded in construing the language hereof. The
words “this Agreement,”“herein,”“hereby,”“hereunder” and
“hereof,” and words of similar import, refer to this
Agreement as a whole and not to any particular Article, Section,
subsection or subdivision unless expressly so limited. The words
“this Article” and “this Section,” and words
of similar import, refer only to the Article, Section or
subsection hereof in which such words occur.
(b) The word “or” is not exclusive, and the word
“including” (in its various forms) means including
without limitation. Pronouns in masculine, feminine or neuter
genders shall be construed to state and include any other
gender, and words, terms and titles (including terms defined
herein) in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires.
(c) As used in the representations and warranties contained
in this Agreement, the phrase “to the knowledge” of
the representing Party or “known” to a representing
Party shall mean to the actual knowledge (and not constructive
or imputed knowledge) of one or more of the Responsible Officers
of the representing Party.
(d) The Parties have participated jointly in negotiating
and drafting this Agreement. In the event an ambiguity or a
question of intent or interpretation arises, this Agreement
shall be construed as if drafted
jointly by the Parties, and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the
authorship of any provision(s) of this Agreement.
(a) The Basic Merger. Upon the terms and
subject to the terms and conditions set forth in this Agreement,
at the Effective Time, Basic shall be merged with and into
Holdings (the “Basic Merger”) in accordance
with the provisions of this Agreement, and the separate
corporate existence of Basic shall thereupon cease. Holdings
shall be the surviving corporation in the Basic Merger. The
Basic Merger shall have the effects specified herein and in the
DGCL.
(b) The Grey Wolf Merger. Upon the terms
and subject to the terms and conditions set forth in this
Agreement, at the Effective Time, Grey Wolf shall be merged with
and into Holdings (the “Grey Wolf Merger” and
together with the Basic Merger, the “Mergers”)
in accordance with the provisions of this Agreement, and the
separate corporate existence of Grey Wolf shall thereupon cease.
Holdings shall be the surviving corporation in the Grey Wolf
Merger and, after the Mergers, Holdings shall be referred to
from time to time herein as the “Surviving
Corporation.” The Grey Wolf Merger shall have the
effects specified herein and in the TBCA and DGCL.
(c) Filings for the Mergers; Effective
Time. As soon as practicable following the
satisfaction or waiver (subject to Applicable Laws) of the
conditions set forth in this Agreement, at the Closing,
Holdings, Basic and Grey Wolf shall cause (i) properly
executed articles of merger meeting the requirements of
Article 5.04 of the TBCA (the “Articles of
Merger”) to be filed in accordance with such section,
and (ii) cause a properly executed Certificate of Mergers
to be filed with the Secretary of State of the State of
Delaware. The Basic Merger and the Grey Wolf Merger shall become
effective (the “Effective Time”) at
3:01 p.m. local time in Houston, Texas immediately after
the Articles of Merger are accepted for filing by the Secretary
of State of the State of Texas and the Certificate of Mergers is
accepted for filing by the Secretary of State of the State of
Delaware, or at such time thereafter as is agreed to by Basic
and Grey Wolf and provided in such Articles of Merger and
Certificate of Mergers.
Section 2.2 Closing. Subject
to the terms and conditions of this Agreement, the closing of
the Mergers (the “Closing”) shall take place
(a) at the offices of Porter & Hedges, L.L.P.,
1000 Main Street, 36th Floor, Houston, Texas as soon as
practicable after 10:00 a.m., local time, on the first
Business Day immediately following the day on which all of the
conditions set forth in Article 6 have been
satisfied or waived (by the party entitled to waive the
condition) (except for those conditions that by their nature
cannot be satisfied until the Closing, but subject to the
satisfaction or waiver of those conditions) or (b) at such
other time, date or place as Basic and Grey Wolf may agree in
writing. The date on which the Closing occurs is hereinafter
referred to as the “Closing Date.”
Section 2.3 Governing
Instruments of the Surviving Corporation. At the
Effective Time, the certificate of incorporation of Holdings
shall be in the form set forth on Exhibit 2.3(a)
(the “Holdings Charter”), and shall remain the
certificate of incorporation of Holdings until thereafter
amended as provided by the DGCL and the Holdings Charter. At the
Effective Time, the bylaws of Holdings shall be amended and
restated in the form set forth on Exhibit 2.3(b) (as
so amended and restated, the “Holdings
Bylaws”), and as so amended and restated, the Holdings
Bylaws shall be the bylaws of Holdings until thereafter amended
as provided by the DGCL, the Holdings Charter and the Holdings
Bylaws.
Section 2.4 Directors
of the Surviving Corporation.
(a) At the Effective Time, the board of directors of the
Surviving Corporation shall consist of five current members of
the Grey Wolf Board designated by Grey Wolf (the “Grey
Wolf Designated Directors”), after consultation with
Basic and before mailing of the Proxy Statement/Prospectus, and
four current members of the Basic Board designated by Basic (the
“Basic Designated Directors”), after
consultation with Grey Wolf
and before the mailing of the Proxy Statement/Prospectus;
provided, however, that Kenneth V. Huseman shall be
deemed a Basic Designated Director without further consultation
or designation and Thomas P. Richards shall be deemed a Grey
Wolf Designated Director without further consultation or
designation. For the avoidance of doubt, if Steven A. Webster is
designated as a director of Holdings by Basic, he shall be
deemed a Basic Designated Director and not a Grey Wolf
Designated Director. Of the five Grey Wolf Designated Directors
and four Basic Designated Directors, not more than two Basic
Designated Directors and not more than two Grey Wolf Designated
Directors shall fail to qualify as an independent director of
Holdings within the meaning of Section 303A.02 of the NYSE
Listed Company Manual.
(b) The members of the Surviving Corporation’s board
of directors shall be allocated by Grey Wolf or Basic, as the
case may be, before the Registration Statement is declared
effective by the SEC among Holdings’ three classes of
directors as follows: (i) two Grey Wolf Designated
Directors and one Basic Designated Director shall be allocated
to the class of directors whose term expires at the annual
meeting of Surviving Corporation to be held in 2009;
(ii) one Grey Wolf Designated Director and two Basic
Designated Directors shall be allocated to the class of
directors whose term expires at the annual meeting of the
Surviving Corporation to be held in 2010; and (iii) two
Grey Wolf Designated Directors and one Basic Designated Director
shall be allocated to the class of directors whose term expires
at the annual meeting of Surviving Corporation to be held in
2011. At the Effective Time, Thomas P. Richards (who shall be
one of the Grey Wolf Designated Directors) shall be the chairman
of the board of directors of the Surviving Corporation. From and
after the Effective Time, each individual designated as herein
provided to be a member of the Surviving Corporation’s
board of directors shall serve as a director until such
individual’s successor shall be elected and qualified or
such individual’s earlier death, resignation or removal in
accordance with Applicable Law, the Holdings Charter and the
Holdings Bylaws.
(c) If prior to the Effective Time, any Grey Wolf
Designated Director is unwilling or unable to serve (or to
continue to serve) as a director of the Surviving Corporation as
a result of illness, death, resignation or any other reason,
then, any replacement for such Person shall be selected by the
Grey Wolf Board, after consultation with Basic, and such
replacement shall constitute a Grey Wolf Designated Director. If
prior to the Effective Time, any Basic Designated Director is
unwilling or unable to serve (or to continue to serve) as a
director of the Surviving Corporation as a result of illness,
death, resignation or any other reason, then, any replacement
for such Person shall be selected by the Basic Board, after
consultation with Grey Wolf, and such replacement shall
constitute a Basic Designated Director. Prior to the Effective
Time, the Basic Designated Directors and the Grey Wolf
Designated Directors shall be nominated by the Basic Nominating
and Corporate Governance Committee of the Basic Board to serve
as members of the board of directors of the Surviving
Corporation as of the Effective Time. Prior to the Effective
Time, the Basic Designated Directors and Grey Wolf Designated
Directors shall be nominated by the Grey Wolf Nominating and
Corporate Governance Committee of the Grey Wolf Board to serve
as members of the board of directors of the Surviving
Corporation as of the Effective Time.
(d) At the Effective Time, the following standing
committees of the board of directors of the Surviving
Corporation shall be established, and the membership and chairs
of such committees shall be determined as follows:
(i) the Audit Committee shall be composed of three members,
two of whom shall be Grey Wolf Designated Directors and one
shall be a Basic Designated Director, and the chair of which
shall be a Grey Wolf Designated Director;
(ii) the Compensation Committee shall be composed of three
members, two of whom shall be Basic Designated Directors and one
shall be a Grey Wolf Designated Director, and the chair of which
shall be a Basic Designated Director; and
(iii) the Nominating and Governance Committee shall be
composed of three members, two of whom shall be Grey Wolf
Designated Directors and one shall be a Basic Designated
Director, and the chair of which shall be a Grey Wolf Designated
Director.
(e) At the Effective Time, each member of the Surviving
Corporation’s Audit Committee, Nomination and Corporate
Governance Committee and Compensation Committee, including each
Grey Wolf Designated Director or Basic Designated Director
appointed to such committees in accordance with this
Section 2.4, shall be an independent director within
the meaning of Section 303A.02 of the NYSE Listed Company
Manual, and in the case of the Audit Committee, satisfy such
additional requirements imposed upon such members by the NYSE at
the Effective Time.
(f) Upon approval of the Holdings Common Stock for listing
on the NYSE, a Grey Wolf Designated Director shall be the lead
independent director of the Surviving Corporation who will chair
executive sessions of the Surviving Corporation’s board of
directors in accordance with Section 303A.03 of the NYSE
Listed Company Manual.
Section 2.5 Certain
Officers of the Surviving Corporation. At the
Effective Time, the individuals listed on
Exhibit 2.5 hereto shall have the executive officer
positions with the Surviving Corporation set forth opposite
their respective names, and each such executive officer shall
serve until such executive officer’s successor shall be
elected and qualified or such executive officer’s earlier
death, resignation, retirement, disqualification or removal. If,
at or before the Effective Time, any such Person is unable or
unwilling to serve as an executive officer of the Surviving
Corporation in the capacity set forth on
Exhibit 2.5, then a substitute executive officer
shall be selected by the board of directors of the Surviving
Corporation after the Effective Time.
Section 2.6 Effect
on Basic Equity Securities.
(a) Basic Common Stock. At the Effective
Time, each share of Basic Common Stock outstanding immediately
prior to the Effective Time (other than Basic Dissenting Shares
and shares of Basic Common Stock to be cancelled without payment
of any consideration therefor pursuant to
Section 2.6(b)) shall, by virtue of the Basic
Merger, be converted into the right to receive: (i) 0.9195
(the “Basic Exchange Ratio”) validly issued,
fully paid and nonassessable shares of common stock, par value
$0.01 per share, of Holdings (the “Holdings Common
Stock”), together with the cash in lieu of fractional
shares of Holdings Common Stock as provided below (the
“Basic Stock Consideration”), and (ii) an
amount in cash equal to $6.70, without interest (the
“Basic Cash Consideration”). The Basic Stock
Consideration and the Basic Cash Consideration are referred to
herein collectively as the “Basic Merger
Consideration.” At the Effective Time, each such share
of Basic Common Stock shall cease to be outstanding and shall be
cancelled and cease to exist, and each holder of any such share
of Basic Common Stock shall thereafter cease to have any rights
with respect to such share of Basic Common Stock, except the
right to receive (i) certificates for shares of Holdings
Common Stock or non-certificated shares of Holdings Common Stock
represented by book-entry (“Holdings Book-Entry
Shares”), as elected by such holder, in accordance with
Section 2.11(b), (ii) cash in lieu of
fractional shares in accordance with Section 2.11(e)
upon surrender of such appropriate shares of Basic Common Stock,
(iii) any dividends or distributions on shares of Holdings
Common Stock to which such holder is entitled pursuant to
Section 2.11(c), and (iv) the Basic Cash
Consideration.
(b) Basic Treasury Stock. At the
Effective Time, all shares of Basic Common Stock that are held
immediately prior to the Effective Time by Basic or any of the
Basic Subsidiaries shall be cancelled and no payment shall be
made in respect thereof.
(c) Basic Stock Options.
(i) All options to acquire shares of Basic Common Stock
outstanding at the Effective Time and identified in
Section 4.3(b) of the Basic Disclosure Letter and
all options to acquire shares of Basic Common Stock issued
hereafter under Basic’s equity plans (collectively, the
“Basic Stock Plans”) or otherwise issued after
the date hereof, but in the case of any issuance after the date
hereof, only if issued in accordance with
Section 5.2(d) (individually, a “Basic
Option” and collectively, the “Basic
Options”) shall remain outstanding following the
Effective Time, subject to the modifications described in this
Section 2.6(c) and Section 5.17 of the
Basic Disclosure Letter. Prior to the Effective Time, Holdings
and Basic shall take all actions (if any) as may be required to
permit the assumption of such Basic Options by Holdings pursuant
to this Section 2.6(c) so that at the Effective
Time, the Basic Stock Plans shall be assumed by Holdings (with
such adjustments
thereto as may be required to reflect the Basic Merger,
including the substitution of Holdings Common Stock for Basic
Common Stock thereunder) and the Basic Options shall be assumed
and adjusted by Holdings, subject to the same terms and
conditions as under the applicable Basic Stock Plan and the
applicable option agreement entered into pursuant thereto (after
giving effect to any modifications effected in accordance with
Section 5.17 of the Basic Disclosure Letter), except
that immediately following the Effective Time (A) each such
Basic Option shall be exercisable only for that whole number of
shares of Holdings Common Stock equal to the product (rounded to
the nearest whole share, which shall be rounded down to the
extent necessary to comply with Section 424 of the Code) of
the number of shares of Basic Common Stock subject to such Basic
Option immediately prior to the Effective Time multiplied by the
Basic Adjustment Fraction, and (B) the exercise price per
share of Holdings Common Stock shall be an amount equal to the
exercise price per share of Basic Common Stock subject to such
Basic Option in effect immediately prior to the Effective Time
divided by the Basic Adjustment Fraction (the price per share,
as so determined, being rounded up to the nearest whole cent);
provided, however, that in no event shall the exercise
price be less than the par value of Holdings Common Stock. The
adjustments provided in this paragraph with respect to any Basic
Options shall be and are intended to be effected in a manner
which is consistent with Sections 424(a) and 409A of the
Code.
(ii) From and after the date of this Agreement, Basic and
the Basic Subsidiaries shall take no action to provide for the
acceleration of the exercisability of any Basic Options in
connection with the Basic Merger except to the extent such
acceleration is required under the terms of such Basic Options
or change in control agreements in existence on the date of this
Agreement or as set forth in Section 5.17 of the
Basic Disclosure Letter. To the extent such acceleration or
exercisability is required under the terms of such Basic Options
or other awards made under the Basic Stock Plans upon the
occurrence of a change of control (as such term or similar term
is defined in the applicable Basic Stock Plan or change in
control agreement) or as required or permitted pursuant to
Section 5.17 of the Basic Disclosure Letter, Basic
shall, prior to the Effective Time, take all actions (if any) as
may be required to cause such acceleration or exercisability to
occur at the Effective Time and immediately prior to the
assumption of the Basic Stock Plan by Holdings (to the extent
permitted under the terms of such Basic Stock Plan as of the
date of this Agreement or in accordance with
Section 5.17 of the Basic Disclosure Letter).
(iii) Prior to the Closing, Holdings shall file with the
SEC a registration statement on
Form S-8
(or any successor form) covering the shares of Holdings Common
Stock issuable upon exercise of the Basic Options and other
awards made under the Basic Stock Plans prior to the Effective
Time to be assumed pursuant to this Section 2.6(c)
and shall cause such registration statement to remain effective
for as long as there are outstanding any such Basic Options.
Except as otherwise specifically provided by this
Section 2.6(c) or as set forth in
Section 5.17 of the Basic Disclosure Letter, the
terms of the Basic Options and the relevant Basic Stock Plans,
as in effect at the Effective Time, shall remain in full force
and effect with respect to the Basic Options after giving effect
to the Basic Merger and the assumptions by Holdings as set forth
above.
(iv) As soon as practicable following the Effective Time,
Holdings shall deliver to the holders of Basic Options to be
assumed pursuant to this Section 2.6(c) appropriate
notices setting forth such holders’ rights pursuant to the
respective Basic Stock Plans and the agreements evidencing the
grants of such Basic Options and stating that such Basic Options
and such agreements shall be assumed by Holdings and shall
continue in effect on the same terms and conditions (subject to
the adjustments required by this Section 2.6(c) or
as set forth in Section 5.17 of the Basic Disclosure
Letter).
(d) Basic Restricted Stock. At the
Effective Time, each share of Basic Restricted Stock that is
outstanding immediately prior to the Effective Time shall be
converted into the right to receive shares of Holdings Common
Stock based upon the Basic Exchange Ratio and the Basic Cash
Consideration, but, except as provided in
Section 5.17, each share of Holdings Common Stock so
issued and all Basic Cash Consideration paid with respect to
such shares of Basic Restricted Stock shall be subject to the
same vesting or risk of forfeiture provisions to which such
shares of Basic Restricted Stock were subject immediately prior
to the Effective Time; provided that at the election of
the holder of Basic Restricted Stock made in writing and
delivered to Basic and Holdings on or before the third Business
Day immediately preceding the date of the Basic Meeting,
Holdings shall, in exchange for each share of Basic Restricted
Stock, deliver in lieu of the
foregoing a number of shares of Holdings Common Stock equal to
the Basic Adjustment Fraction, but in each case, each such share
of Holdings Common Stock so issued shall be subject to the same
vesting or risk of forfeiture provisions to which the shares of
Basic Restricted Stock were subject immediately prior to the
Effective Time other than as set forth on
Section 5.17.
(e) Basic Dissenting Shares. Basic
Dissenting Shares shall not be converted into or represent the
right to receive any Basic Merger Consideration, but instead
shall represent only the right to receive the amount determined
pursuant to the provisions of Section 262 of the DGCL. At
the Effective Time, such Basic Dissenting Shares shall no longer
be outstanding and shall automatically be cancelled and shall
cease to exist, and the holder thereof shall cease to have any
rights with respect thereto, except the right to receive the
amount determined pursuant to the provision of Section 262
of the DGCL, unless a Basic Dissenting Stockholder holding
particular Basic Dissenting Shares has failed to perfect or lost
his right to receive, or has effectively withdrawn his demand
for, the fair value of such shares under the DGCL. If a Basic
Dissenting Stockholder has so failed to perfect or lost his
right to receive, or has effectively withdrawn his demand for,
the amount determined under Section 262 of the DGCL, then
the shares of Basic Common Stock held by such holder shall cease
to be Basic Dissenting Shares and shall entitle such holder to
receive the Basic Merger Consideration in respect of such shares
as provided in Section 2.6(a), and promptly
following the occurrence of such event and upon the surrender or
transfer of Basic Certificate(s) representing such shares, the
Exchange Agent and the Surviving Corporation (as applicable)
shall deliver to such holder the Basic Merger Consideration in
respect of such shares. Basic shall comply with those provisions
of Section 262 of the DGCL which are required to be
performed by Basic prior to the Effective Time to the reasonable
satisfaction of Grey Wolf. Basic shall give Grey Wolf
(i) prompt notice of any written demands to exercise
dissenter’s rights with respect to any shares of Basic
Common Stock under the DGCL actually received by Basic, any
withdrawals of any such demands and any other documents or
instruments received by Basic relating to dissenter’s
rights and (ii) an opportunity to participate at its own
expense in all negotiations and proceedings with respect to
demands for fair value under the DGCL. Basic shall not, except
with the prior written consent of Grey Wolf (such consent not to
be unreasonably delayed or withheld), voluntarily make any
payment with respect to demands for fair value under the DGCL or
offer to settle or settle any such demands.
Section 2.7 Effect
on Basic Debt Securities. Effective as of the
Effective Time, Holdings shall execute and deliver one or more
supplemental indentures (the “Basic Supplemental
Indentures”) whereby it shall agree to assume and be
bound by the Basic Senior Notes Indenture including any
applicable requirements (a) to provide guarantees by the
former subsidiaries of Grey Wolf of the Basic 7.125% Senior
Notes due 2016 (the “Basic Senior Notes”) and
(b) to the extent required by the Basic Senior Notes
Indenture, to secure the Basic Senior Notes equally and ratably
with indebtedness incurred or to be incurred under the Holdings
Credit Facilities. At and before the Effective Time, Basic and
Holdings shall comply with all other provisions of the Basic
Senior Notes Indenture relating to the Mergers and assumption of
the obligations under the Basic Senior Notes Indenture in
connection with the Mergers.
Section 2.8 Effect
on Grey Wolf Equity Securities.
(a) Grey Wolf Common Stock. At the
Effective Time, each share of Grey Wolf Common Stock outstanding
immediately prior to the Effective Time or that is deemed to be
outstanding immediately prior to the Effective Time under the
terms of the indentures for the Grey Wolf Convertible Notes in
connection with the conversion procedures for the Grey Wolf
Convertible Notes (other than Grey Wolf Dissenting Shares and
shares of Grey Wolf Common Stock to be cancelled without payment
of any consideration therefor pursuant to Section 2.8(b))
shall, by virtue of the Grey Wolf Merger, be converted into the
right to receive: (i) 0.2500 (the “Grey Wolf
Exchange Ratio”) shares of Holdings Common Stock,
together with the cash in lieu of fractional shares of Holdings
Common Stock as provided below (the “Grey Wolf Stock
Consideration”), and (ii) an amount in cash equal
to $1.82, without interest (the “Grey Wolf Cash
Consideration”). The Grey Wolf Stock Consideration and
the Grey Wolf Cash Consideration are referred to herein
collectively as the “Grey Wolf Merger
Consideration.” At the Effective Time, each such share
of Grey Wolf Common Stock shall cease to be outstanding and
shall be cancelled and cease to exist, and each holder of any
such share of Grey Wolf Common Stock shall thereafter cease to
have any rights with respect to such share of Grey Wolf Common
Stock, except the right to receive (i) certificates for
shares of Holdings Common Stock or Holdings Book-
Entry Shares, as elected by such holder, in accordance with
Section 2.11(b), (ii) cash in lieu of
fractional shares in accordance with Section 2.11(e)
upon surrender of the appropriate shares of Grey Wolf Common
Stock, (iii) any dividends or distributions on shares of
Holdings Common Stock to which such holder is entitled pursuant
to Section 2.11(c), and (iv) the Grey Wolf Cash
Consideration.
(b) Grey Wolf Treasury Stock. At the
Effective Time, all shares of Grey Wolf Common Stock that are
held immediately prior to the Effective Time by Grey Wolf or any
of the Grey Wolf Subsidiaries shall be cancelled and no payment
shall be made in respect thereof.
(c) Grey Wolf Stock Options.
(i) All options to acquire shares of Grey Wolf Common Stock
outstanding at the Effective Time and identified in
Section 3.3(b) of the Grey Wolf Disclosure Letter
and all options to acquire shares of Grey Wolf Common Stock
issued hereafter under Grey Wolf’s equity plans
(collectively, the “Grey Wolf Stock Plans”) or
otherwise issued after the date hereof, but in the case of any
issuance after the date hereof, only if issued in accordance
with Section 5.2(d) (individually, a “Grey
Wolf Option” and collectively, the “Grey Wolf
Options”) shall remain outstanding following the
Effective Time, subject to the modifications described in this
Section 2.8(c) and in Section 5.18 of
the Grey Wolf Disclosure Letter. Prior to the Effective Time,
Holdings and Grey Wolf shall take all actions (if any) as may be
required to permit the assumption of such Grey Wolf Options by
Holdings pursuant to this Section 2.8(c) so that at
the Effective Time, the Grey Wolf Stock Plans shall be assumed
by Holdings (with such adjustments thereto as may be required to
reflect the Grey Wolf Merger, including the substitution of
Holdings Common Stock for Grey Wolf Common Stock thereunder) and
the Grey Wolf Options shall be assumed and adjusted by Holdings,
subject to the same terms and conditions as under the applicable
Grey Wolf Stock Plan and the applicable option agreement entered
into pursuant thereto (after giving effect to any modifications
effected in accordance with Section 5.18 of the Grey
Wolf Disclosure Letter), except that immediately following the
Effective Time (A) each such Grey Wolf Option shall be
exercisable only for that whole number of shares of Holdings
Common Stock equal to the product (rounded to the nearest whole
share which shall be rounded down to the extent necessary to
comply with Section 424 of the Code) of the number of
shares of Grey Wolf Common Stock subject to such Grey Wolf
Option immediately prior to the Effective Time multiplied by the
Grey Wolf Adjustment Fraction, and (B) the exercise price
per share of Holdings Common Stock shall be an amount equal to
the exercise price per share of Grey Wolf Common Stock subject
to such Grey Wolf Option in effect immediately prior to the
Effective Time divided by the Grey Wolf Adjustment Fraction (the
price per share, as so determined, being rounded up to the
nearest whole cent); provided, however, that in no event
shall the exercise price be less than the par value of Holdings
Common Stock. The adjustments provided in this paragraph with
respect to any Grey Wolf Options shall be and are intended to be
effected in a manner which is consistent with
Sections 424(a) and 409A of the Code.
(ii) From and after the date of this Agreement, Grey Wolf
and the Grey Wolf Subsidiaries shall take no action to provide
for the acceleration of the exercisability of any Grey Wolf
Options in connection with the Grey Wolf Merger, except to the
extent such acceleration is required under the terms of such
Grey Wolf Options or change in control agreements in existence
on the date of this Agreement or as otherwise provided in
Section 5.18 of the Grey Wolf Disclosure Letter. To
the extent such acceleration or exercisability is required under
the terms of such Grey Wolf Options or other awards made under
the Grey Wolf Stock Plans upon the occurrence of a change of
control (as such term or similar term is defined in the
applicable Grey Wolf Stock Plan or change in control agreement)
or is required or permitted pursuant to Section 5.18
of the Grey Wolf Disclosure Letter, Grey Wolf shall, prior to
the Effective Time, take all actions (if any) as may be required
to cause such acceleration or exercisability to occur at the
Effective Time and immediately prior to the assumption of the
Grey Wolf Stock Plan by Holdings (to the extent permitted under
the terms of such Grey Wolf Stock Plan as of the date of this
Agreement or in accordance with Section 5.18 of the
Grey Wolf Disclosure Letter).
(iii) Prior to the Closing, Holdings shall file with the
SEC a registration statement on
Form S-8
(or any successor form) covering the shares of Holdings Common
Stock issuable upon exercise of the Grey Wolf Options and other
awards made under the Grey Wolf Stock Plans prior to the
Effective Time to be assumed
pursuant to Section 2.8(c) and shall cause such
registration statement to remain effective for as long as there
are outstanding any such Grey Wolf Options. Except as otherwise
specifically provided by this Section 2.8(c) or
Section 5.18 of the Grey Wolf Disclosure Letter, the
terms of the Grey Wolf Options and the relevant Grey Wolf Stock
Plans, as in effect at the Effective Time, shall remain in full
force and effect with respect to the Grey Wolf Options after
giving effect to the Grey Wolf Merger and the assumptions by
Holdings as set forth above.
(iv) As soon as practicable following the Effective Time,
Holdings shall deliver to the holders of Grey Wolf Options to be
assumed pursuant to this Section 2.8(c) appropriate
notices setting forth such holders’ rights pursuant to the
respective Grey Wolf Stock Plans and the agreements evidencing
the grants of such Grey Wolf Options and stating that such Grey
Wolf Options and such agreements shall be assumed by Holdings
and shall continue in effect on the same terms and conditions
(subject to the adjustments required by this
Section 2.8(c) or Section 5.18 of the
Grey Wolf Disclosure Letter).
(d) Grey Wolf Restricted Stock. At the
Effective Time, each share of Grey Wolf Restricted Stock that is
outstanding immediately prior to the Effective Time shall be
converted into the right to receive shares of Holdings Common
Stock based upon the Grey Wolf Exchange Ratio and the Grey Wolf
Cash Consideration, but, except as otherwise provided in
Section 5.18 of the Grey Wolf Disclosure Letter,
each share of Holdings Common Stock so issued and all Grey Wolf
Cash Consideration paid with respect to such shares of Grey Wolf
Restricted Stock shall be subject to the same vesting or risk of
forfeiture provisions to which such shares of Grey Wolf
Restricted Stock were subject immediately prior to the Effective
Time; provided that at the election of the holder of Grey
Wolf Restricted Stock made in writing and delivered to Grey Wolf
and Holdings on or before the third Business Day immediately
preceding the date of the Grey Wolf Meeting, Holdings shall, in
exchange for each share of Grey Wolf Restricted Stock, deliver
in lieu of the foregoing a number of shares of Holdings Common
Stock equal to the Grey Wolf Adjustment Fraction, but in each
case, each such share of Holdings Common Stock so issued shall
be subject to the same vesting or risk of forfeiture provisions
to which the shares of Grey Wolf Restricted Stock were subject
immediately prior to the Effective Time.
(e) Grey Wolf Dissenting Shares. Grey
Wolf Dissenting Shares shall not be converted into or represent
the right to receive any Grey Wolf Merger Consideration, but
instead shall represent only the right to receive the amount
determined pursuant to the provisions of Article 5.12 of
the TBCA. At the Effective Time, any Grey Wolf Dissenting
Stockholder shall not thereafter be entitled to vote or exercise
any other rights of a stockholder except the right to receive
payment for such Grey Wolf Dissenting Stockholder’s Grey
Wolf Dissenting Shares in accordance with Article 5.12 of
the TBCA. If a Grey Wolf Dissenting Stockholder has so failed to
perfect or lost his right to receive, or has effectively
withdrawn his demand for, the amount determined under
Article 5.12 of the TBCA, the shares of Grey Wolf Common
Stock held by such holder shall cease to be Grey Wolf Dissenting
Shares and shall entitle such holder to receive the Grey Wolf
Merger Consideration in respect of such shares as provided in
Section 2.8(a), and promptly following the
occurrence of such event and upon the surrender of the Grey Wolf
Certificate(s) representing such shares, the Exchange Agent and
the Surviving Corporation (as applicable) shall deliver to such
holder the Grey Wolf Merger Consideration in respect of such
shares. Grey Wolf shall comply with those provisions of
Article 5.12 of the TBCA which are required to be performed
by Grey Wolf prior to the Effective Time to the reasonable
satisfaction of Basic. Grey Wolf shall give Basic
(i) prompt notice of any written demands to exercise
dissenter’s rights and (ii) an opportunity to
participate at its own expense in all negotiations and
proceedings with respect to demands for fair value under the
TBCA. Grey Wolf shall not, except with the prior written consent
of Basic (such consent not to be unreasonably withheld or
delayed), voluntarily make any payment with respect to demands
for fair value under the TBCA or offer to settle or settle any
such claims.
Section 2.9 Effect
on Grey Wolf Debt Securities. Effective as of the
Effective Time, Holdings shall execute and deliver supplemental
indentures (the “Grey Wolf Supplemental
Indentures”) whereby it shall agree to be bound by the
conversion provisions of each of the Grey Wolf Senior Notes
Indentures and take all other action necessary, such that
following the Effective Time, each outstanding Grey Wolf
Convertible Note will be convertible into the kind and amount of
Grey Wolf Merger Consideration that a holder of such Convertible
Note would have had the right to receive had such Convertible
Note been converted into Grey Wolf Common Stock immediately
prior to the Effective Time. At or before the Effective Time,
Grey Wolf and Holdings shall
comply with all other provisions of the Grey Wolf Senior Notes
Indentures relating to the Mergers and the assumption of the
obligations under the Grey Wolf Senior Notes Indentures in
connection with the Mergers.
Section 2.10 Effect
on Holdings Common Stock. At the Effective Time,
Grey Wolf and Basic shall contribute to Holdings each share of
Holdings Common Stock issued and outstanding immediately prior
to the Effective Time and such shares shall be cancelled and no
consideration shall be paid in respect thereof.
Section 2.11 Exchange
of Certificates.
(a) Prior to the Effective Time, Holdings shall appoint a
bank or trust company reasonably satisfactory to Basic and Grey
Wolf to act as exchange agent (the “Exchange
Agent”). Holdings shall deposit, or cause to be
deposited with the Exchange Agent, for the benefit of the
holders of shares of Grey Wolf Common Stock and Basic Common
Stock for exchange in accordance with this
Article 2, (i) certificates (or evidence of
Holdings Book-Entry Shares) representing the aggregate number of
shares of Holdings Common Stock to be issued as Basic Stock
Consideration and Grey Wolf Stock Consideration pursuant to
Sections 2.6(a) and 2.8(a) and delivered
pursuant to this Section 2.11 in exchange for
outstanding shares of Grey Wolf Common Stock and Basic Common
Stock, respectively, (ii) cash in the aggregate amount of
the Basic Cash Consideration and the Grey Wolf Cash
Consideration pursuant to Sections 2.6(a) and
2.8(a), and (iii) when and as needed, Holdings shall
provide the Exchange Agent cash sufficient to pay cash in lieu
of fractional shares of Holdings Common Stock (such cash and
certificates (or evidence of Holdings Book-Entry Shares) for
shares of Holdings Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred
to as the “Exchange Fund”).
(b) Promptly after the Effective Time, Holdings shall cause
the Exchange Agent to mail to each holder of shares of Basic
Common Stock or Grey Wolf Common Stock: (i) a letter of
transmittal (the “Letter of Transmittal”),
which shall specify that delivery shall be effected, and risk of
loss and title shall pass, only upon delivery of the
Certificates or transfer of the Uncertificated Shares to the
Exchange Agent and shall be in such form and have such other
provisions as Holdings may reasonably specify, and
(ii) instructions for use in effecting the surrender of the
Certificates or transfer of the Uncertificated Shares in
exchange for Holdings Common Stock, the Basic Cash Consideration
or Grey Wolf Cash Consideration (as applicable), any unpaid
dividends and distributions on shares of Holdings Common Stock
in accordance with Section 2.11(c) and cash in lieu
of fractional shares in accordance with
Section 2.11(e). Upon surrender of a Certificate or
transfer of the Uncertificated Shares for cancellation to the
Exchange Agent together with such Letter of Transmittal, duly
executed and completed in accordance with the instructions
thereto, the holder of such Basic Common Stock or Grey Wolf
Common Stock shall be entitled to receive in exchange therefor
(A) shares of Holdings Common Stock, and (B) a check
representing the amount of cash (including the Basic Cash
Consideration or Grey Wolf Cash Consideration (as applicable)
and cash in lieu of fractional shares, if any), and unpaid
dividends and distributions (if any), which such holder has the
right to receive pursuant to the provisions of this
Article 2, after giving effect to any required
withholding tax, and, if applicable, the Certificate so
surrendered shall forthwith be cancelled. No interest will be
paid or accrued on the Basic Cash Consideration, Grey Wolf Cash
Consideration, cash in lieu of fractional shares and unpaid
dividends and distributions, if any, payable to holders of Basic
Common Stock or Grey Wolf Common Stock. In the event of a
transfer of ownership of Grey Wolf Common Stock that is not
registered in the transfer records of Grey Wolf or a transfer of
ownership of Basic Common Stock that is not registered in the
transfer records of Basic, the proper number of shares of
Holdings Common Stock, together with a check for the Basic Cash
Consideration or Grey Wolf Cash Consideration, as the case may
be, and cash to be paid in lieu of fractional shares and unpaid
dividends and distributions (if any), may be issued to such a
transferee if the Certificate or Uncertificated Share
representing such Grey Wolf Common Stock or Basic Common Stock,
as the case may be, is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable stock transfer
taxes have been paid. The shares of Holdings Common Stock
constituting part of the Merger Consideration, at Holdings’
option, shall be Holdings Book-Entry Shares, unless a physical
certificate is requested by a holder of Basic Common Stock or
Grey Wolf Common Stock.
(c) Notwithstanding any other provisions of this Agreement,
no dividends or other distributions declared or made after the
Effective Time with respect to shares of Holdings Common Stock
with a record date after
the Effective Time shall be paid to the holder of any
unsurrendered Certificate or any Uncertificated Shares not
transferred with respect to the shares of Holdings Common Stock
issuable upon surrender of such Certificate or transfer of such
Uncertificated Share as a result of the conversion provided in
this Article 2 until such Certificate is surrendered
or Uncertificated Share is transferred as provided herein.
Following such surrender or transfer, there shall be paid,
without interest, to the Person in whose name such shares of
Holdings Common Stock have been registered, (i) promptly
after the time of such surrender or transfer, the amount of any
cash payable in lieu of fractional shares to which such Person
is entitled pursuant to this Section 2.11 and the
amount of all dividends or other distributions with a record
date after the Effective Time and paid prior to the time of such
surrender or transfer with respect to such shares of Holdings
Common Stock, and (ii) at the appropriate payment date, the
amount of all dividends or other distributions with a record
date after the Effective Time and prior to the time of such
surrender or transfer and with a payment date subsequent to the
time of such surrender or transfer payable with respect to such
shares of Holdings Common Stock.
(d) After the Effective Time, (i) there shall be no
transfers on the stock transfer books of Grey Wolf of the shares
of Grey Wolf Common Stock which were outstanding immediately
prior to the Effective Time and (ii) there shall be no
transfers on the stock transfer books of the Basic of the shares
of Basic Common Stock which were outstanding immediately prior
to the Effective Time. If, after the Effective Time,
Certificates or Uncertificated Shares are presented to Holdings,
the presented Certificates or Uncertificated Shares shall be
cancelled and exchanged for shares of Holdings Common Stock, the
Basic Cash Consideration or the Grey Wolf Cash Consideration, as
the case may be, and cash in lieu of fractional shares and
unpaid dividends or distributions, if any, deliverable in
respect thereof pursuant to this Agreement in accordance with
the procedures set forth in this Article 2.
(e) No fractional shares of Holdings Common Stock shall be
issued pursuant to this Agreement. All fractional shares of
Holdings Common Stock that a holder of shares of Basic Common
Stock or Grey Wolf Common Stock would otherwise be entitled to
receive as a result of the Mergers shall be aggregated and if a
fractional share results from such aggregation, such holder
shall be entitled to receive, in lieu thereof, an amount in cash
without interest equal to such fraction of a share of Holdings
Common Stock multiplied by the closing sale price of a share of
Holdings Common Stock on the NYSE on the first trading day
immediately following the Effective Time.
(f) Any portion of the Exchange Fund (including the
proceeds of any investments thereof and any certificates for
shares of Holdings Common Stock) that remains undistributed to
the former stockholders of Grey Wolf or Basic one year after the
Effective Time shall be delivered to Holdings. Any former
stockholders of Grey Wolf or Basic who have not theretofore
complied with this Section 2.11 shall thereafter
look only to Holdings for their shares of Holdings Common Stock,
their Basic Cash Consideration or Grey Wolf Cash Consideration,
as the case may be, and cash in lieu of fractional shares and
for any unpaid dividends and distributions, if any, on the
shares of Holdings Common Stock deliverable to such former
stockholder pursuant to this Agreement.
(g) None of Holdings, Basic, Grey Wolf, the Exchange Agent
or any other Person shall be liable to any Person for any
portion of the Exchange Fund properly delivered to a public
official pursuant to applicable abandoned property, escheat or
similar laws.
(h) In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the Person claiming such Certificate to be lost, stolen
or destroyed and, if required by Holdings, the posting by such
Person of a bond in such reasonable amount as Holdings may
direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate
shares of Holdings Common Stock, the Basic Cash Consideration or
Grey Wolf Cash Consideration, as the case may be, and cash in
lieu of fractional shares and unpaid dividends and
distributions, if any, on shares of Holdings Common Stock, as
provided in Section 2.11(c), deliverable in respect
thereof pursuant to this Agreement.
(i) If any portion of the Basic Merger Consideration or the
Grey Wolf Merger Consideration is to be paid to a Person other
than the Person in whose name the surrendered Certificate is
registered, it shall be a
condition to such payment that (i) either such Certificate
shall be properly endorsed or shall otherwise be in proper form
for transfer and (ii) the Person requesting such payment
shall pay to the Exchange Agent any transfer or other taxes
required as a result of such payment to a Person other than the
registered holder of such Certificate or establish to the
satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
Section 2.12 Adjustment
of Exchange Ratios. If, between the date of this
Agreement and the Effective Time (and in each case, as permitted
by Section 5.2), the outstanding shares of Basic
Common Stock or the outstanding shares of Grey Wolf Common Stock
shall have been increased, decreased, changed into or exchanged
for a different number of shares or different class, in each
case, by reason of any reclassification, recapitalization, stock
split,
split-up,
combination or exchange of shares or a stock dividend or
dividend payable in other securities shall be declared with a
record date within such period, or any similar event shall have
occurred, the applicable Basic Merger Consideration or Grey Wolf
Merger Consideration (and as a result, the Basic Adjustment
Fraction and the Grey Wolf Adjustment Fraction) shall be
appropriately adjusted to provide to the holders of Basic Common
Stock or Grey Wolf Common Stock, as the case may be, the same
economic effect as contemplated by this Agreement prior to such
event.
Section 2.13 Withholding. Each
of Holdings and the Exchange Agent shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant
to this Agreement to any Person pursuant to this
Article 2 such amounts as are required to be
deducted or withheld under the Code or any provision of state,
local or foreign Tax Law with respect to the making of such
payment (including withholding shares of Holdings Common Stock).
Any such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to such Person in respect of
whom such deduction and withholding was made.
ARTICLE 3
REPRESENTATIONS
AND WARRANTIES OF GREY WOLF
AND HOLDINGS
As an inducement for Basic and Holdings to enter into this
Agreement, Grey Wolf and Holdings hereby jointly and severally
make the following representations and warranties to Basic and
Holdings; provided, however, that such representations
and warranties shall be subject to and qualified by:
(a) the disclosure letter delivered by Grey Wolf to Basic
as of the date hereof (each section of which qualifies the
correspondingly numbered representation and warranty or covenant
to the extent specified therein) (the “Grey Wolf
Disclosure Letter”) (it being understood that
(i) the disclosure of any fact or item in any section of
the Grey Wolf Disclosure Letter shall, should the existence of
such fact or item be relevant to any other section, be deemed to
be disclosed with respect to that other section to the extent
that such disclosure is made in a manner that makes its
relevance to the other section reasonably apparent and
(ii) the disclosure of any matter or item in the Grey Wolf
Disclosure Letter shall not be deemed to constitute an
acknowledgement that such matter or item is required to be
disclosed therein or is material to a representation or warranty
set forth in this Agreement and shall not be used as a basis for
interpreting the terms “material,”“materially,”“materiality,”“Grey Wolf Material Adverse Effect” or any word
or phrase of similar import and does not mean that such matter
or item, alone or together with any other matter or item, would
constitute a Grey Wolf Material Adverse Effect); and
(b) information contained in the Grey Wolf Reports
(excluding any exhibits thereto and excluding disclosures under
“Risk Factors” and other forward-looking or
predictive statements) filed with the SEC prior to the date
hereof (but only to the extent that such disclosure on its face
appears to constitute information that would reasonably be
deemed a qualification or exception to the following
representations and warranties).
Section 3.1 Corporate
Existence; Good Standing; Corporate
Authority. Grey Wolf is a corporation duly
incorporated, validly existing and in good standing under the
Applicable Laws of the State of Texas. Holdings is a corporation
duly incorporated, validly existing and in good standing under
the laws of the State of Delaware. Grey Wolf is duly qualified
to conduct business and is in good standing (to the extent such
concept exists in the relevant jurisdiction) in each
jurisdiction in which the ownership, operation or lease of its
property or the nature of Grey Wolf’s business requires
such qualification, except for jurisdictions in which any
failures to be so qualified or to be in good standing,
individually or in the aggregate, have not had or caused and
would not reasonably be expected to have or cause a Grey Wolf
Material Adverse Effect. Grey
Wolf and Holdings each have all requisite corporate power and
authority to own or lease and operate their respective
properties and assets and to carry on their businesses as they
are currently being conducted. Grey Wolf has delivered to Basic
true, accurate and complete copies of the Amended and Restated
Articles of Incorporation (including any and all Certificates of
Designations) and the Amended and Restated Bylaws of Grey Wolf,
each as amended to date (the “Grey Wolf Charter
Documents”), and each Grey Wolf Charter Document is in
full force and effect, has not been amended or modified and has
not been terminated, superseded or revoked. Holdings has
delivered to Basic true, accurate and complete copies of its
Certificate of Incorporation and Bylaws, each as amended to date
(the “Holdings Charter Documents”) and each
Holdings Charter Document is in full force and effect, has not
been amended or modified and has not been terminated, superseded
or revoked. Grey Wolf is not in violation of the Grey Wolf
Charter Documents. Holdings is not in violation of the Holdings
Charter Documents.
Section 3.2 Authorization,
Validity and Effect of Agreements.
(a) Each of Grey Wolf and Holdings has the requisite
corporate power and authority to execute and deliver this
Agreement and all other agreements, instruments, certificates
and documents contemplated hereunder (collectively, the
“Related Documents”) to which it is, or will
become, a party, to perform its obligations hereunder and
thereunder and to consummate, in the case of Grey Wolf, the Grey
Wolf Merger and, in the case of Holdings, the Mergers, and all
other transactions contemplated hereunder and thereunder,
subject to the approval of the Grey Wolf Proposals by Grey
Wolf’s stockholders. The execution, delivery and
performance of this Agreement and the Related Documents and the
consummation of, in the case of Grey Wolf, the Grey Wolf Merger
and, in the case of Holdings, the Mergers and the other
transactions contemplated hereunder and thereunder have been
duly authorized by all requisite corporate action on behalf of
Grey Wolf and Holdings, and no other corporate proceedings by
Grey Wolf or Holdings are necessary to authorize the execution
and delivery of this Agreement or the Related Documents or to
consummate, in the case of Grey Wolf, the Grey Wolf Merger and,
in the case of Holdings, the Mergers, and the other transactions
contemplated hereunder or under the Related Documents, except
for the approval of the Grey Wolf Proposals by Grey Wolf’s
stockholders, the filing of the Articles of Merger pursuant to
the TBCA, the filing of the Certificate of Mergers pursuant to
the DGCL and the Governmental Authority applications and
approvals described in Section 3.6(b).
(b) This Agreement and each of the Related Documents to
which each of Grey Wolf and Holdings is a party have been or
will be duly executed by each of Grey Wolf and Holdings and,
assuming the due authorization, execution and delivery hereof
and thereof by Basic to the extent a party hereof and thereof,
constitute the valid and legally binding obligations of Grey
Wolf and Holdings, enforceable against each of Grey Wolf and
Holdings in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other
Applicable Laws relating to or affecting the rights and remedies
of creditors generally and to general principles of equity
(regardless of whether considered in a proceeding in equity or
at law). Assuming the accuracy of the representations and
warranties set forth in Section 4.18, (i) Grey
Wolf has taken all action necessary to render the restrictions
set forth in Article 13.03 of the TBCA inapplicable to this
Agreement and the transactions contemplated hereby and
(ii) Holdings has taken all action necessary to render
Section 203 of the DGCL inapplicable to this Agreement and
the transactions contemplated hereby.
Section 3.3 Capitalization.
(a) The authorized capital stock of Grey Wolf consists of
500,000,000 shares of Grey Wolf Common Stock and
1,000,000 shares of Grey Wolf Preferred Stock,
200,000 shares of which have been designated as Convertible
Redeemable Preferred Stock and 250,000 shares of which have
been designated as Series B Junior Participating Preferred
Stock (the “Junior Preferred Stock”). As of the
close of business on April 18, 2008, there were 178,860,901
issued and outstanding shares of Grey Wolf Common Stock
(including 2,893,874 shares of Grey Wolf Restricted Stock),
19,304,743 shares of Grey Wolf Common Stock held by Grey
Wolf in its treasury, and no issued or outstanding shares of
Grey Wolf Preferred Stock. The stockholders of Grey Wolf
previously approved a 1996 Employee Stock Option Plan, as
amended (the “Grey Wolf 1996 Plan”), and a 2003
Incentive Plan, as amended (the “Grey Wolf 2003
Plan”). As of April 18, 2008,
747,580 shares of Grey Wolf Common Stock were reserved for
future issuance pursuant to outstanding Grey Wolf Options under
the Grey Wolf 1996 Plan, 2,776,584 shares of Grey Wolf
Common Stock were reserved for future issuance pursuant to
outstanding Grey Wolf Options granted under the Grey Wolf 2003
Plan, 700,500 shares of Grey Wolf Common Stock were
reserved for future issuances pursuant to outstanding Grey Wolf
Options not granted under a plan and 178,861 shares of
Junior Preferred Stock were reserved for future issuance
pursuant to that certain Rights Agreement between Grey Wolf and
American Stock Transfer and Trust dated September 21, 1998
(the “Grey Wolf Rights Agreement”). Pursuant to
the Grey Wolf Rights Agreement, each outstanding share of Grey
Wolf Common Stock is accompanied by one Junior Preferred Stock
Purchase Right (the “Grey Wolf Rights”)
entitling the holder thereof to purchase, subject to the terms
and conditions thereof, Equity Securities of Grey Wolf. As of
April 18, 2008, there were no shares of Grey Wolf Common
Stock remaining available for the grant of awards under Grey
Wolf 1996 Plan and 5,252,263 shares of Grey Wolf Common
Stock remaining available for the grant of awards under Grey
Wolf 2003 Plan. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation or other
similar rights with respect to Grey Wolf. All shares of Grey
Wolf Common Stock are, and all shares of Grey Wolf Common Stock
which may be issued and outstanding immediately prior to the
Effective Time as permitted under this Agreement shall be when
issued, duly authorized, validly issued, fully paid and
nonassessable shares of Grey Wolf Common Stock and not subject
to any preemptive rights.
(b) Grey Wolf has no outstanding bonds, debentures,
promissory notes or other Indebtedness that are convertible into
or exercisable for Equity Interests, except for Grey Wolf’s
3.75% Contingent Convertible Senior Notes due 2023 (the
“Grey Wolf 3.75% Notes”) and Grey
Wolf’s Floating Rate Contingent Convertible Senior Notes
due 2024 (the “Grey Wolf Floating Rate Notes,”
and together with the Grey Wolf 3.75% Notes, the
“Grey Wolf Convertible Notes”). Grey Wolf has
no outstanding bonds, debentures, promissory notes or other
indebtedness, the holders of which have the right to vote with
the stockholders of Grey Wolf on any matter (collectively, the
“Grey Wolf Voting Debt”). As of the date of
this Agreement, except as set forth in this
Section 3.3, Grey Wolf and the Grey Wolf
Subsidiaries have not issued, sold, granted or delivered, are
not obligated to issue, sell, grant or deliver (or to cause to
be issued, sold, granted or delivered), and are not a party to
any Contract or other obligation to issue, sell, grant or
deliver, any Equity Interest (including, without limitation, any
securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind pursuant to
which a Person is entitled to acquire an Equity Interest) or
Grey Wolf Voting Debt of any nature or any additional shares of
capital stock or any other Equity Interest in Grey Wolf or any
Grey Wolf Subsidiary, except (with respect to foreign Grey Wolf
Subsidiaries only) Equity Interests that would have an
immaterial effect on Grey Wolf and the Grey Wolf Subsidiaries,
taken as a whole. Section 3.3(b) of the Grey Wolf
Disclosure Letter sets forth a true, correct and complete list
of all outstanding Grey Wolf Options and Grey Wolf Restricted
Stock as of April 15, 2008, including grantee name,
exercise price (if any) and vesting schedule and other vesting
conditions to the extent not fully vested. Except under the
respective terms of Grey Wolf Convertible Notes and the Grey
Wolf Rights, there are no outstanding or authorized
(i) contractual or other obligations of Grey Wolf or any of
the Grey Wolf Subsidiaries to repurchase, redeem or otherwise
acquire any Equity Interest of Grey Wolf or any of the Grey Wolf
Subsidiaries or any such securities or agreements referred to in
the prior sentence or (ii) voting trusts or similar
agreements to which Grey Wolf or any of the Grey Wolf
Subsidiaries is a party with respect to the voting of the
capital stock of Grey Wolf or any of the Grey Wolf Subsidiaries,
except (with respect to foreign Grey Wolf Subsidiaries only)
repurchases, redemptions or acquisitions that would have an
immaterial effect on Grey Wolf and the Grey Wolf Subsidiaries,
taken as a whole.
(c) Grey Wolf has received from each of the directors and
executive officers of Grey Wolf set forth on
Schedule B an executed
lock-up
agreement substantially in the form attached hereto as
Exhibit A (the “Grey Wolf
Lock-Up
Agreements”). Grey Wolf has delivered to Basic true,
correct and complete executed copies of the Grey Wolf
Lock-Up
Agreements.
(a) Each Grey Wolf Subsidiary is a corporation or other
legal entity duly organized or constituted and validly existing
under the Applicable Laws of its jurisdiction of incorporation,
organization or formation. Each Grey Wolf Subsidiary has all
requisite corporate, limited liability company, partnership or
other business
power and authority to own or lease and operate its properties
and assets and to carry on its business as currently conducted,
except (with respect to foreign Grey Wolf Subsidiaries only) as
would have an immaterial effect on Grey Wolf and the Grey Wolf
Subsidiaries, taken as a whole. Each Grey Wolf Subsidiary is
duly qualified to conduct business and is in good standing (to
the extent such concept exists in the relevant jurisdiction) in
each jurisdiction in which the ownership or lease and operation
of its property or the nature of its business requires such
qualification, except for jurisdictions in which any failures to
be so qualified or to be in good standing, individually or in
the aggregate, have not had or caused and would not reasonably
be expected to have or cause a Grey Wolf Material Adverse
Effect. All of the outstanding shares of capital stock of, or
other Equity Interests in, each Grey Wolf Subsidiary are duly
authorized, validly issued, fully paid and nonassessable and are
owned, directly or indirectly, by Grey Wolf, (except for Equity
Interests representing an immaterial ownership required under
the Applicable Laws of any foreign jurisdiction to be owned by
others), free and clear of all Liens, except for Permitted Liens
and Liens granted under the Grey Wolf Credit Agreements.
(b) Section 3.4(b) of the Grey Wolf Disclosure
Letter sets forth all Grey Wolf Subsidiaries (other than
Holdings) and the percentage Equity Interest of such Grey Wolf
Subsidiary held, directly or indirectly, by Grey Wolf. Grey
Wolf’s U.S. Subsidiaries are not in violation of their
respective Grey Wolf Subsidiary Charter Documents, and Grey
Wolf’s
non-U.S. Subsidiaries
are not in material violation of their respective Grey Wolf
Subsidiary Charter Documents.
(c) Fifty (50) shares of Holdings Common Stock,
representing fifty percent (50%) of the issued and outstanding
capital stock of Holdings is owned directly by Grey Wolf.
Holdings has been formed solely for the purpose of engaging in
the transactions contemplated hereby (including transactions in
connection with the Holdings Credit Facilities) and, as of the
Effective Time, will not have engaged in any activities other
than in connection with the transactions contemplated by this
Agreement (including transactions in connection with the
Holdings Credit Facilities). Immediately prior to the Effective
Time, no shares of Holdings Equity Interests will be issued and
outstanding other than 50 shares of Holdings Common Stock
that will be held by Grey Wolf and the 50 shares of
Holdings Common Stock that will be held by Basic, all of which
shares shall be cancelled in accordance with
Section 2.10 hereof at the Effective Time. The
shares of Holdings Common Stock to be issued in connection with
the Mergers, when issued in accordance with this Agreement, will
be validly issued, fully paid, nonassessable and free of
preemptive rights.
(d) Holdings owns no Equity Interests in any other Person.
Section 3.5 Compliance
with Laws; Permits. Except for such matters that,
individually or in the aggregate, have not had or caused and
would not reasonably be expected to have or cause a Grey Wolf
Material Adverse Effect, and except for (x) matters
relating to Taxes, which are treated exclusively in
Section 3.10, (y) matters relating to Grey Wolf
Benefit Plans, which are treated exclusively under
Section 3.11 and (z) matters arising under
Environmental, Health and Safety Laws, which are treated
exclusively in Section 3.13:
(a) Neither Grey Wolf nor any Grey Wolf Subsidiary is in
violation of any Applicable Law relating to the ownership or
operation of any of its assets, and no Claim is pending or, to
the knowledge of Grey Wolf, threatened with respect to any such
matters;
(b) Grey Wolf and each Grey Wolf Subsidiary hold all
permits, licenses, certifications, variations, exemptions,
Orders, franchises, registrations, filings, approvals,
authorizations or other required grant of operating authority
required by any Governmental Authority necessary for the conduct
of their respective businesses (the “Grey Wolf
Permits”). All Grey Wolf Permits are in full force and
effect and there exists no default thereunder or breach thereof,
and Grey Wolf has no notice or knowledge that such Grey Wolf
Permits will not be renewed in the ordinary course after the
Effective Time. No Governmental Authority has given, or to the
knowledge of Grey Wolf, threatened to give, notice of any action
to terminate, cancel or reform any Grey Wolf Permits; and
(c) Grey Wolf and each Grey Wolf Subsidiary possess all
Grey Wolf Permits required for the present ownership or lease,
as the case may be, and operation of all Grey Wolf Real
Property, and there
exists no default or breach with respect to, and no Person,
including any Governmental Authority, has taken or, to the
knowledge of Grey Wolf, threatened to take, any action to
terminate, cancel or reform any such Grey Wolf Permit pertaining
to Grey Wolf Real Property.
Section 3.6 No
Conflict; Consents.
(a) The execution and delivery by each of Grey Wolf and
Holdings of this Agreement and the Related Documents, the
performance of the obligations of Grey Wolf and Holdings
hereunder and thereunder and the consummation by Grey Wolf and
Holdings of the Mergers and the other transactions contemplated
hereby and thereby in accordance with the terms hereof and
thereof will not (i) conflict with or result in a breach of
any provisions of the Grey Wolf Charter Documents or the
Holdings Charter Documents, (ii) conflict with or result in
a breach of any provisions of the Grey Wolf Subsidiary Charter
Documents, (iii) violate, conflict with, result in a breach
of any provision of, constitute a default (or an event which,
with notice or lapse of time or both, would constitute a
default) under, impair Grey Wolf’s rights under, alter the
rights or obligations of third parties under, result in the
termination of or in a right of termination or cancellation of,
give rise to a right of purchase under, or accelerate the
performance required by, any Grey Wolf Material Contract or
other Contract, (iv) except in connection with the Holdings
Credit Facilities, result in the creation of any Lien (other
than Permitted Liens) upon any of the properties or assets of
Grey Wolf or the Grey Wolf Subsidiaries under any Grey Wolf
Material Contract or by which Grey Wolf or the Grey Wolf
Subsidiaries or any of their properties is bound or affected,
(v) result in any Grey Wolf Material Contract being
declared void, voidable, or without further binding effect,
(vi) otherwise result in a detriment to Grey Wolf or any of
the Grey Wolf Subsidiaries under any of the terms, conditions or
provisions of any Grey Wolf Material Contract or other Contract
by which Grey Wolf or any of the Grey Wolf Subsidiaries is bound
or to which any of their properties is subject or (vii)
(assuming that the consents and approvals referred to in
Section 3.6(b) are duly and timely made or obtained
and that the Grey Wolf Proposals are approved by the requisite
Grey Wolf Stockholders) contravene, conflict with or constitute
a violation of any provision of any Applicable Law binding upon
or applicable to Grey Wolf or any of the Grey Wolf Subsidiaries,
other than, in the cases of clauses (ii) through (vii), any
such violations, conflicts, breaches, defaults, impairments,
alterations, terminations, cancellations, purchase rights,
accelerations, Liens, voidings or detriments that, individually
or in the aggregate, have not had or caused and would not
reasonably be expected to have or cause a Grey Wolf Material
Adverse Effect.
(b) Neither the execution and delivery by Grey Wolf or
Holdings of this Agreement or any Related Document nor the
consummation by Grey Wolf or Holdings of the Mergers and the
other transactions contemplated hereby or thereby in accordance
with the terms hereof or thereof will require any consent,
approval or authorization of, notice to or filing or
registration with any Governmental Authority, other than
(i) the filing of the Articles of Merger with the Secretary
of State of the State of Texas, the filing of the Certificate of
Mergers with the Secretary of State of the State of Delaware,
and appropriate documents required to be filed as a result of
the Mergers with the relevant Governmental Authorities in the
states and foreign jurisdictions in which Grey Wolf, Holdings or
any other Grey Wolf Subsidiary is qualified to conduct business,
(ii) the filing of the Proxy Statement/Prospectus with the
SEC in accordance with the Exchange Act and the filing and
effectiveness of the Registration Statement, (iii) filings
required under the
U.S. Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the “HSR
Act”), including the filing of forms and other
documents with the FTC and the Antitrust Division of the DOJ as
required by the HSR Act (“Notification and Report
Forms”), (iv) filings required under federal and
state securities or “Blue Sky” laws, applicable
non-U.S. laws
or the rules of the AMEX or NYSE and (v) any other
applicable filings or notifications under the antitrust,
competition or similar Applicable Laws of foreign jurisdictions
((i), (ii), (iii), (iv) and (v) collectively, the
“Grey Wolf Regulatory Filings”), except for any
failures to obtain any such consent, approval or authorization
or to make any such filing, notification or registration that,
individually or in the aggregate, have not had or caused and
would not reasonably be expected to have or cause a Grey Wolf
Material Adverse Effect.
Section 3.7 SEC
Documents.
(a) Grey Wolf has filed with the SEC all documents required
to be so filed by it since January 1, 2007 pursuant to
Sections 13(a), 14(a) and 15(d) of the Exchange Act, and
has made available to Basic each
registration statement, periodic or other report, proxy
statement or information statement (other than preliminary
materials) it has so filed, each in the form (including exhibits
and any amendments thereto) filed with the SEC (collectively,
the “Grey Wolf Reports”). As used in this
Section 3.7, the term “file” shall include
any reports on
Form 8-K
furnished to the SEC. As of its respective date or, if amended
by a subsequent filing prior to the date hereof, on the date of
such filing, each Grey Wolf Report complied in all material
respects with the applicable requirements of the Exchange Act,
SOX and the rules and regulations thereunder and did not contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances
under which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by
reference into the Grey Wolf Reports (including the related
notes and schedules) fairly presents in all material respects
the consolidated financial position of Grey Wolf and the Grey
Wolf Subsidiaries as of its date, and each of the consolidated
statements of operations, cash flows and changes in
stockholders’ equity included in or incorporated by
reference into the Grey Wolf Reports (including any related
notes and schedules) fairly presents in all material respects
the results of operations, cash flows or changes in
stockholders’ equity, as the case may be, of Grey Wolf and
the Grey Wolf Subsidiaries for the periods set forth therein
(such consolidated balance sheets and consolidated statements of
operations, cash flows and changes in stockholders’ equity,
each including the notes and schedules thereto, the
“Grey Wolf Financial Statements”). The Grey
Wolf Financial Statements (i) complied as to form in all
material respects with the published rules and regulations of
the SEC and (ii) were prepared in accordance with GAAP
consistently applied during the periods involved, except as may
be noted in the Grey Wolf Financial Statements or as permitted
by
Form 10-Q
or
Form 8-K.
(b) Grey Wolf has not entered into or modified any loans or
arrangements with its officers and directors in violation of
Section 402 of SOX. Grey Wolf has established and maintains
disclosure controls and procedures and internal control over
financial reporting (as such terms are defined in paragraphs
(e) and (f), respectively, of
Rule 13a-15
under the Exchange Act) as required by
Rule 13a-15
under the Exchange Act. Grey Wolf’s disclosure controls and
procedures are reasonably designed to ensure that all material
information required to be disclosed by Grey Wolf in the reports
that it files under the Exchange Act are recorded, processed,
summarized and reported within the time periods specified in the
rules and forms of the SEC, and that all such material
information is accumulated and communicated to the management of
Grey Wolf as appropriate to allow timely decisions regarding
required disclosure and to make the certifications required
pursuant to Sections 302 and 906 of SOX. The management of
Grey Wolf has completed its assessment of the effectiveness of
Grey Wolf’s internal controls over financial reporting in
compliance with the requirements of Section 404 of SOX for
the year ended December 31, 2007, and such assessment
concluded that such controls were effective. To the knowledge of
Grey Wolf, it has disclosed, based on its most recent
evaluations, to Grey Wolf’s outside auditors and the audit
committee of the Grey Wolf Board (i) all significant
deficiencies in the design or operation of internal controls
over financial reporting and any material weaknesses, which have
more than a remote chance to materially adversely affect Grey
Wolf’s ability to record, process, summarize and report
financial data (as defined in
Rule 13a-15(f)
of the Exchange Act) and (ii) any fraud, regardless of
whether material, that involves management or other employees
who have a significant role in Grey Wolf’s internal
controls over financial reporting.
(c) Since January 1, 2007, to the knowledge of Grey
Wolf, neither Grey Wolf nor any of the Grey Wolf Subsidiaries
nor any director, officer, employee, auditor, accountant or
representative of Grey Wolf or any of the Grey Wolf Subsidiaries
has received or otherwise had or obtained knowledge of any
material complaint, allegation, assertion or Claim, whether
written or oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of Grey Wolf or any of the
Grey Wolf Subsidiaries, including any material complaint,
allegation, assertion or Claim that Grey Wolf or any of the Grey
Wolf Subsidiaries has a “material weakness” (as such
terms are defined in the Public Accounting Oversight
Board’s Auditing Standard No. 2, as in effect on the
date hereof), in Grey Wolf’s internal controls over
financial reporting.
Section 3.8 Litigation. Except
(a) matters relating to Tax matters, which are treated
exclusively under Section 3.10, (b) matters
relating to Grey Wolf Benefit Plans, which are treated
exclusively under Section 3.11 and (c) matters
arising under Environmental, Health and Safety Laws, which are
treated exclusively under Section 3.13, there is no
litigation, arbitration, mediation, action, suit, Claim,
proceeding or investigation,
whether legal or administrative, pending against Grey Wolf or
any of the Grey Wolf Subsidiaries or, to Grey Wolf’s
knowledge, threatened against Grey Wolf or any of the Grey Wolf
Subsidiaries or any of their respective assets, properties or
operations, at Applicable Law or in equity, before or by any
Governmental Authority or any Order of any Governmental
Authority that, individually or in the aggregate, and taking
into consideration the aggregate amounts reserved for any such
matters in Grey Wolf’s consolidated balance sheet at
December 31, 2007, has had or caused or would reasonably be
expected to have or cause a Grey Wolf Material Adverse Effect.
Section 3.9 Absence
of Certain Changes. From December 31, 2007
to the date of this Agreement, except as described in the Grey
Wolf Reports, there has not been (a) any event or
occurrence that has had or caused or would reasonably be
expected to have or cause a Grey Wolf Material Adverse Effect,
(b) any material change by Grey Wolf or any of the Grey
Wolf Subsidiaries, when taken as a whole, in any of its
accounting methods, principles or practices or any of its Tax
methods, practices or elections, (c) any declaration,
setting aside or payment of any dividend or distribution in
respect of any capital stock or other Equity Interest of Grey
Wolf or any redemption, purchase or other acquisition of any of
its Equity Interests except for repurchases of Grey Wolf Common
Stock pursuant to Grey Wolf’s previously announced stock
repurchase program and shares of Grey Wolf Common Stock that
were withheld to satisfy federal withholding requirements upon
vesting of Grey Wolf Restricted Stock, or (d) except in the
ordinary course of business consistent with past practices, any
increase in or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing,
stock option, stock purchase or other employee benefit plan.
Section 3.10 Taxes.
(a) Except for such matters that, individually or in the
aggregate, have not had or caused and would not reasonably be
expected to have or cause a Grey Wolf Material Adverse Effect:
(i) The Grey Wolf Companies have timely filed, or have
caused to be timely filed on their behalf, all Tax Returns
required to be filed by or on behalf of the Grey Wolf Companies
(including any Tax Return required to be filed by an affiliated,
consolidated, combined, unitary or similar group that included
the Grey Wolf Companies) in the manner prescribed by Applicable
Law. All such Tax Returns are complete and correct. The Grey
Wolf Companies have timely paid (or Grey Wolf has paid on each
Grey Wolf Subsidiary’s behalf) all Taxes due and owing,
and, in accordance with GAAP, the most recent Grey Wolf
Financial Statements contained in the Grey Wolf Reports reflect
a reserve (excluding any reserve for deferred Taxes established
to reflect timing differences between book and Tax income) for
all Taxes payable by the Grey Wolf Companies for all Taxable
periods and portions thereof through the date of such Grey Wolf
Financial Statements.
(ii) No Tax Return of the Grey Wolf Companies is under
audit or examination by any Tax Authority, and no written or, to
the knowledge of Grey Wolf, unwritten notice of such an audit or
examination has been received by the Grey Wolf Companies. There
is no assessed deficiency, refund litigation, proposed
adjustment or matter in controversy with respect to any Taxes
due and owing by the Grey Wolf Companies.
(iii) Since December 31, 2007, the Grey Wolf Companies
have not made or rescinded any election relating to Taxes or
settled or compromised any Claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy
relating to any Taxes, or, except as may be required by
Applicable Law, made any change to any of their methods of
reporting income or deductions for federal income Tax purposes
from those employed in the preparation of their most recently
filed federal Tax Returns.
(iv) The Grey Wolf Companies do not have any liability for
any Tax under Treasury
Regulation Section 1.1502-6
or any similar provision of any other Tax Law, except for Taxes
of the Grey Wolf Companies and the affiliated group of which
Grey Wolf is the common parent, within the meaning of
Section 1504(a)(1) of the Code or any similar provision of
any other Tax Law.
(v) There is no agreement or other document extending, or
having the effect of extending, the period of assessment or
collection of any material Taxes and no power of attorney with
respect to any such Taxes has been executed or filed with any
Tax Authority by or on behalf of the Grey Wolf Companies.
(vi) Except for statutory Liens for Taxes not yet due, no
Liens for Taxes exist with respect to any assets or properties
of the Grey Wolf Companies.
(vii) Except for any agreements or arrangements
(A) with customers, vendors, lessors or similar persons
entered into in the ordinary course of business or
(B) among the Grey Wolf Companies, none of the Grey Wolf
Companies is a party to or bound by any Tax sharing agreement,
Tax indemnity obligation or agreement or arrangement with
respect to Taxes (including any advance pricing agreement,
closing agreement or other agreement relating to Taxes with any
Tax Authority).
(viii) The Grey Wolf Companies have complied with all
Applicable Law relating to the payment and withholding of Taxes
(including withholding of Taxes pursuant to Sections 1441,
1442 and 3402 of the Code or similar provisions of any other Tax
Law) and have, within the time and the manner prescribed by
applicable Tax Law, withheld from and paid over to the proper
Tax Authorities all amounts required to be so withheld and paid
over under applicable Tax Law.
(ix) None of the Grey Wolf Companies is or has been a
United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code.
(x) None of the Grey Wolf Companies shall be required to
include in a Taxable period ending after the Closing Date any
item of income that accrued in a prior Taxable period but was
not recognized in any prior Taxable period as a result of the
installment method of accounting, the long-term contract method
of accounting, the cash method of accounting or Section 481
of the Code or comparable provisions of any other Tax Law.
(xi) None of the Grey Wolf Companies has participated in
any “reportable transaction” as defined in Treasury
Regulation Section 1.6011-4.
(b) Since December 31, 2005, none of the Grey Wolf
Companies has been a “distributing corporation” or a
“controlled corporation” in connection with a
distribution described in Section 355 of the Code.
(c) None of the Grey Wolf Companies knows of any fact,
agreement, plan, or other circumstance, or has taken or failed
to take any action, that would reasonably be expected to prevent
the Mergers from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
Section 3.11 Employee
Benefit Plans.
(a) Section 3.11(a) of the Grey Wolf Disclosure
Letter contains a list of all Grey Wolf Benefit Plans. Grey Wolf
has provided or made available to Basic true and complete copies
of the Grey Wolf Benefit Plans and, if applicable, all
amendments thereto, the most recent trust agreements, the
Forms 5500 for the prior three years, the most recent
Internal Revenue Service (the “IRS”)
determination or opinion letters, summary plan descriptions, any
summaries of material modifications provided to participants
since the most recent summary plan descriptions, material
notices to participants, funding statements, annual reports and
actuarial reports, if applicable, and all correspondence with
any Governmental Authority for each Grey Wolf Benefit Plan.
(b) To the extent applicable, the Grey Wolf Benefit Plans
comply in all material respects with the requirements of ERISA
and the Code or with the Applicable Laws and regulations of any
applicable jurisdiction, and any Grey Wolf Benefit Plan intended
to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the IRS (or, if
applicable, an opinion letter) and such letter has not been
revoked; all required amendments since the issuance of such
favorable determination letter from the IRS have been made and
no amendments have been made which would reasonably be expected
to result in the disqualification of any of such Grey Wolf
Benefit Plans; the Grey Wolf Benefit Plans have been maintained
and operated in compliance in all material respects with their
terms; to Grey Wolf’s knowledge, there are no breaches of
fiduciary duty in connection with the Grey Wolf Benefit Plans
for which Grey Wolf could be liable; there are no pending or, to
Grey Wolf’s knowledge, threatened Claims against or
otherwise involving any Grey Wolf Benefit Plan that,
individually or in the aggregate, have had or caused or would
reasonably be expected to have or cause a Grey Wolf Material
Adverse Effect, and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course
of the Grey Wolf Benefit Plan activities) has
been brought against or with respect to any such Grey Wolf
Benefit Plan for which Grey Wolf could be liable that,
individually or in the aggregate, have had or caused or would
reasonably be expected to have or cause a Grey Wolf Material
Adverse Effect; all material contributions required to be made
as of the date hereof to Grey Wolf Benefit Plans have been made
or have been properly accrued and are reflected in the Grey Wolf
Financial Statements as of the date thereof.
(c) Neither Grey Wolf nor any of the Grey Wolf Subsidiaries
or ERISA Affiliates contributes to, or has an obligation to
contribute to, and has not within six years prior to the
Effective Time contributed to, or had an obligation to
contribute to or has any material liability, contingent or
otherwise, with respect to, (i) a “multiemployer
plan” within the meaning of Section 3(37) of ERISA,
(ii) any plan that is covered by Title IV of ERISA,
(iii) any plan subject to Section 412 of the Code or
(iv) any plan funded by a “voluntary employees’
benefits association” within the meaning of
Section 501(c)(9) of the Code.
(d) No Grey Wolf Benefit Plan maintained by the Grey Wolf
Companies provides medical, surgical, hospitalization, death or
similar benefits (regardless of whether insured) for employees
or former employees of Grey Wolf or any Grey Wolf Subsidiary for
periods extending beyond their retirement or other termination
of service other than coverage mandated by Applicable Law.
(e) All accrued material obligations of Grey Wolf and the
Grey Wolf Subsidiaries, whether arising by operation of
Applicable Law, Contract, or past custom, for compensation and
benefits, including, but not limited to, bonuses and accrued
vacation, and benefits under Grey Wolf Benefit Plans, have been
paid or adequate accruals for such obligations are reflected on
the Grey Wolf Financial Statements as of the date thereof.
(f) Section 3.11(f) of the Grey Wolf Disclosure
Letter sets forth an accurate and complete list of each Grey
Wolf Benefit Plan (and the particular circumstances described in
this Section 3.11(f) relating to such Grey Wolf
Benefit Plan) under which the execution and delivery of this
Agreement or the consummation of the transactions contemplated
hereby could (either alone or in conjunction with any other
event, such as termination of employment), result in, cause the
accelerated vesting, funding or delivery of, or increase the
amount or value of, any payment or benefit to any employee,
officer or director of Grey Wolf or any of the Grey Wolf
Subsidiaries.
(g) Section 3.11(g) of the Grey Wolf Disclosure
Letter contains a description that is accurate and correct in
all material respects of all amounts estimated to be paid or
payable (whether in cash, in property, or in the form of
benefits, accelerated cash, property, or benefits, or otherwise)
in connection with the transactions contemplated hereby (solely
as a result thereof) that were or will be an “excess
parachute payment” within the meaning of Section 280G
of the Code.
(h) Each Grey Wolf Benefit Plan which is or reasonably
could be determined to be an arrangement subject to
Section 409A of the Code has been operated in good faith
compliance with Section 409A of the Code since
January 1, 2005 and has been, or may be, timely amended
with the consent of the participant, if necessary, to comply in
good faith with Section 409A of the Code and any applicable
guidance, whether proposed or final, issued by the IRS with
respect thereto.
(i) No Grey Wolf Benefit Plan is a multiple employer plan
within the meaning of Section 413(c) of the Code.
(j) No Grey Wolf Benefit Plan that is not subject to ERISA
has any material liabilities thereunder which are not otherwise
fully funded, if applicable, or properly accrued and reflected
under the Grey Wolf Financial Statements as of the date thereof.
(k) No Grey Wolf Benefit Plan holds any “qualifying
employer securities” or “qualifying employer real
estate” within the meaning of ERISA.
(l) With respect to all Grey Wolf Benefit Plans subject to
the Applicable Laws of any jurisdiction outside the
U.S. (“International Plans”), (i) to
Grey Wolf’s knowledge, the International Plans have been
maintained in all material respects in accordance with all
Applicable Law, (ii) if intended to qualify for special Tax
treatment, the International Plans meet the requirements for
such treatment in all material respects, (iii) if
intended to be funded
and/or
book-reserved, the International Plans are fully funded
and/or
book-reserved based upon reasonable actuarial assumptions, and
(iv) no liability which would be material to Grey Wolf and
the Grey Wolf Subsidiaries, taken as a whole, exists or
reasonably could be imposed upon the assets of Grey Wolf or any
of the Grey Wolf Subsidiaries by reason of such International
Plans, other than to the extent reflected on Grey Wolf’s
balance sheet as contained in Grey Wolf’s
Form 10-K
for the year ended December 31, 2007.
Section 3.12 Labor
Matters.
(a) As of the date of this Agreement, (i) neither Grey
Wolf nor any of the Grey Wolf Subsidiaries is a party to, or
bound by, any collective bargaining agreement or similar
Contract, agreement or understanding with a labor union or
similar labor organization and (ii) to Grey Wolf’s
knowledge, there are no organizational efforts with respect to
the formation of a collective bargaining unit presently being
made or threatened.
(b) Except for such matters that, individually or in the
aggregate, have not had or caused and would not reasonably be
expected to have or cause a Grey Wolf Material Adverse Effect,
(i) neither Grey Wolf nor any Grey Wolf Subsidiary has
received any written complaint of any unfair labor practice or
other unlawful employment practice or any written notice of any
material violation of any federal, state or local statutes,
Applicable Laws, ordinances, rules, regulations, Orders or
directives with respect to the employment of individuals by, or
the employment practices of, Grey Wolf or any Grey Wolf
Subsidiary, or the work conditions, terms and conditions of
employment, wages or hours of their respective businesses,
(ii) there are no unfair labor practice charges or other
employee related complaints against Grey Wolf or any Grey Wolf
Subsidiary pending or, to the knowledge of Grey Wolf threatened,
before any Governmental Authority by or concerning the employees
working in their respective businesses, and (iii) there is
no labor dispute, strike, slowdown or work stoppage against Grey
Wolf or any of the Grey Wolf Subsidiaries or, to the knowledge
of Grey Wolf, pending or threatened against Grey Wolf or any of
the Grey Wolf Subsidiaries.
Section 3.13 Environmental
Matters. Except for such matters that,
individually or in the aggregate, have not had or caused and
would not reasonably be expected to have or cause a Grey Wolf
Material Adverse Effect:
(a) Grey Wolf and each Grey Wolf Subsidiary has been and is
in compliance with all applicable Environmental, Health and
Safety Laws and possesses and is in compliance with any permits
or licenses required under Environmental, Health and Safety
Laws. To the knowledge of Grey Wolf, there are no past or
present facts, conditions or circumstances that interfere with
or preclude, or could interfere with or preclude if known to a
Governmental Authority, the conduct of any of their respective
businesses as now conducted or which interfere with continued
compliance with applicable Environmental, Health and Safety Laws.
(b) No proceedings or investigations of any Governmental
Authority are pending or, to the knowledge of Grey Wolf,
threatened against Grey Wolf or the Grey Wolf Subsidiaries that
allege the violation of or seek to impose liability pursuant to
any Environmental, Health and Safety Laws, and, to the knowledge
of Grey Wolf, there are no past or present facts, conditions or
circumstances at, on or arising out of, or otherwise associated
with, any current (or, to the knowledge of Grey Wolf or the Grey
Wolf Subsidiaries, former) businesses, assets or properties of
Grey Wolf or any Grey Wolf Subsidiary, including, but not
limited to, any
on-site or
off-site disposal, release or spill of any Hazardous Materials,
which constitute a material violation of Environmental, Health
and Safety Laws or are reasonably likely to give rise to
(i) costs, expenses, liabilities or obligations for any
cleanup, remediation, disposal or corrective action under any
Environmental, Health and Safety Laws, (ii) Claims arising
for personal injury, property damage or damage to natural
resources, or (iii) fines, penalties or injunctive relief.
(c) Neither Grey Wolf nor any of the Grey Wolf Subsidiaries
has (i) received any written notice of noncompliance with,
violation of, or liability or potential liability under any
Environmental, Health and Safety Laws or (ii) entered into
or become subject to any consent decree, Order or agreement with
any Governmental Authority or other Persons pursuant to any
Environmental, Health and Safety Laws or relating to the cleanup
of any Hazardous Materials.
Section 3.14 Intellectual
Property. Except for such matters that,
individually or in the aggregate, have not had or caused and
would not reasonably be expected to have or cause a Grey Wolf
Material Adverse Effect, (a) the products, services and
operations of Grey Wolf and the Grey Wolf Subsidiaries do not
infringe upon, violate or misappropriate the Intellectual
Property of any Third Party, (b) Grey Wolf and the Grey
Wolf Subsidiaries own or possess valid licenses or other valid
rights to use the Intellectual Property that Grey Wolf and the
Grey Wolf Subsidiaries use, exercise or exploit in, or that may
be necessary or desirable for, their businesses as currently
being conducted, free and clear of all Liens (other than
Permitted Liens), and (c) to the knowledge of Grey Wolf,
there is no infringement of any Intellectual Property owned by
or licensed by or to Grey Wolf or any of the Grey Wolf
Subsidiaries. To Grey Wolf’s knowledge, there is no
unauthorized use, disclosure, infringement or misappropriation
of any Intellectual Property of Grey Wolf or any Grey Wolf
Subsidiary by any Person, including, without limitation, any
employee or independent contractor (present or former) of Grey
Wolf or any Grey Wolf Subsidiary, that, individually or in the
aggregate, has had or caused or would reasonably be expected to
have or cause a Grey Wolf Material Adverse Effect.
Section 3.15 Insurance. Except
for such matters that, individually or in the aggregate, have
not had or caused and would not reasonably be expected to have
or cause a Grey Wolf Material Adverse Effect:
(a) Grey Wolf and the Grey Wolf Subsidiaries maintain and
will maintain through the Closing Date the insurance coverages
summarized in its Annual Report on
Form 10-K
for the year ended December 31, 2007, except for certain
changes in such coverages since December 31, 2007 as set
forth in Section 3.15(a) of the Grey Wolf Disclosure
Letter. In addition, there is no material default with respect
to any provision contained in any such policy or binder, and
none of the Grey Wolf Companies has failed to give any notice or
present any claim under any such policy or binder in a timely
fashion.
(b) To the knowledge of Grey Wolf, no event relating
specifically to Grey Wolf or the Grey Wolf Subsidiaries (as
opposed to events affecting the drilling service industry in
general) has occurred that is reasonably likely, after the date
of this Agreement, to result in an upward adjustment in premiums
under any insurance policies they maintain. Neither Grey Wolf
nor any of the Grey Wolf Subsidiaries have received notice from
any insurer or agent of such insurer that substantial capital
improvements or other expenditures will have to be made in order
to continue such insurance policies. Excluding insurance
policies that have expired and been replaced in the ordinary
course of business, no excess liability or protection and
indemnity insurance policy has been cancelled by the insurer
within one year prior to the date hereof, and to Grey
Wolf’s knowledge, no threat in writing has been made to
cancel (excluding cancellation upon expiration or failure to
renew) any current insurance policy of Grey Wolf or any Grey
Wolf Subsidiary.
Section 3.16 No
Brokers. Neither Grey Wolf nor any of the Grey
Wolf Subsidiaries has entered into any Contract with any Person
that may result in the obligation of Grey Wolf, Basic or any of
their respective Subsidiaries to pay any finder’s fees,
brokerage or other like payments in connection with the
negotiations leading to this Agreement or the consummation of
the transactions contemplated hereby, except that Grey Wolf has
retained UBS Securities LLC and Simmons & Company
International as its financial advisors, the fee and expense
reimbursement arrangements with which have been disclosed in
writing to Basic prior to the date hereof.
Section 3.17 Opinion
of Financial Advisors. The Grey Wolf Board has
received the opinion of UBS Securities LLC to the effect that,
as of the date of such opinion and subject to the assumptions,
qualifications and limitations set forth therein, the Basic
Merger Consideration relative to the Grey Wolf Merger
Consideration is fair, from a financial point of view, to Grey
Wolf. The Grey Wolf Board has also received the opinion of
Simmons & Company International to the effect that, as
of the date of such opinion and subject to the assumptions,
qualifications and limitations set forth therein, the Basic
Merger Consideration relative to the Grey Wolf Merger
Consideration is fair, from a financial point of view, to Grey
Wolf. Grey Wolf will promptly deliver a copy of such written
opinions to Basic solely for informational purposes after
receipt thereof by Grey Wolf.
Section 3.18 Basic
Share Ownership. Neither Grey Wolf nor any of the
Grey Wolf Subsidiaries owns any shares of the capital stock of
Basic or any other securities convertible into or otherwise
exercisable to acquire shares of capital stock of Basic.
Section 3.19 Vote
Required; Board of Director Approval. Under Texas
law and the rules of the AMEX, the only vote of the holders of
any class or series of Grey Wolf Equity Interests necessary to
approve the Grey Wolf Proposals are (a) the affirmative
vote in favor of the Grey Wolf Merger Proposal by the holders of
a majority of the issued and outstanding shares of Grey Wolf
Common Stock (the “Required Grey Wolf Vote”)
and (b) the affirmative vote in favor of the Grey Wolf Plan
Proposal by the holders of a majority of the Grey Wolf Common
Stock present and voting at the Grey Wolf Meeting. As of or
prior to the date of this Agreement, the Grey Wolf Board has, by
resolutions duly adopted at a meeting of all directors on the
Grey Wolf Board, which meeting was duly called and held,
(a) determined that the Mergers are advisable and in the
best interests of Grey Wolf and Grey Wolf’s stockholders,
(b) approved the Mergers and this Agreement,
(c) recommended that the stockholders of Grey Wolf approve
this Agreement and directed that the Grey Wolf Merger Proposal
be submitted to the stockholders of Grey Wolf at the Grey Wolf
Meeting, and (d) determined that the Grey Wolf Plan
Proposal is in the best interests of Grey Wolf and Grey
Wolf’s stockholders and directed that the Grey Wolf Plan
Proposal be submitted to Grey Wolf’s stockholders at the
Grey Wolf Meeting.
Section 3.20 Ownership
and Condition of Assets.
(a) As of the date hereof, Grey Wolf or a Grey Wolf
Subsidiary has good and valid title to the assets of the Grey
Wolf Companies including the drilling rigs listed in
Section 3.20(a) of the Grey Wolf Disclosure Letter,
other than defects or irregularities of title that do not
materially impair the ownership or operation of such assets and
in each case free and clear of all Liens, except for Permitted
Liens, Liens securing the Grey Wolf Credit Agreement or Liens
that have not had or caused and would not reasonably be expected
to have or cause a Grey Wolf Material Adverse Effect.
(b) The assets of the Grey Wolf Companies are in good
operating condition except for: (i) normal maintenance and
repair requirements and normal wear and tear,
(ii) warm-stacked rigs or cold-stacked rigs identified as
such as of the date of this Agreement in
Section 3.20(b) of the Grey Wolf Disclosure Letter,
and (iii) as would not, when taken together with the
matters described in the immediately preceding clauses (i)
and (ii), have a Grey Wolf Material Adverse Effect.
Section 3.21 Undisclosed
Liabilities. Neither Grey Wolf nor any of the
Grey Wolf Subsidiaries has any liabilities or obligations of any
nature, regardless of whether fixed, accrued, contingent or
otherwise, except liabilities and obligations that (a) are
fully reflected or reserved against in the Grey Wolf Financial
Statements included in the Grey Wolf Reports or described in the
Grey Wolf Reports filed prior to the date hereof,
(b) liabilities and obligations arising under this
Agreement and the transaction contemplated by this Agreement,
(c) liabilities or obligations incurred in the ordinary
course of business consistent with past practices since
December 31, 2007, and (d) liabilities and obligations
that, individually or in the aggregate, have not had or caused
and would not reasonably be expected to have or cause a Grey
Wolf Material Adverse Effect.
(a) Section 3.22(a) of the Grey Wolf Disclosure
Letter contains a list of all of the following Contracts or
agreements (other than those set forth on an exhibit index in
the Grey Wolf Reports filed prior to the date of this Agreement)
to which Grey Wolf or any Grey Wolf Subsidiary is a party or by
which any of them is bound as of the date of this Agreement
(other than this Agreement or any Related Document):
(i) any non-competition agreement that purports to limit
the manner in which, or the localities in which, all or any
portion of their respective businesses are conducted or would
purport to bind Grey Wolf, Basic or any of their Affiliates;
(ii) any hedging agreements by which any of the assets of
Grey Wolf or any Grey Wolf Subsidiary are bound, in an aggregate
amount in excess of $1 million; (iii) any Contract
granting any Person registration or other purchase or sale
rights with respect to any Equity Interest in Grey Wolf or any
Grey Wolf Subsidiary; (iv) any voting agreement relating to
any Equity Interest of Grey Wolf or any Grey Wolf Subsidiary;
(v) any
Contract outside the ordinary course to which Grey Wolf or any
Grey Wolf Subsidiary is a party that entitles the other party or
parties thereto to receive the benefits thereof without
incurring the obligation to pay for same within sixty days after
services are provided; (vi) any Contract outside the
ordinary course between Grey Wolf or any Grey Wolf Subsidiary
and any current or former Affiliate of Grey Wolf; (vii) any
drilling rig construction or conversion Contract with respect to
which the drilling rig has not been delivered and paid for;
(viii) any drilling Contracts of one year or greater in
remaining duration; (ix) any Contract or agreement for the
borrowing of money with a borrowing capacity or outstanding
Indebtedness of $2 million or more; or (x) any
“material contract” (as such term is defined in
Item 601(b)(10) of
Regulation S-K
of the SEC) (all Contracts or agreements of the types described
in clauses (i) through (x), regardless of whether listed in
Section 3.22(a) of the Grey Wolf Disclosure Letter
and regardless of whether in effect as of the date of this
Agreement, being referred to herein as “Grey Wolf
Material Contracts”).
(b) As of the date of this Agreement, each of the Grey Wolf
Material Contracts is, to the knowledge of Grey Wolf, in full
force and effect. Except for such matters that, individually or
in the aggregate, have not had or caused and would not
reasonably be expected to have or cause a Grey Wolf Material
Adverse Effect, neither Grey Wolf nor any of the Grey Wolf
Subsidiaries knows of, or has received written notice of, any
breach or violation of, or default under (nor, to the knowledge
of Grey Wolf and the Grey Wolf Subsidiaries, does there exist
any condition which with the passage of time or the giving of
notice or both would result in such a violation or default
under), any Grey Wolf Material Contract, or has received written
notice of the desire of the other party or parties to any such
Grey Wolf Material Contract to exercise any rights such party
has to cancel, terminate or repudiate such Contract or exercise
remedies thereunder.
Section 3.23 State
Takeover Statutes. Assuming the accuracy of the
representations and warranties in Section 4.18, Grey
Wolf has, or will have prior to the Effective Time, taken all
necessary action so that, assuming compliance by Basic with its
obligations hereunder and the accuracy of the representations
and warranties made by Basic herein, no “business
combination,”“moratorium,”“fair
price,”“control share acquisition,” or other
state antitakeover statute or regulation, nor any
takeover-related provision in the Grey Wolf Charter Documents or
the Holdings Charter Documents, would apply to this Agreement,
any Related Documents or the Mergers.
Section 3.24 Improper
Payments. Except for such matters that,
individually or in the aggregate, have not had or caused and
would not reasonably be expected to have or cause a Grey Wolf
Material Adverse Effect: (a) no funds, assets or properties
of Grey Wolf or its Affiliates have been used or offered for
illegal purposes; (b) no accumulation or use of any funds,
assets or properties of Grey Wolf or its Affiliates has been
made without being properly accounted for in the financial books
and records of Grey Wolf or its Affiliates; (c) all
payments by or on behalf of Grey Wolf or its Affiliates have
been duly and properly recorded and accounted for in their
financial books and records and such books and records
accurately and fairly reflect all transactions and dispositions
of the assets of Grey Wolf and its Affiliates; (d) Grey
Wolf has devised and maintained systems that provide reasonable
assurances that transactions are and have been executed in
accordance with management’s general or specific
authorization; (e) neither Grey Wolf nor any of its
Affiliates, nor any director, officer, agent, employee or other
Person associated with or acting on behalf of Grey Wolf or its
Affiliates, has (i) used any corporate funds for any
unlawful contribution, gift, entertainment or payment of
anything of value relating to political activity, (ii) made
any direct or indirect unlawful payment to any employee, agent,
officer, director, representative or stockholder of a
Governmental Authority or political party, or official or
candidate thereof, or any immediate family member of the
foregoing or (iii) made any bribe, unlawful rebate, payoff,
influence payment, kickback or other unlawful payment in
connection with the conduct of Grey Wolf’s or its
Affiliates’ businesses; (f) none of Grey Wolf, any of
its Affiliates or any agent of any of them has received any
bribes, kickbacks or other improper payments from vendors,
suppliers or other Persons; and (g) Grey Wolf has no
knowledge that any payment made to a Person would be or has
thereafter been offered, given or provided to any foreign
official, political party or official thereof, or to any
candidate for public office.
Section 3.25 Amendment
to Grey Wolf Rights Agreement. Grey Wolf has
amended or taken other action under the Grey Wolf Rights
Agreement so that none of the execution and delivery of this
Agreement or any Related Document or the consummation of the
Mergers or any other transaction contemplated hereby or
by a Related Document will cause the Grey Wolf Rights to become
exercisable under the Grey Wolf Rights Agreement and will
terminate the Grey Wolf Rights Agreement at the Closing. Grey
Wolf has delivered to Basic a true, accurate and complete copy
of the Grey Wolf Rights Agreement, as amended to date.
Section 3.26 No
Other Representations or Warranties. Except for
the representations and warranties contained in this
Article 3, neither Grey Wolf nor any other Person
makes any other express or implied representation or warranty on
behalf of Grey Wolf or any of its Affiliates in connection with
this Agreement or the transactions contemplated hereby.
ARTICLE 4
REPRESENTATIONS
AND WARRANTIES OF BASIC AND HOLDINGS
As an inducement for Grey Wolf and Holdings to enter into this
Agreement, Basic and Holdings hereby jointly and severally make
the following representations and warranties to Grey Wolf and
Holdings; provided, however, that such representations
and warranties shall be subject to and qualified by:
(a) the disclosure letter delivered by Basic to Grey Wolf
as of the date hereof (each section of which qualifies the
correspondingly numbered representation and warranty or covenant
to the extent specified therein) (the “Basic Disclosure
Letter”) (it being understood that (i) the
disclosure of any fact or item in any section of the Basic
Disclosure Letter shall, should the existence of such fact or
item be relevant to any other section, be deemed to be disclosed
with respect to that other section to the extent that such
disclosure is made in a manner that makes its relevance to the
other section reasonably apparent and (ii) the disclosure
of any matter or item in the Basic Disclosure Letter shall not
be deemed to constitute an acknowledgement that such matter or
item is required to be disclosed therein or is material to a
representation or warranty set forth in this Agreement and shall
not be used as a basis for interpreting the terms
“material,”“materially,”“materiality,”“Basic Material Adverse
Effect” or any word or phrase of similar import and
does not mean that such matter or item, alone or together with
any other matter or item, would constitute a Basic Material
Adverse Effect) and (b) information contained in the Basic
Reports (excluding any exhibits thereto and excluding
disclosures under “Risk Factors” and other
forward-looking or predictive statements) filed with the SEC
prior to the date hereof (but only to the extent that such
disclosure on its face appears to constitute information that
would reasonably be deemed a qualification or exception to the
following representations and warranties).
Section 4.1 Corporate
Existence; Good Standing; Corporate
Authority. Basic is a corporation duly
incorporated, validly existing and in good standing under the
Applicable Laws of the State of Delaware. Holdings is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Basic is duly
qualified to conduct business and is in good standing (to the
extent such concept exists in the relevant jurisdiction) in each
jurisdiction in which the ownership, operation or lease of its
property or the nature of Basic’s business requires such
qualification, except for jurisdictions in which any failures to
be so qualified or to be in good standing, individually or in
the aggregate, have not had or caused and would not reasonably
be expected to have or cause a Basic Material Adverse Effect.
Basic and Holdings each have all requisite corporate power and
authority to own or lease and operate their respective
properties and assets and to carry on their businesses as they
are currently being conducted. Basic has delivered to Grey Wolf
true, accurate and complete copies of the Amended and Restated
Certificate of Incorporation (including any and all Certificates
of Designations) and the Amended and Restated Bylaws of Basic,
each as amended to date (the “Basic Charter
Documents”) and each Basic Charter Document is in full
force and effect, has not been amended or modified and has not
been terminated, superseded or revoked. Holdings has delivered
to Grey Wolf true, accurate and complete copies of the Holdings
Charter Documents and each Holdings Charter Document is in full
force and effect, has not been amended or modified and has not
been terminated, superseded or revoked. Basic is not in
violation of the Basic Charter Documents. Holdings is not in
violation of the Holdings Charter Documents.
Section 4.2 Authorization,
Validity and Effect of Agreements.
(a) Each of Basic and Holdings has the requisite corporate
power and authority to execute and deliver this Agreement and
the Related Documents to which it is, or will become, a party,
to perform its obligations
hereunder and thereunder and to consummate in the case of Basic,
the Basic Merger and, in the case of Holdings, the Mergers, and
all other transactions contemplated hereunder and thereunder
subject to the approval of the Basic Proposal by Basic’s
Stockholders. The execution, delivery and performance of this
Agreement and the Related Documents and the consummation of in
the case of Basic, the Basic Merger and, in the case of
Holdings, the Mergers, and the other transactions contemplated
hereunder and thereunder have been duly authorized by all
requisite corporate action on behalf of Basic and Holdings, and
no other corporate proceedings by Basic or Holdings are
necessary to authorize the execution and delivery of this
Agreement or the Related Documents or to consummate, in the case
of Basic, the Basic Merger and, in the case of Holdings, the
Mergers, and the other transactions contemplated hereunder or
under the Related Documents, except for the approval of the
Basic Proposals by Basic’s stockholders, the filing of the
Articles of Merger pursuant to the TBCA, the filing of the
Certificate of Mergers pursuant to the DGCL and the Governmental
Authority applications and approvals described in
Section 4.6(b).
(b) This Agreement and each of the Related Documents to
which each Basic and Holdings is a party have been or will be
duly executed by each of Basic and Holdings and, assuming the
due authorization, execution and delivery hereof and thereof by
Grey Wolf to the extent a party hereof and thereof, constitute
the valid and legally binding obligations of Basic and Holdings
enforceable against each of Basic and Holdings, in accordance
with their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other Applicable Laws relating to
or affecting the rights and remedies of creditors generally and
to general principles of equity (regardless of whether
considered in a proceeding in equity or at law). Assuming the
accuracy of the representations and warranties set forth in
Section 3.18, Basic and Holdings have taken all
action necessary to render the restrictions set forth in
Section 203 of the DGCL inapplicable to this Agreement and
the transactions contemplated hereby.
Section 4.3 Capitalization.*
(a) The authorized capital stock of Basic consists of
80,000,000 shares of Basic Common Stock and
5,000,000 shares of Basic Preferred Stock. As of the close
of business on April 17, 2008, there were 40,890,872 issued
and outstanding shares of Basic Common Stock, no shares of Basic
Common Stock held by Basic in its treasury and 34,658 issued and
outstanding shares of Basic Preferred Stock. As of
April 17, 2008, 3,446,075 shares of Basic Common Stock
were reserved for future issuance pursuant to outstanding Basic
stock options under the Basic Stock Plans. As of April 17,2008, there were 1,774,550 shares of Basic Common Stock
remaining available for the grant of awards under the Basic
Stock Plans. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation or other
similar rights with respect to Basic. All shares of Basic Common
Stock are, and all shares of Basic Common Stock which may be
issued and outstanding immediately prior to the Effective Time
as permitted under this Agreement shall be when issued, duly
authorized, validly issued, fully paid and nonassessable shares
of Basic Common Stock and not subject to any preemptive rights.
(b) Basic has no outstanding bonds, debentures, promissory
notes or other Indebtedness the holders of which have
(i) the right to vote with the stockholders of Basic on any
matter or (ii) convertible or exercisable for Equity
Interests having the right to vote (collectively, the
“Basic Voting Debt”). As of the date of this
Agreement, except as set forth in this Section 4.3,
Basic and the Basic Subsidiaries have not issued, sold, granted
or delivered, are not obligated to issue, sell, grant or deliver
(or to cause to be issued, sold, granted or delivered), and are
not a party to any Contract or other obligation to issue, sell,
grant or deliver, any Equity Interest (including, without
limitation, any securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any
kind pursuant to which a Person is entitled to acquire an
*
Note: Subsequent to the
execution of the merger agreement, Basic disclosed to Grey Wolf
that as of the close of business on April 17, 2008, there
were 41,251,972 issued and outstanding shares of Basic common
stock, 34,658 shares of Basic common stock held by Basic in
its treasury and no issued and outstanding shares of Basic
preferred stock. In addition, as of April 17, 2008,
2,190,530 shares of Basic common stock were reserved for
future issuance pursuant to outstanding Basic stock options
under Basic’s incentive plan, 147,000 shares of
restricted Basic common stock were potentially issuable under
performance-based awards assuming all maximum performance levels
were achieved and such shares were earned, and there were
726,275 shares of Basic common stock remaining available
for the grant of awards under Basic’s incentive plan. Basic
and Grey Wolf each believe that the differences disclosed above
compared to the representation in Section 4.3(a) are
immaterial.
Equity Interest) or Basic Voting Debt of any nature or any
additional shares of capital stock or any other Equity Interest
in Basic or any Basic Subsidiary. Section 4.3(b) of
the Basic Disclosure Letter sets forth a true, correct and
complete list of all outstanding Basic Options and Basic
Restricted Stock as of April 17, 2008, including grantee
name, exercise price (if any) and vesting schedule and other
vesting conditions to the extent not fully vested. There are no
outstanding or authorized (i) contractual or other
obligations of Basic or any of the Basic Subsidiaries to
repurchase, redeem or otherwise acquire any Equity Interest of
Basic or any of the Basic Subsidiaries or any such securities or
agreements referred to in the prior sentence or (ii) voting
trusts or similar agreements to which Basic or any of the Basic
Subsidiaries is a party with respect to the voting of the
capital stock of Basic or any of the Basic Subsidiaries, except
repurchases, redemptions or acquisitions that would have an
immaterial effect on Basic and the Basic Subsidiaries, taken as
a whole.
(c) Basic has received from each of the directors,
executive officers and stockholder of Basic set forth on
Schedule A-2
an executed
lock-up
agreement substantially in the form attached hereto as
Exhibit A (the “Basic
Lock-Up
Agreements”). Basic has delivered to Grey Wolf true,
correct and complete copies of the Basic
Lock-Up
Agreements.
(a) Each Basic Subsidiary is a corporation or other legal
entity duly organized or constituted and validly existing under
the Applicable Laws of its jurisdiction of incorporation,
organization or formation. Each Basic Subsidiary has all
requisite corporate, limited liability company, partnership or
other business power and authority to own or lease and operate
its properties and assets and to carry on its business as
currently conducted. Each Basic Subsidiary is duly qualified to
conduct business and is in good standing (to the extent such
concept exists in the relevant jurisdiction) in each
jurisdiction in which the ownership or lease and operation of
its property or the nature of its business requires such
qualification, except for jurisdictions in which any failures to
be so qualified or to be in good standing, individually or in
the aggregate, have not had or caused and would not reasonably
be expected to have or cause a Basic Material Adverse Effect.
All of the outstanding shares of capital stock of, or other
Equity Interests in, each Basic Subsidiary are duly authorized,
validly issued, fully paid and nonassessable and are owned,
directly or indirectly, by Basic, free and clear of all Liens
except for Permitted Liens and Liens granted under the Basic
Credit Agreements.
(b) Section 4.4(b) of the Basic Disclosure
Letter sets forth all of the Basic Subsidiaries (other than
Holdings) and the percentage Equity Interest of such Basic
Subsidiary held, directly or indirectly, by Basic. The Basic
Subsidiaries are not in violation of their respective Basic
Subsidiary Charter Documents
(c) Fifty (50) shares of Holdings Common Stock
representing fifty percent (50%) of the issued and outstanding
capital stock of Holdings is owned directly by Basic. Holdings
has been formed solely for the purpose of engaging in the
transactions contemplated hereby (including transactions in
connection with the Holdings Credit Facilities) and, as of the
Effective Time, will not have engaged in any activities other
than in connection with the transactions contemplated by this
Agreement (including transactions in connection with the
Holdings Credit Facilities). Immediately prior to the Effective
Time, no shares of Holdings Equity Interests will be issued and
outstanding other than 50 shares of Holdings Common Stock
that will be held by Grey Wolf and the 50 shares of
Holdings Common Stock that will be held by Basic, all of which
shares shall be cancelled in accordance with
Section 2.10 hereof at the Effective Time. The
shares of Holdings Common Stock to be issued in connection with
the Mergers, when issued in accordance with this Agreement, will
be validly issued, fully paid, nonassessable and free of
preemptive rights.
(d) Holdings owns no Equity Interests in any other Person.
Section 4.5 Compliance
with Laws; Permits. Except for such matters that,
individually or in the aggregate, have not had or caused and
would not reasonably be expected to have or cause a Basic
Material Adverse Effect, and except for (x) matters
relating to Taxes, which are treated exclusively in
Section 4.10,
(y) matters relating to Basic Benefit Plans, which are
treated exclusively under Section 4.11 and
(z) matters arising under Environmental, Health and Safety
Laws, which are treated exclusively in Section 4.13:
(a) Neither Basic nor any Basic Subsidiary is in violation
of any Applicable Law relating to the ownership or operation of
any of its assets, and no Claim is pending or, to the knowledge
of Basic, threatened with respect to any such matters;
(b) Basic and each Basic Subsidiary hold all permits,
licenses, certifications, variations, exemptions, Orders,
franchises, registrations, filings, approvals, authorizations or
other required grant of operating authority required by any
Governmental Authority necessary for the conduct of their
respective businesses (the “Basic Permits”).
All Basic Permits are in full force and effect and there exists
no default thereunder or breach thereof, and Basic has no notice
or knowledge that such Basic Permits will not be renewed in the
ordinary course after the Effective Time. No Governmental
Authority has given, or to the knowledge of Basic, threatened to
give, notice of any action to terminate, cancel or reform any
Basic Permits; and
(c) Basic and each Basic Subsidiary possess all Basic
Permits required for the present ownership or lease, as the case
may be, and operation of all Basic Real Property, and there
exists no default or breach with respect to, and no Person,
including any Governmental Authority, has taken or, to the
knowledge of Basic, threatened to take, any action to terminate,
cancel or reform any such Basic Permit pertaining to Basic Real
Property.
Section 4.6 No
Conflict; Consents.
(a) The execution and delivery by each of Basic and
Holdings of this Agreement and the Related Documents, the
performance of the obligations of Basic and Holdings hereunder
and thereunder and the consummation by Basic and Holdings of the
Mergers and the other transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof will not
(i) conflict with or result in a breach of any provisions
of the Basic Charter Documents or the Holdings Charter
Documents, (ii) conflict with or result in a breach of any
provisions of the Basic Subsidiary Charter Documents,
(iii) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default)
under, impair Basic’s rights under, alter the rights or
obligations of third parties under, result in the termination of
or in a right of termination or cancellation of, give rise to a
right of purchase under, or accelerate the performance required
by, any Basic Material Contract or other Contract,
(iv) except in connection with the Holdings Credit
Facilities, result in the creation of any Lien (other than
Permitted Liens) upon any of the properties or assets of Basic
or the Basic Subsidiaries under any Basic Material Contract or
by which Basic or the Basic Subsidiaries or any of their
properties is bound or affected, (v) result in any Basic
Material Contract being declared void, voidable, or without
further binding effect, (vi) otherwise result in a
detriment to Basic or any of the Basic Subsidiaries under any of
the terms, conditions or provisions of any Basic Material
Contract or other Contract by which Basic or any of the Basic
Subsidiaries is bound or to which any of their properties is
subject or (vii) (assuming that the consents and approvals
referred to in Section 4.6(b) are duly and timely
made or obtained and that the Basic Proposals are approved by
the requisite Basic Stockholders), contravene, conflict with or
constitute a violation of any provision of any Applicable Law
binding upon or applicable to Basic or any of the Basic
Subsidiaries, other than, in the cases of clauses (ii)
through (vii), any such violations, conflicts, breaches,
defaults, impairments, alterations, terminations, cancellations,
purchase rights, accelerations, Liens, voidings or detriments
that, individually or in the aggregate, have not had or caused
and would not reasonably be expected to have or cause a Basic
Material Adverse Effect.
(b) Neither the execution and delivery by Basic or Holdings
of this Agreement or any Related Document nor the consummation
by Basic or Holdings of the Mergers and the other transactions
contemplated hereby or thereby in accordance with the terms
hereof or thereof will require any consent, approval or
authorization of, notice to or filing or registration with any
Governmental Authority, other than (i) the filing of the
Articles of Merger with the Secretary of State of the State of
Texas, the filing of the Certificate of Mergers with the
Secretary of State of the State of Delaware and appropriate
documents required to be filed as a result of the Mergers with
the relevant Governmental Authorities in the states and foreign
jurisdictions in which Basic, Holdings or any other Basic
Subsidiary is qualified to conduct business, (ii) the
filing of the Proxy Statement/
Prospectus with the SEC in accordance with the Exchange Act and
the filing and effectiveness of the Registration Statement,
(iii) filings required under the HSR Act, including the
filing of Notification and Report Forms with the FTC and the
Antitrust Division of the DOJ as required by the HSR Act,
(iv) filings required under federal and state securities or
“Blue Sky” laws, applicable
non-U.S. laws
or the rules of the NYSE, and (v) any other applicable
filings or notifications under the antitrust, competition or
similar Applicable Laws of foreign jurisdictions ((i), (ii),
(iii), (iv) and (v) collectively, the “Basic
Regulatory Filings”), except for any failures to obtain
any such consent, approval or authorization or to make any such
filing, notification or registration that, individually or in
the aggregate, have not had or caused and would not reasonably
be expected to have or cause a Basic Material Adverse Effect.
Section 4.7 SEC
Documents.
(a) Basic has filed with the SEC all documents required to
be so filed by it since January 1, 2007 pursuant to
Sections 13(a), 14(a) and 15(d) of the Exchange Act, and
has made available to Grey Wolf each registration statement,
periodic or other report, proxy statement or information
statement (other than preliminary materials) it has so filed,
each in the form (including exhibits and any amendments thereto)
filed with the SEC (collectively, the “Basic
Reports”). As used in this Section 4.7, the
term “file” shall include any reports on
Form 8-K
furnished to the SEC. As of its respective date or, if amended
by a subsequent filing prior to the date hereof, on the date of
such filing, each Basic Report complied in all material respects
with the applicable requirements of the Exchange Act, SOX and
the rules and regulations thereunder and did not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under
which they were made, not misleading. Each of the consolidated
balance sheets included in or incorporated by reference into the
Basic Reports (including the related notes and schedules) fairly
presents in all material respects the consolidated financial
position of Basic and the Basic Subsidiaries as of its date, and
each of the consolidated statements of operations, cash flows
and changes in stockholders’ equity included in or
incorporated by reference into the Basic Reports (including any
related notes and schedules) fairly presents in all material
respects the results of operations, cash flows or changes in
stockholders’ equity, as the case may be, of Basic and the
Basic Subsidiaries for the periods set forth therein (such
consolidated balance sheets and consolidated statements of
operations, cash flows and changes in stockholders’ equity,
each including the notes and schedules thereto, the
“Basic Financial Statements”). The Basic
Financial Statements (i) complied as to form in all
material respects with the published rules and regulations of
the SEC and (ii) were prepared in accordance with GAAP
consistently applied during the periods involved, except as may
be noted in the Basic Financial Statements or as permitted by
Form 10-Q
or
Form 8-K.
(b) Basic has not entered into or modified any loans or
arrangements with its officers and directors in violation of
Section 402 of SOX. Basic has established and maintains
disclosure controls and procedures and internal control over
financial reporting (as such terms are defined in
paragraphs (e) and (f), respectively, of
Rule 13a-15
under the Exchange Act) as required by
Rule 13a-15
under the Exchange Act. Basic’s disclosure controls and
procedures are reasonably designed to ensure that all material
information required to be disclosed by Basic in the reports
that it files under the Exchange Act are recorded, processed,
summarized and reported within the time periods specified in the
rules and forms of the SEC, and that all such material
information is accumulated and communicated to the management of
Basic as appropriate to allow timely decisions regarding
required disclosure and to make the certifications required
pursuant to Sections 302 and 906 of SOX. The management of
Basic has completed its assessment of the effectiveness of
Basic’s internal controls over financial reporting in
compliance with the requirements of Section 404 of SOX for
the year ended December 31, 2007, and such assessment
concluded that such controls were effective. To the knowledge of
Basic, it has disclosed, based on its most recent evaluations,
to Basic’s outside auditors and the audit committee of the
Basic Board (i) all significant deficiencies in the design
or operation of internal controls over financial reporting and
any material weaknesses, which have more than a remote chance to
materially adversely affect Basic’s ability to record,
process, summarize and report financial data (as defined in
Rule 13a-15(f)
of the Exchange Act) and (ii) any fraud, regardless of
whether material, that involves management or other employees
who have a significant role in Basic’s internal controls
over financial reporting.
(c) Since January 1, 2007, to the knowledge of Basic,
neither Basic nor any of the Basic Subsidiaries nor any
director, officer, employee, auditor, accountant or
representative of Basic or any of the Basic Subsidiaries has
received or otherwise had or obtained knowledge of any material
complaint, allegation, assertion or Claim, whether written or
oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of Basic or any of the
Basic Subsidiaries, including any material complaint,
allegation, assertion or Claim that Basic or any of the Basic
Subsidiaries has a “material weakness” (as such terms
are defined in the Public Accounting Oversight Board’s
Auditing Standard No. 2, as in effect on the date hereof),
in Basic’s internal controls over financial reporting.
Section 4.8 Litigation. Except
(a) matters relating to Tax matters, which are treated
exclusively under Section 4.10, (b) matters
relating to Basic Benefit Plans, which are treated exclusively
under Section 4.11 and (c) matters arising
under Environmental, Health and Safety Laws, which are treated
exclusively under Section 4.13, there is no
litigation, arbitration, mediation, action, suit, Claim,
proceeding or investigation, whether legal or administrative,
pending against Basic or any of the Basic Subsidiaries or, to
Basic’s knowledge, threatened against Basic or any of the
Basic Subsidiaries or any of their respective assets, properties
or operations, at Applicable Law or in equity, before or by any
Governmental Authority or any Order of any Governmental
Authority that, individually or in the aggregate, and taking
into consideration the aggregate amounts reserved for any such
matters in Basic’s consolidated balance sheet at
December 31, 2007, has had or caused or would reasonably be
expected to have or cause a Basic Material Adverse Effect.
Section 4.9 Absence
of Certain Changes. From December 31, 2007
to the date of this Agreement, except as described in the Basic
Reports, there has not been (a) any event or occurrence
that has had or caused or would reasonably be expected to have
or cause a Basic Material Adverse Effect, (b) any material
change by Basic or any of the Basic Subsidiaries, when taken as
a whole, in any of its accounting methods, principles or
practices or any of its Tax methods, practices or elections,
(c) any declaration, setting aside or payment of any
dividend or distribution in respect of any capital stock or
other Equity Interest of Basic or any redemption, purchase or
other acquisition of any of its Equity Interests, or
(d) except in the ordinary course of business consistent
with past practices, any increase in or establishment of any
bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option, stock purchase or
other employee benefit plan.
Section 4.10 Taxes.
(a) Except for such matters that, individually or in the
aggregate, have not had or caused and would not reasonably be
expected to have or cause a Basic Material Adverse Effect:
(i) The Basic Companies have timely filed, or have caused
to be timely filed on their behalf, all Tax Returns required to
be filed by or on behalf of the Basic Companies (including any
Tax Return required to be filed by an affiliated, consolidated,
combined, unitary or similar group that included the Basic
Companies) in the manner prescribed by Applicable Law. All such
Tax Returns are complete and correct. The Basic Companies have
timely paid (or Basic has paid on each Basic Subsidiary’s
behalf) all Taxes due and owing, and, in accordance with GAAP,
the most recent Basic Financial Statements contained in the
Basic Reports reflect a reserve (excluding any reserve for
deferred Taxes established to reflect timing differences between
book and Tax income) for all Taxes payable by the Basic
Companies for all Taxable periods and portions thereof through
the date of such Basic Financial Statements.
(ii) No Tax Return of the Basic Companies is under audit or
examination by any Tax Authority, and no written or, to the
knowledge of Basic, unwritten notice of such an audit or
examination has been received by the Basic Companies. There is
no assessed deficiency, refund litigation, proposed adjustment
or matter in controversy with respect to any Taxes due and owing
by the Basic Companies.
(iii) Since December 31, 2007, the Basic Companies
have not made or rescinded any election relating to Taxes or
settled or compromised any Claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy
relating to any Taxes, or, except as may be required by
Applicable Law, made any change to any of their methods of
reporting income or deductions for federal income Tax purposes
from those employed in the preparation of their most recently
filed federal Tax Returns.
(iv) The Basic Companies do not have any liability for any
Tax under Treasury
Regulation Section 1.1502-6
or any similar provision of any other Tax Law, except for Taxes
of the Basic Companies and the affiliated group of which Basic
is the common parent, within the meaning of
Section 1504(a)(1) of the Code or any similar provision of
any other Tax Law.
(v) There is no agreement or other document extending, or
having the effect of extending, the period of assessment or
collection of any material Taxes and no power of attorney with
respect to any such Taxes has been executed or filed with any
Tax Authority by or on behalf of the Basic Companies.
(vi) Except for statutory Liens for Taxes not yet due, no
Liens for Taxes exist with respect to any assets or properties
of the Basic Companies.
(vii) Except for any agreements or arrangements
(A) with customers, vendors, lessors or similar persons
entered into in the ordinary course of business or
(B) among the Basic Companies, none of the Basic Companies
is a party to or bound by any Tax sharing agreement, Tax
indemnity obligation or agreement or arrangement with respect to
Taxes (including any advance pricing agreement, closing
agreement or other agreement relating to Taxes with any Tax
Authority).
(viii) The Basic Companies have complied with all
Applicable Laws relating to the payment and withholding of Taxes
(including withholding of Taxes pursuant to Sections 1441,
1442 and 3402 of the Code or similar provisions of any other Tax
Law) and have, within the time and the manner prescribed by
applicable Tax Law, withheld from and paid over to the proper
Tax Authorities all amounts required to be so withheld and paid
over under applicable Tax Law.
(ix) None of the Basic Companies is or has been a
U.S. real property holding corporation within the meaning
of Section 897(c)(2) of the Code.
(x) None of the Basic Companies shall be required to
include in a Taxable period ending after the Closing Date any
item of income that accrued in a prior Taxable period but was
not recognized in any prior Taxable period as a result of the
installment method of accounting, the long-term contract method
of accounting, the cash method of accounting or Section 481
of the Code or comparable provisions of any other Tax Law.
(xi) None of the Basic Companies has participated in any
“reportable transaction” as defined in Treasury
Regulation Section 1.6011-4.
(b) Since December 31, 2005, none of the Basic
Companies has been a “distributing corporation” or a
“controlled corporation” in connection with a
distribution described in Section 355 of the Code.
(c) None of the Basic Companies knows of any fact,
agreement, plan, or other circumstance, or has taken or failed
to take any action, that would reasonably be expected to prevent
the Mergers from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
Section 4.11 Employee
Benefit Plans.
(a) Section 4.11(a) of the Basic Disclosure
Letter contains a list of all Basic Benefit Plans. Basic has
provided or made available to Grey Wolf true and complete copies
of the Basic Benefit Plans and, if applicable, all amendments
thereto, the most recent trust agreements, the Forms 5500
for the prior three years (except as set forth on
Section 4.11(a) of the Basic Disclosure Letter), the
most recent IRS determination or opinion letters, summary plan
descriptions, any summaries of material modifications provided
to participants since the most recent summary plan descriptions,
material notices to participants, funding statements, annual
reports and actuarial reports, if applicable, and all
correspondence with any Governmental Authority for each Basic
Benefit Plan.
(b) To the extent applicable, the Basic Benefit Plans
comply in all material respects with the requirements of ERISA
and the Code or with the Applicable Laws and regulations of any
applicable jurisdiction, and except as set forth in
Section 4.11(b) of the Basic Disclosure Letter, any
Basic Benefit Plan intended to be qualified under
Section 401(a) of the Code has received a favorable
determination letter from the IRS (or, if applicable, an opinion
letter) and such letter has not been revoked; all required
amendments
since the issuance of such favorable determination letter from
the IRS have been made and no amendments have been made which
would reasonably be expected to result in the disqualification
of any of such Basic Benefit Plans; the Basic Benefit Plans have
been maintained and operated in compliance in all material
respects with their terms; to Basic’s knowledge, there are
no breaches of fiduciary duty in connection with the Basic
Benefit Plans for which Basic could be liable; there are no
pending or, to Basic’s knowledge, threatened Claims against
or otherwise involving any Basic Benefit Plan that, individually
or in the aggregate, have had or caused or would reasonably be
expected to have or cause a Basic Material Adverse Effect, and
no suit, action or other litigation (excluding claims for
benefits incurred in the ordinary course of the Basic Benefit
Plan activities) has been brought against or with respect to any
such Basic Benefit Plan for which Basic could be liable that,
individually or in the aggregate, have had or caused or would
reasonably be expected to have or cause a Basic Material Adverse
Effect; all material contributions required to be made as of the
date hereof to Basic Benefit Plans have been made or have been
properly accrued and are reflected in the Basic Financial
Statements as of the date thereof.
(c) Neither Basic nor any of the Basic Subsidiaries or
ERISA Affiliates contributes to, or has an obligation to
contribute to, and has not within six years prior to the
Effective Time contributed to, or had an obligation to
contribute to or has any material liability, contingent or
otherwise, with respect to, (i) a “multiemployer
plan” within the meaning of Section 3(37) of ERISA,
(ii) any plan that is covered by Title IV of ERISA,
(iii) any plan subject to Section 412 of the Code or
(iv) any plan funded by a “voluntary employees’
benefits association” within the meaning of
Section 501(c)(9) of the Code.
(d) No Basic Benefit Plan maintained by the Basic Companies
provides medical, surgical, hospitalization, death or similar
benefits (regardless of whether insured) for employees or former
employees of Basic or any Basic Subsidiary for periods extending
beyond their retirement or other termination of service other
than coverage mandated by Applicable Law.
(e) All accrued material obligations of Basic and the Basic
Subsidiaries, whether arising by operation of Applicable Law,
Contract, or past custom, for compensation and benefits,
including, but not limited to, bonuses and accrued vacation, and
benefits under Basic Benefit Plans, have been paid or adequate
accruals for such obligations are reflected on the Basic
Financial Statements as of the date thereof.
(f) Section 4.11(f) of the Basic Disclosure
Letter sets forth an accurate and complete list of each Basic
Benefit Plan (and the particular circumstances described in this
Section 4.11(f) relating to such Basic Benefit Plan)
under which the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby could
(either alone or in conjunction with any other event, such as
termination of employment), result in, cause the accelerated
vesting, funding or delivery of, or increase the amount or value
of, any payment or benefit to any employee, officer or director
of Basic or any of the Basic Subsidiaries.
(g) Section 4.11(g) of the Basic Disclosure
Letter contains a description that is accurate and correct in
all material respects, of all amounts estimated to be paid or
payable (whether in cash, in property, or in the form of
benefits, accelerated cash, property, or benefits, or otherwise)
in connection with the transactions contemplated hereby (solely
as a result thereof) that were or will be an “excess
parachute payment” within the meaning of Section 280G
of the Code.
(h) Each Basic Benefit Plan which is or reasonably could be
determined to be an arrangement subject to Section 409A of
the Code has been operated in good faith compliance with
Section 409A of the Code since January 1, 2005 and has
been, or may be, timely amended with the consent of the
participant, if necessary, to comply in good faith with
Section 409A of the Code and any applicable guidance,
whether proposed or final, issued by the IRS with respect
thereto.
(i) No Basic Benefit Plan is a multiple employer plan
within the meaning of Section 413(c) of the Code.
(j) No Basic Benefit Plan that is not subject to ERISA has
any material liabilities thereunder which are not otherwise
fully funded, if applicable, or properly accrued and reflected
under the Basic Financial Statements as of the date thereof.
(k) No Basic Benefit Plan holds any “qualifying
employer securities” or “qualifying employer real
estate” within the meaning of ERISA.
(l) With respect to all Basic International Plans,
(i) to Basic’s knowledge, the International Plans have
been maintained in all material respects in accordance with all
Applicable Law, (ii) if intended to qualify for special Tax
treatment, the International Plans meet the requirements for
such treatment in all material respects, (iii) if intended
to be funded
and/or
book-reserved, the International Plans are fully funded
and/or
book-reserved based upon reasonable actuarial assumptions, and
(iv) no liability which would be material to Basic and the
Basic Subsidiaries, taken as a whole, exists or reasonably could
be imposed upon the assets of Basic or any of the Basic
Subsidiaries by reason of such International Plans, other than
to the extent reflected on Basic’s balance sheet as
contained in Basic’s
Form 10-K
for the year ended December 31, 2007.
Section 4.12 Labor
Matters.
(a) As of the date of this Agreement, (i) neither
Basic nor any of the Basic Subsidiaries is a party to, or bound
by, any collective bargaining agreement or similar Contract,
agreement or understanding with a labor union or similar labor
organization and (ii) to Basic’s knowledge, there are
no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened.
(b) Except for such matters that, individually or in the
aggregate, have not had or caused and would not reasonably be
expected to have or cause a Basic Material Adverse Effect,
(i) neither Basic nor any Basic Subsidiary has received any
written complaint of any unfair labor practice or other unlawful
employment practice or any written notice of any material
violation of any federal, state or local statutes, Applicable
Laws, ordinances, rules, regulations, Orders or directives with
respect to the employment of individuals by, or the employment
practices of, Basic or any Basic Subsidiary or the work
conditions, terms and conditions of employment, wages or hours
of their respective businesses, (ii) there are no unfair
labor practice charges or other employee related complaints
against Basic or any Basic Subsidiary pending or, to the
knowledge of Basic, threatened, before any Governmental
Authority by or concerning the employees working in their
respective businesses and (iii) there is no labor dispute,
strike, slowdown or work stoppage against Basic or any of the
Basic Subsidiaries or, to the knowledge of Basic, pending or
threatened against Basic or any of the Basic Subsidiaries.
Section 4.13 Environmental
Matters. Except for such matters that,
individually or in the aggregate, have not had or caused and
would not reasonably be expected to have or cause a Basic
Material Adverse Effect:
(a) Basic and each Basic Subsidiary has been and is in
compliance with all applicable Environmental, Health and Safety
Laws and possesses and is in compliance with any permits or
licenses required under Environmental, Health and Safety Laws.
To the knowledge of Basic, there are no past or present facts,
conditions or circumstances that interfere with or preclude, or
could interfere with or preclude if known to a Governmental
Authority, the conduct of any of their respective businesses as
now conducted or which interfere with continued compliance with
applicable Environmental, Health and Safety Laws.
(b) No proceedings or investigations of any Governmental
Authority are pending or, to the knowledge of Basic, threatened
against Basic or the Basic Subsidiaries that allege the
violation of or seek to impose liability pursuant to any
Environmental, Health and Safety Laws, and, to the knowledge of
Basic, there are no past or present facts, conditions or
circumstances at, on or arising out of, or otherwise associated
with, any current (or, to the knowledge of Basic or the Basic
Subsidiaries, former) businesses, assets or properties of Basic
or any Basic Subsidiary, including, but not limited to, any
on-site or
off-site disposal, release or spill of any Hazardous Materials,
which constitute a material violation of Environmental, Health
and Safety Laws or are reasonably likely to give rise to
(i) costs, expenses, liabilities or obligations for any
cleanup, remediation, disposal or corrective action under any
Environmental, Health and Safety Laws, (ii) Claims arising
for personal injury, property damage or damage to natural
resources, or (iii) fines, penalties or injunctive relief.
(c) Neither Basic nor any of the Basic Subsidiaries has
(i) received any written notice of noncompliance with,
violation of, or liability or potential liability under any
Environmental, Health and Safety Laws or (ii) entered into
or become subject to any consent decree, Order or agreement with
any Governmental Authority or other Persons pursuant to any
Environmental, Health and Safety Laws or relating to the cleanup
of any Hazardous Materials.
Section 4.14 Intellectual
Property. Except for such matters that,
individually or in the aggregate, have not had or caused and
would not reasonably be expected to have or cause a Basic
Material Adverse Effect, (a) the products, services and
operations of Basic and the Basic Subsidiaries do not infringe
upon, violate or misappropriate the Intellectual Property of any
Third Party, (b) Basic and the Basic Subsidiaries own or
possess valid licenses or other valid rights to use the
Intellectual Property that Basic and the Basic Subsidiaries use,
exercise or exploit in, or that may be necessary or desirable
for, their businesses as currently being conducted, free and
clear of all Liens (other than Permitted Liens), and (c) to
the knowledge of Basic, there is no infringement of any
Intellectual Property owned by or licensed by or to Basic or any
of the Basic Subsidiaries. To Basic’s knowledge, there is
no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property of Basic or any
Basic Subsidiary by any Person, including, without limitation,
any employee or independent contractor (present or former) of
Basic or any Basic Subsidiary, that, individually or in the
aggregate, has had or caused or would reasonably be expected to
have or cause a Basic Material Adverse Effect.
Section 4.15 Insurance. Except
for such matters that, individually or in the aggregate, have
not had or caused and would not reasonably be expected to have
or cause a Basic Material Adverse Effect:
(a) Basic and the Basic Subsidiaries maintain and will
maintain through the Closing Date the insurance coverages
summarized in its Annual Report on
Form 10-K
for the year ended December 31, 2007, except for certain
changes in such coverages since December 31, 2007 as set
forth in Section 4.15(a) of the Basic Disclosure
Letter. In addition, there is no material default with respect
to any provision contained in any such policy or binder, and
none of the Basic Companies has failed to give any notice or
present any claim under any such policy or binder in a timely
fashion.
(b) To the knowledge of Basic, no event relating
specifically to Basic or the Basic Subsidiaries (as opposed to
events affecting the drilling service industry in general) has
occurred that is reasonably likely, after the date of this
Agreement, to result in an upward adjustment in premiums under
any insurance policies they maintain. Neither Basic nor any of
the Basic Subsidiaries have received notice from any insurer or
agent of such insurer that substantial capital improvements or
other expenditures will have to be made in order to continue
such insurance policies. Excluding insurance policies that have
expired and been replaced in the ordinary course of business, no
excess liability or protection and indemnity insurance policy
has been cancelled by the insurer within one year prior to the
date hereof, and to Basic’s knowledge, no threat in writing
has been made to cancel (excluding cancellation upon expiration
or failure to renew) any current insurance policy of Basic or
any Basic Subsidiary.
Section 4.16 No
Brokers. Neither Basic nor any of the Basic
Subsidiaries has entered into any Contract with any Person that
may result in the obligation of Grey Wolf, Basic or any of their
respective Subsidiaries to pay any finder’s fees, brokerage
or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the
transactions contemplated hereby, except that Basic has retained
Goldman, Sachs & Co. and Tudor, Pickering,
Holt & Co. Securities, Inc. its financial advisors,
the fee and expense reimbursement arrangements with which have
been disclosed in writing to Grey Wolf prior to the date hereof.
Section 4.17 Opinion
of Financial Advisors. The Basic Board has
received the opinion of each of Goldman, Sachs & Co.
and Tudor, Pickering, Holt & Co. Securities, Inc. to
the effect that, as of the date of such opinions and subject to
the assumptions, qualifications and limitations set forth
therein, the Basic Merger Consideration is fair, from a
financial point of view, to the holders of Basic Common Stock.
Basic will promptly deliver a copy of such written opinions to
Grey Wolf solely for informational purposes after receipt
thereof by Basic.
Section 4.18 Grey
Wolf Share Ownership. Neither Basic nor any of
the Basic Subsidiaries owns any shares of the capital stock of
Grey Wolf or any other securities convertible into or otherwise
exercisable to acquire shares of capital stock of Grey Wolf.
Section 4.19 Vote
Required; Board of Director Approval. Under
Delaware law and the rules of the NYSE, the only vote of the
holders of any Basic Equity Interests necessary to approve the
Basic Proposals are (a) the affirmative vote in favor of
the Basic Merger Proposal by the holders of a majority of the
issued and outstanding shares of Basic Common Stock (the
“Required Basic Vote”) and (b) the
affirmative vote in favor of the Basic Plan Proposal by the
holders of a majority of the Basic Common Stock present and
voting at the Basic Meeting. As of or prior to the date of this
Agreement, the Basic Board has, by resolutions duly adopted at a
meeting of all directors on the Basic Board, which meeting was
duly called and held, (a) determined that the Mergers are
advisable and in the best interests of Basic and Basic’s
stockholders, (b) approved the Mergers and this Agreement,
(c) recommended that the stockholders of Basic approve this
Agreement and directed that the Basic Merger Proposal be
submitted to the stockholders of Basic at the Basic Meeting, and
(d) determined that the Basic Plan Proposal is in the best
interests of Basic and Basic’s stockholders and directed
that the Basic Plan Proposal be submitted to Basic’s
stockholders at the Basic Meeting.
Section 4.20 Ownership
and Condition of Assets.
(a) As of the date hereof, Basic or a Basic Subsidiary has
good and valid title to the assets of the Basic Companies
including the rigs listed in Section 4.20(a) of the
Basic Disclosure Letter, other than defects or irregularities of
title that do not materially impair the ownership or operation
of such assets and in each case free and clear of all Liens,
except for Permitted Liens, Liens securing the Basic Credit
Agreement or Liens that have not had or caused and would not
reasonably be expected to have or cause a Basic Material Adverse
Effect.
(b) The assets of the Basic Companies are in good operating
condition except for: (i) normal maintenance and repair
requirements and normal wear and tear, (ii) warm-stacked
rigs or cold-stacked rigs identified as such as of the date of
this Agreement in Section 4.20(b) of the Basic
Disclosure Letter, and (iii) as would not, when taken
together with the matters described in the immediately preceding
clauses (i) and (ii), have a Basic Material Adverse Effect.
Section 4.21 Undisclosed
Liabilities. Neither Basic nor any of the Basic
Subsidiaries have any liabilities or obligations of any nature,
regardless of whether fixed, accrued, contingent or otherwise,
except liabilities and obligations that (a) are fully
reflected or reserved against in the Basic Financial Statements
included in the Basic Reports or described in the Basic Reports
filed prior to the date hereof, (b) liabilities and
obligations arising under this Agreement and the transaction
contemplated by this Agreement, (c) liabilities or
obligations incurred in the ordinary course of business
consistent with past practices since December 31, 2007, and
(d) liabilities and obligations that, individually or in
the aggregate, have not had or caused and would not reasonably
be expected to have or cause a Basic Material Adverse Effect.
(a) Section 4.22(a) of the Basic Disclosure
Letter contains a list of all of the following Contracts or
agreements (other than those set forth on an exhibit index in
the Basic Reports filed prior to the date of this Agreement) to
which Basic or any Basic Subsidiary is a party or by which any
of them is bound as of the date of this Agreement (other than
this Agreement or any Related Document): (i) any
non-competition agreement that purports to limit the manner in
which, or the localities in which, all or any portion of their
respective businesses are conducted or would purport to bind
Basic, Grey Wolf or any of their Affiliates; (ii) any
hedging agreements by which any of the assets of Basic or any
Basic Subsidiary are bound, in an aggregate amount in excess of
$1 million; (iii) any Contract granting any Person
registration or other purchase or sale rights with respect to
any Equity Interest in Basic or any Basic Subsidiary;
(iv) any voting agreement relating to any Equity Interest
of Basic or any Basic Subsidiary; (v) any Contract outside
the ordinary course to which Basic or any Basic Subsidiary is a
party that entitles the other party or parties thereto to
receive the benefits thereof without incurring the obligation to
pay for same within sixty days after services are provided;
(vi) any Contract outside the ordinary course between Basic
or any Basic Subsidiary and any current or former
Affiliate of Basic; (vii) any drilling rig construction or
conversion Contract with respect to which the drilling rig has
not been delivered and paid for; (viii) any drilling
Contracts of one year or greater in remaining duration;
(ix) any Contract or agreement for the borrowing of money
with a borrowing capacity or outstanding Indebtedness of
$2 million or more; or (x) any “material
contract” (as such term is defined in Item 601(b)(10)
of
Regulation S-K
of the SEC) (all Contracts or agreements of the types described
in clauses (i) through (x), regardless of whether listed in
Section 4.22(a) of the Basic Disclosure Letter and
regardless of whether in effect as of the date of this
Agreement, being referred to herein as “Basic Material
Contracts”).
(b) As of the date of this Agreement, each of the Basic
Material Contracts is, to the knowledge of Basic, in full force
and effect. Except for such matters that, individually or in the
aggregate, have not had or caused and would not reasonably be
expected to have or cause a Basic Material Adverse Effect,
neither Basic nor any of the Basic Subsidiaries knows of, or has
received written notice of, any breach or violation of, or
default under (nor, to the knowledge of Basic and the Basic
Subsidiaries, does there exist any condition which with the
passage of time or the giving of notice or both would result in
such a violation or default under), any Basic Material Contract,
or has received written notice of the desire of the other party
or parties to any such Basic Material Contract to exercise any
rights such party has to cancel, terminate or repudiate such
Contract or exercise remedies thereunder.
Section 4.23 State
Takeover Statutes. Assuming the accuracy of the
representations and warranties in Section 3.18,
Basic has, or will have prior to the Effective Time, taken all
necessary action so that, assuming compliance by Basic with its
obligations hereunder and the accuracy of the representations
and warranties made by Basic herein, no “business
combination,”“moratorium,”“fair
price,”“control share acquisition,” or other
state antitakeover statute or regulation, nor any
takeover-related provision in the Basic Charter Documents or the
Holdings Charter Documents, would apply to this Agreement, any
Related Documents or the Mergers.
Section 4.24 Improper
Payments. Except for such matters that,
individually or in the aggregate, have not had or caused and
would not reasonably be expected to have or cause a Basic
Material Adverse Effect: (a) no funds, assets or properties
of Basic or its Affiliates have been used or offered for illegal
purposes; (b) no accumulation or use of any funds, assets
or properties of Basic or its Affiliates has been made without
being properly accounted for in the financial books and records
of Basic or its Affiliates; (c) all payments by or on
behalf of Basic or its Affiliates have been duly and properly
recorded and accounted for in their financial books and records
and such books and records accurately and fairly reflect all
transactions and dispositions of the assets of Basic and its
Affiliates; (d) Basic has devised and maintained systems
that provide reasonable assurances that transactions are and
have been executed in accordance with management’s general
or specific authorization; (e) neither Basic nor any of its
Affiliates, nor any director, officer, agent, employee or other
Person associated with or acting on behalf of Basic or its
Affiliates, has (i) used any corporate funds for any
unlawful contribution, gift, entertainment or payment of
anything of value relating to political activity, (ii) made
any direct or indirect unlawful payment to any employee, agent,
officer, director, representative or stockholder of a
Governmental Authority or political party, or official or
candidate thereof, or any immediate family member of the
foregoing or (iii) made any bribe, unlawful rebate, payoff,
influence payment, kickback or other unlawful payment in
connection with the conduct of Basic’s or its
Affiliates’ businesses; (f) none of Basic, any of its
Affiliates or any agent of any of them has received any bribes,
kickbacks or other improper payments from vendors, suppliers or
other Persons; and (g) Basic has no knowledge that any
payment made to a Person would be or has thereafter been
offered, given or provided to any foreign official, political
party or official thereof, or to any candidate for public office.
Section 4.25 No
Other Representations or Warranties. Except for
the representations and warranties contained in this
Article 4, neither Basic nor any other Person makes
any other express or implied representation or warranty on
behalf of Basic or any of its Affiliates in connection with this
Agreement or the transactions contemplated hereby.
Section 5.1 Business
in Ordinary Course. Except as permitted or
contemplated by the terms of this Agreement, and except as
provided in Section 5.1 of the Grey Wolf Disclosure
Letter or the Basic Disclosure Letter (as the case may be),
unless with the prior written consent of the other Party hereto
(which consent shall not be unreasonably withheld, delayed or
conditioned), during the period from the date hereof and
continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, each of
Basic and Grey Wolf shall, and shall cause each of their
respective Subsidiaries, to carry on its business in all
material respects in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted, and use
their respective commercially reasonable efforts consistent with
past practices and policies to (a) preserve intact their
respective present business organizations and goodwill,
(b) keep available the services of their respective present
executive officers, directors and key employees and
(c) preserve their relationships with customers, suppliers,
agents, and creditors.
Section 5.2 Conduct
of Business Pending Closing. Without limiting the
generality of Section 5.1, except as permitted or
contemplated by the terms of this Agreement, and except as
provided in Section 5.2 of the Grey Wolf Disclosure
Letter or the Basic Disclosure Letter (as the case may be) or as
required by Applicable Law or Governmental Authority, during the
period from the date hereof and continuing until the earlier of
the termination of this Agreement pursuant to its terms or the
Effective Time, neither Grey Wolf nor Basic shall, and neither
Grey Wolf nor Basic shall permit any of the Basic Subsidiaries
or Grey Wolf Subsidiaries (as applicable) to do any of the
following without the prior written consent of the other Party
hereto (which consent shall not be unreasonably withheld,
conditioned or delayed):
(a) except to the extent required to comply with the rules
and regulations of the NYSE or AMEX (as the case may be) or the
amendments to the Holdings Charter and Holdings Bylaws to be
consummated at the Effective Time pursuant to
Section 2.3, amend or propose to amend its
certificate or articles of incorporation, bylaws, certificate of
formation, certificate of organization, certificate of limited
partnership, limited liability company agreement, operating
agreement, partnership agreement, or other governing or
organizational documents;
(b) adjust, split, combine, reclassify or dispose of any of
its outstanding Equity Interests (other than dispositions by or
among direct or indirect wholly owned Subsidiaries and
cancellations of stock options or restricted stock grants
forfeited in accordance with the terms of a Benefit Plan in
existence on the date of this Agreement or related stock option
or restricted stock grant agreements);
(c) declare, set aside or pay any dividends or other
distributions (whether payable in cash, property or Equity
Interests) with respect to its Equity Interests (other than by
or among direct or indirect wholly owned Subsidiaries);
(d) (i) issue any Equity Interests, effect any stock
split or otherwise change its capitalization as it existed on
the date of this Agreement, except pursuant to (A) the
exercise of options disclosed in this Agreement or the Grey Wolf
Disclosure Letter or the Basic Disclosure Letter,
(B) pursuant to the conversion of any Grey Wolf Convertible
Notes in accordance with the terms thereof, (C) pursuant to
the grant or exercise of awards granted after the date of this
Agreement and expressly permitted under this Agreement, or
(D) pursuant to the Grey Wolf Rights Agreement in
accordance with the terms thereof, (ii) grant, confer or
award any option, warrant, conversion right or other right not
existing on the date of this Agreement to acquire or otherwise
with respect to any shares of its capital stock or other equity
securities, or grant or issue any restricted stock or
securities, except in each case for awards under the Basic
Benefit Plans or the Grey Wolf Benefit Plans in existence as of
the date hereof (and as required or permitted to be amended by
this Agreement) to any newly-hired employees in the ordinary
course of business consistent with past practices but in no
event greater than 77,000 shares of Basic Common Stock or
250,000 shares of Grey Wolf Common Stock; provided,
however, that the vesting or exercisability of any award
made after the date of this Agreement as permitted by this
clause (ii) shall not accelerate as a result of the
pendency, approval or consummation of the transactions
contemplated by this Agreement,
(iii) amend or otherwise modify any option, warrant,
conversion right or other right to acquire any shares of its
capital stock existing on the date of this Agreement, except as
expressly required or permitted by this Agreement,
(iv) with respect to any of its former, present or future
officers, directors or employees, increase any compensation or
benefits, award or pay any bonuses, establish any bonus plan or
arrangement or enter into, amend or extend (or permit the
extension of) any employment or consulting agreement, except
(A) in each case, in the ordinary course of business
consistent with past practices or (B) as expressly required
or permitted by this Agreement or as disclosed in the Basic
Disclosure Letter or the Grey Wolf Disclosure Letter,
(v) adopt any new employee benefit plan or agreement
(including any stock option, stock benefit or stock purchase
plan) or amend any existing employee benefit plan in any
material respect, except in each case as expressly required or
permitted under this Agreement or as disclosed in the Basic
Disclosure Letter or the Grey Wolf Disclosure Letter, or
(vi) permit any holder of an option or other award
pertaining to shares of Grey Wolf Common Stock or Basic Common
Stock to have shares withheld upon exercise, vesting or payment
for tax purposes, in excess of the number of shares needed to
satisfy the minimum statutory withholding requirements for
federal and state tax withholding;
(e) purchase, redeem or otherwise acquire any of its
outstanding Equity Interests, except (i) by or among direct
or indirect wholly-owned Subsidiaries, (ii) pursuant to the
terms of the Grey Wolf Convertible Notes, or (iii) Equity
Interests purchased or withheld to satisfy Tax withholding
obligation in connection with the vesting, lapse of forfeiture
restrictions or exercise (as applicable) of stock options,
restricted stocks and similar awards by the grantees thereof;
(f) sell, lease, license, or otherwise dispose of, or enter
into a contract to sell, lease, license or otherwise dispose of,
any of its assets (including capital stock of Subsidiaries)
which are, individually or in the aggregate, material to it and
its Subsidiaries, taken as a whole, except for (i) sales of
surplus or obsolete equipment, (ii) sales of other assets
in the ordinary course of business or sales of assets pursuant
to contractual rights existing as of the date of this Agreement
that were entered into the ordinary course of business
consistent with past practices, (iii) sales, leases or
other transfers between such party and its wholly owned
Subsidiaries or between those Subsidiaries, (iv) sales,
dispositions or divestitures as may be required by or in
conformance with Applicable Laws in order to permit or
facilitate the consummation of the transactions contemplated by
this Agreement in accordance with Section 5.9, or
(v) arm’s-length sales or other transfers not
described in clauses (i) through (iv) above for
aggregate consideration not exceeding $30.0 million for
each of Basic and Grey Wolf;
(g) liquidate,
wind-up,
dissolve or adopt any plan to liquidate,
wind-up or
dissolve (or suffer any liquidation or dissolution) (other than
direct or indirect wholly owned Subsidiaries);
(h) acquire or agree to acquire by merger, consolidation or
otherwise (including by purchase of Equity Interests or all or
substantially all of the assets) the business of any Person or a
division thereof, other than acquisitions of the business,
assets or Equity Interests of another Person: (i) which are
paid for in cash and do not exceed $50.0 million in the
aggregate (including contingent cash consideration), less
the aggregate unbudgeted expenditures actually made pursuant
to Section 5.2(m); and (ii) under the published
rules of the SEC and published interpretations of the staff of
the SEC would not require historical or proforma financial
statements with respect to such acquisitions (either
individually or in the aggregate) to be included in the Proxy
Statement/Prospectus;
(i) make any loans, advances or capital contributions to,
or investments in, any Person (other than (i) in connection
with the Financing, (ii) loans, advances or capital
contributions to a wholly owned Subsidiary or loans or advances
from such a Subsidiary, (iii) customer loans and advances
to employees consistent with past practices or
(iv) short-term investments of cash in the ordinary course
of business in accordance with the cash management procedures of
Grey Wolf, Basic or their respective Subsidiaries (as the case
may be));
(j) terminate or amend any Grey Wolf Material Contract or
Basic Material Contract (as the case may be) or waive or assign
any of its rights under any Grey Wolf Material Contract or Basic
Material Contract (as the case may be), in each case in a manner
that would be materially adverse to Grey Wolf or
Basic (as the case may be), or enter into any Grey Wolf Material
Contract or Basic Material Contract (as the case may be) other
than customer Contracts entered into in the ordinary course of
business;
(k) except in connection with the Financing, (i) incur
any Indebtedness (including Indebtedness in connection with
acquisitions permitted by Section 5.2(h)) in excess
of $7.5 million, in the aggregate, or guarantee any such
indebtedness or issue or sell any debt securities or warrants or
rights to acquire any of its debt securities or any of its
Subsidiaries or guarantee any debt securities of others, other
than (A) borrowings from that party’s or its
Subsidiary’s revolving credit facility in the ordinary
course of business in amount not in excess of $5.0 million,
(B) borrowings the proceeds of which are used to repay or
repurchase other indebtedness of that party or its Subsidiaries,
(C) borrowings in respect of intercompany debt, or
(D) Indebtedness incurred or to be incurred under the
Holdings Credit Facilities, or (ii) enter into any material
lease (whether such lease is an operating or capital lease) or
create any material Liens (other than Permitted Liens) on its
property including any Equity Interests in its Subsidiaries
except (A) in the ordinary course of business or with or
between its Subsidiaries, (B) Liens granted pursuant the
Holdings Credit Facilities, and (C) Liens to secure the
Basic Senior Notes equally and ratably with indebtedness
incurred or to be incurred under the Holdings Credit Facilities
in accordance with the Basic Senior Notes Indenture;
provided, however, that for purposes of this
Section 5.2(k), neither the incurrence of
Indebtedness to finance, directly or indirectly, acquisitions of
the business, assets or Equity Interests of another Person nor
the incurrence of Indebtedness for capital expenditures shall be
considered to be “in the ordinary course of business”;
(l) make or rescind any material election relating to
Taxes, including any election for any and all joint ventures,
partnerships, limited liability companies or other investments;
settle or compromise any material Claim, action, litigation,
proceeding, arbitration or investigation relating to Taxes; or
change in any material respect any of its methods of reporting
any items for Tax purposes from those employed in the
preparation of its Tax Returns for the most recent Taxable year
for which a Tax Return has been filed;
(m) make or commit to make capital expenditures that in the
aggregate exceed its capital expenditure budget as disclosed in
the Basic Disclosure Letter or the Grey Wolf Disclosure Letter,
as applicable, by more than $50.0 million in the aggregate,
less the aggregate amount actually spent pursuant to the
exception set forth in Section 5.2(h);
(n) enter into any new line of business material to it and
its Subsidiaries taken as a whole;
(o) enter into any Contract that subjects or will subject
the Surviving Corporation or its Subsidiaries to any material
non-compete or similar restriction on any Basic Company or Grey
Wolf Company business following the Effective Time;
(p) except as may be required as a result of a change in
GAAP, change any of the material accounting principles,
estimates, or practices used by the Grey Wolf Companies or Basic
Companies;
(q) compromise, settle or grant any waiver or release
related to any litigation or proceeding, other than settlements
or compromises of such litigation or proceedings where the full
amount to be paid is covered by insurance or where the amount to
be paid does not exceed $3.0 million individually or
$7.5 million in the aggregate;
(r) engage in any transaction (other than pursuant to
agreements in effect as of the date of this Agreement and that
are disclosed in Grey Wolf Disclosure Letter or Basic Disclosure
Letter (as the case may be) and transactions between or among
Grey Wolf or Basic and their respective Subsidiaries in the
ordinary course of business consistent with past practices) or
enter into any agreement with any Affiliate (provided
that for the purpose of this clause (r) only, the term
“Affiliate” shall not include any employee of
Grey Wolf, Basic or their respective Subsidiaries (as the case
may be) other than directors and executive officers thereof and
any employees who share the same household as any such directors
and executive officers);
(s) willfully or intentionally breach any representation or
warranty set forth in this Agreement or take any action that is
reasonably likely to materially delay or impair the ability of
the Parties hereto to consummate the transactions contemplated
by this Agreement; or
(t) enter into any Contract or obligation to take any
actions prohibited above.
Section 5.3 Access
to Assets, Personnel and Information.
(a) Upon reasonable notice and subject to Applicable Law
relating to the exchange of information, from the date hereof
until the Effective Time, Basic shall: (i) afford to Grey
Wolf and Grey Wolf Representatives, at Grey Wolf’s sole
risk and expense, reasonable access during normal business hours
to any and all of the assets, books and records, files, data,
correspondence, Contracts, permits, audits and all other
information relating to the Basic Companies’ financial
position, business, employees, representatives, agents,
facilities and assets, whether written or computerized that are
within the possession or control of any of the Basic Companies
(the “Basic Information”); and (ii) upon
request during normal business hours, furnish promptly to Grey
Wolf (at Grey Wolf’s expense) a copy of any Basic
Information. Grey Wolf agrees to conduct such investigation in a
manner that does not interfere unreasonably with the Basic
Companies’ operations and with the prompt and discharge by
such Basic Companies’ employees of their duties. Grey Wolf
agrees to indemnify and hold the Basic Companies harmless from
any and all Claims and liabilities, including costs and expenses
for the loss, injury to or death of any Representative of the
Grey Wolf Companies, and any loss or destruction of any property
owned by the Basic Companies or others (including Claims or
liabilities for use of any property) resulting directly or
indirectly from the action or inaction of any of the Grey Wolf
Companies or their Representatives during any visit to the
business or property sites of the Basic Companies prior to the
completion of the Mergers, whether pursuant to this
Section 5.3 or otherwise. No Basic Company shall be
required to provide access to or to disclose Basic Information
where such access or disclosure would constitute a violation of
attorney/client privilege or violate any Applicable Law. In such
circumstances, the Parties will use commercially reasonable best
efforts to make reasonable and appropriate substitute disclosure
arrangements. None of the Grey Wolf Companies or their
Representatives shall conduct any environmental testing or
sampling on any business or property sites of the Basic
Companies prior to completion of the Mergers without the prior
written consent of Basic.
(b) Upon reasonable notice and subject to Applicable Law
relating to the exchange of information, from the date hereof
until the Effective Time, Grey Wolf shall: (i) afford to
Basic and the Basic Representatives, at Basic’s sole risk
and expense, reasonable access during normal business hours to
any and all of the assets, books and records, files, data,
correspondence, Contracts, permits, audits and all other
information relating to the Grey Wolf Companies’ financial
position, business, employees, representatives, agents,
facilities and assets, whether written or computerized, that are
within the possession or control of any of the Grey Wolf
Companies (the “Grey Wolf Information”); and
(ii) upon request during normal business hours, furnish
promptly to Basic (at Basic’s expense) a copy of any Grey
Wolf Information. Basic agrees to conduct such investigation in
a manner that does not interfere unreasonably with the Grey Wolf
Companies’ operations and with the prompt and discharge by
such the Grey Wolf Companies’ employees of their duties.
Basic agrees to indemnify and hold the Grey Wolf Companies
harmless from any and all Claims and liabilities, including
costs and expenses for the loss, injury to or death of any
Representative of the Basic Companies, and any loss or
destruction of any property owned by the Grey Wolf Companies or
others (including Claims or liabilities for use of any property)
resulting directly or indirectly from the action or inaction of
any of the Basic Companies or their Representatives during any
visit to the business or property sites of the Grey Wolf
Companies prior to the completion of the Mergers, whether
pursuant to this Section 5.3 or otherwise. None of
the Grey Wolf Companies shall be required to provide access to
or to disclose Grey Wolf Information where such access or
disclosure would constitute a violation of attorney/client
privilege or violate any Applicable Law. In such circumstances,
the Parties will use commercially reasonable best efforts to
make reasonable and appropriate substitute disclosure
arrangements. None of the Basic Companies or their
Representatives shall conduct any environmental testing or
sampling on any business or property sites of the Grey Wolf
Companies prior to completion of the Mergers without the prior
written consent of Grey Wolf.
(c) From the date hereof until the Effective Time, each of
Basic and Grey Wolf shall: (i) furnish to the other,
promptly upon receipt or filing (as the case may be), a copy of
each communication between such Party and the SEC after the date
hereof relating to the Mergers or the Registration Statement and
each report, schedule, registration statement or other document
filed by such Party with the SEC after the date hereof relating
to the Mergers or the Registration Statement, unless such
communication, report, schedule, registration statement or other
document is otherwise readily available through the SEC’s
EDGAR system, in which case Basic or Grey Wolf (as the case may
be) shall provide notice to the other of such availability; and
(ii) promptly advise the other of the substance of any oral
communications between such Party and the SEC relating to the
Mergers or the Registration Statement.
(d) Grey Wolf will not (and will cause Grey Wolf
Subsidiaries and Grey Wolf Representatives not to), and Basic
will not (and will cause the Basic Subsidiaries and the Basic
Representatives not to), use any information obtained pursuant
to this Section 5.3 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement.
Any information obtained by the Grey Wolf Companies or the Basic
Companies or their respective Representatives under this
Section 5.3 shall be subject to the confidentiality
and use restrictions set forth in the Confidentiality Agreement.
(e) Notwithstanding anything in this
Section 5.3 to the contrary: (i) Grey Wolf
shall not be obligated under the terms of this
Section 5.3 to disclose to Basic or the Basic
Representatives, or grant Basic or the Basic Representatives
access to, information that is within the possession or control
of any of the Grey Wolf Companies but subject to a valid and
binding confidentiality agreement with a Third Party without
first obtaining the consent of such Third Party, and Grey Wolf,
to the extent requested by Basic, will use its reasonable
commercial efforts to obtain any such consent; and
(ii) Basic shall not be obligated under the terms of this
Section 5.3 to disclose to Grey Wolf or Grey Wolf
Representatives, or grant Grey Wolf or Grey Wolf Representatives
access to, information that is within the possession or control
of any of the Basic Companies but subject to a valid and binding
confidentiality agreement with a Third Party without first
obtaining the consent of such Third Party, and Basic, to the
extent requested by Grey Wolf, will use reasonable commercial
efforts to obtain any such consent.
(f) No investigation by Basic or Grey Wolf or their
respective Representatives shall affect the representations,
warranties, covenants or agreements of the other set forth in
this Agreement, and no Party shall be deemed to have made any
representation or warranty to the other Party except as
expressly set forth in this Agreement.
Section 5.4 No
Solicitation by Basic.
(a) From the date of this Agreement until the first to
occur of the Effective Time and the termination of this
Agreement in accordance with Article 7, except as
specifically permitted in Section 5.4(c),
Section 5.4(d) or Section 5.4(e), Basic
agrees that neither it nor any of the Basic Subsidiaries or
Representatives will, directly or indirectly: (i) solicit,
initiate, encourage or facilitate (including by way of
furnishing or disclosing non-public information) any inquiries,
offers or proposals that constitute, or are reasonably likely to
lead to, a Basic Acquisition Proposal, and upon becoming aware
of any violation of this Section 5.4(a)(i), Basic
shall, and shall cause the Basic Subsidiaries and
Representatives to, stop soliciting, initiating, encouraging,
facilitating (including by way of furnishing or disclosing
non-public information) or taking any action designed to
facilitate, directly or indirectly, any inquiry, offer or
proposal that constitutes, or is reasonably likely to lead to, a
Basic Acquisition Proposal; (ii) engage in discussions or
negotiations with, furnish or disclose any non-public
information or data relating to the Basic Companies to, or in
response to a request therefor, give access to the properties,
assets or books and records of the Basic Companies to, any
Person who has made or may be considering making a Basic
Acquisition Proposal or take any action which may otherwise lead
to a Basic Acquisition Proposal; (iii) approve, endorse or
recommend any Basic Acquisition Proposal; or (iv) enter
into any agreement in principle, letter of intent, arrangement,
understanding or other Contract relating to any Basic
Acquisition Proposal.
(b) Except as specifically permitted in
Section 5.4(c) and Section 5.4(d), Basic
shall, and shall cause each of the Basic Subsidiaries and
Representatives to, immediately cease and terminate any existing
solicitations, discussions, negotiations or other activity with
any Person with respect to any Basic Acquisition
Proposal or which could reasonably be expected to lead to a
Basic Acquisition Proposal, and shall inform the Basic
Subsidiaries and Representatives which are engaged in any such
solicitations, discussions, negotiations or other activity of
Basic’s obligations under this Section 5.4.
Basic shall promptly inform its Representatives who have been
involved with or otherwise providing assistance in connection
with the negotiation of this Agreement and the transactions
contemplated by this Agreement of Basic’s obligations under
this Section 5.4. Basic shall promptly demand that
any Person (and the legal, financial or other representatives of
any such Person) who has heretofore executed a confidentiality
agreement with or for the benefit of any of the Basic Companies
with respect to such Person’s consideration of a possible
Basic Acquisition Proposal promptly return or destroy (and Basic
shall use commercially reasonable efforts to cause any such
destruction to be certified in writing by any such Person to
Basic) all confidential information heretofore furnished by the
Basic Companies or any of their legal, financial or other
representatives to such Person or any of its legal, financial or
other representatives in accordance with the terms of the
confidentiality agreement with such Person.
(c) Notwithstanding anything in this Agreement to the
contrary, prior to obtaining the Required Basic Vote, nothing in
this Agreement shall prevent Basic or the Basic Board from:
(i) after the date of this Agreement, engaging in
discussions or negotiations with, furnishing or disclosing any
information or data relating to the Basic Companies to, or in
response to a request therefor, giving access to the properties,
assets or books and records of the Basic Companies to, any
Person who has made an unsolicited, bona fide, written Basic
Acquisition Proposal after the date hereof that did not result
from a violation by the Basic Companies of this
Section 5.4; provided, however, that
prior to engaging in discussions or negotiations with,
furnishing or disclosing any information or data relating to the
Basic Companies to, or giving access to the properties, assets
or books and records of the Basic Companies to, such Person,
(A) the Basic Board, acting in good faith, has determined
(I) after consultation with its outside legal counsel and
financial advisors and based on such other matters as it deems
relevant, that such Basic Acquisition Proposal is reasonably
likely to result in a Basic Superior Proposal, and
(II) that such Person has the financial and legal capacity
to consummate such Basic Acquisition Proposal and (B) Basic
(I) enters into a confidentiality agreement with such
Person with use and disclosure limitations and other material
terms that are no more favorable to such Person than those
contained in the Confidentiality Agreement; provided that
such confidentiality agreement shall not be required to contain
“standstill” provisions or may contain a less
restrictive standstill provision (in which event, the
Confidentiality Agreement shall be automatically amended,
without any further action of the parties thereto, (i) to
remove the standstill provision or (ii) to the extent the
confidentiality agreement contains a standstill provision of
such Person that is less restrictive than the Grey Wolf
standstill contained in the Confidentiality Agreement, to amend
such Grey Wolf standstill to be on the same terms), and shall
not contain any provision preventing Basic from complying with
its required disclosure to Grey Wolf pursuant to this
Section 5.4 and (II) has complied with
Section 5.4(d); and
(ii) subject to compliance by Basic with
Section 5.4(e), (A) withdrawing (or amending or
modifying in a manner adverse to Grey Wolf), or publicly
proposing to withdraw (or to amend or modify in a manner adverse
to Grey Wolf), the approval, recommendation or declaration of
advisability by the Basic Board or any committee thereof (as the
case may be) of this Agreement, the Mergers or the transactions
contemplated hereby (the actions referred to in this
clause (A) being collectively referred to herein as an
“Basic Adverse Recommendation Change”),
(B) recommending, adopting or approving, or proposing
publicly to recommend, adopt or approve, any Basic Acquisition
Proposal (the actions referred to in this clause (B) being
collectively referred to as an “Basic Acquisition
Proposal Recommendation”), or (C) entering
into any agreement, including any agreement in principle, letter
of intent or understanding, acquisition or Merger Agreement,
option agreement, joint venture agreement, partnership agreement
or similar agreement, arrangement or understanding which
constitutes, relates to, is intended to lead to or could
reasonably be expected to lead to a Basic Acquisition Proposal
(other than a confidentiality agreement contemplated by
Section 5.4(c)(i)(B)(I)) (each a “Basic
Acquisition Agreement”); provided,
however, that (X) in the case of a Basic Adverse
Recommendation Change not involving a Basic Acquisition
Proposal, the Basic Board, acting in good faith, has previously
determined, after consultation with its outside legal counsel,
that the failure to take such action is reasonably likely to be
inconsistent
with its fiduciary obligations to the stockholders of Basic
under Applicable Law (Y) in the case of a Basic Adverse
Recommendation Change involving a Basic Acquisition Proposal, a
Basic Acquisition Proposal Recommendation or an entry into
a Basic Acquisition Agreement, the Basic Board, acting in good
faith, has previously determined, after consultation with its
outside legal counsel and financial advisors and based on such
other matters as it deems relevant, that such Basic Acquisition
Proposal or Basic Acquisition Agreement constitutes a Basic
Superior Proposal and (Z) in the case of entry into a Basic
Acquisition Agreement, Basic concurrently terminates this
Agreement pursuant to and after complying with the provisions of
Section 7.1(c)(iii) and
Section 5.4(e)(ii). Basic acknowledges and agrees
that the taking of any action inconsistent with any of the
restrictions set forth in this Section 5.4 by any of
the Basic Companies or their Representatives shall be deemed a
breach of this Section 5.4 by Basic. For the
avoidance of doubt, the Parties acknowledge and agree that a
Basic Adverse Recommendation Change may or may not involve a
Basic Acquisition Proposal.
(d) If Basic or any Basic Representative receives a request
for information from a Person who has made an unsolicited, bona
fide, written Basic Acquisition Proposal, and Basic is permitted
to provide such Person with information pursuant to this
Section 5.4, Basic will provide to Grey Wolf a copy
of the confidentiality agreement with such Person promptly upon
its execution and provide to Grey Wolf a list of, and copies of,
all information provided to such Person as promptly as
practicable after its delivery to such Person and promptly
provide Grey Wolf with access to all information to which such
Person was provided access, in each case only to the extent not
previously provided to Grey Wolf. Basic shall promptly provide
notice to Grey Wolf, in writing, of the receipt of any Basic
Acquisition Proposal or any inquiry with respect to or that is
likely to lead to a Basic Acquisition Proposal (but in no event
more than twenty-four hours after the receipt thereof), which
notice shall include the identity of the Person or group
requesting such information or making such inquiry or Basic
Acquisition Proposal and the material terms and conditions of
any such Basic Acquisition Proposal. Basic shall promptly
provide Grey Wolf with copies of any written changes to any
Basic Acquisition Proposal and shall promptly provide Grey Wolf
written notice of any changes (whether oral or in writing) in
the price or form of consideration or other material changes in
the status or terms of such Basic Acquisition Proposal.
(e) Notwithstanding anything herein to the contrary, the
Basic Board shall not (i) make a Basic Adverse
Recommendation Change, (ii) make a Basic Acquisition
Proposal Recommendation or (iii) enter into any Basic
Acquisition Agreement relating to a Basic Acquisition Proposal,
unless:
(i) Basic complies with the terms of
Section 5.4(c)(ii) and
Section 5.4(d); and
(ii) In the case of a Basic Acquisition Proposal, promptly
upon a determination by the Basic Board that a Basic Acquisition
Proposal constitutes a Basic Superior Proposal, Basic
immediately notifies, in writing, Grey Wolf of such
determination and describes in reasonable detail the material
terms and conditions of such Basic Superior Proposal and the
identity of the Person making such Basic Superior Proposal. Grey
Wolf shall have five Business Days after delivery of such
written notice to submit an offer to engage in an alternative
transaction or to modify the terms and conditions of this
Agreement such that Basic may proceed with this Agreement (a
“Grey Wolf Revised Offer”). During such five
Business Day period, Basic and its financial and legal advisors
shall negotiate in good faith with Grey Wolf to enable Grey Wolf
to submit a Grey Wolf Revised Offer. Any amendment to the price
or any other material term of a Basic Superior Proposal shall
require a new notice from Basic and an additional three Business
Day period within which Grey Wolf may negotiate a Grey Wolf
Revised Offer.
(f) Nothing contained in this Section 5.4 shall
prohibit Basic or the Basic Board from taking and disclosing to
the stockholders of Basic a position with respect to a Basic
Acquisition Proposal pursuant to
Rule 14d-9
and 14e-2(a)
promulgated under the Exchange Act or from making any similar
disclosure, in either case to the extent required by Applicable
Law.
(g) All notices to be given by the Parties under this
Section 5.4 shall be given by facsimile in
accordance with Section 8.3 (which notice shall be
considered delivered effective as of the day of transmission if
transmitted on or before 5:00 p.m. U.S. Central
Standard Time on the date of transmission, otherwise the next
day after transmission).
(a) From the date of this Agreement until the first to
occur of the Effective Time and the termination of this
Agreement in accordance with Article 7, except as
specifically permitted in Section 5.5(c),
Section 5.5(d) or Section 5.5(e), Grey
Wolf agrees that neither it nor any of the Grey Wolf
Subsidiaries or Representatives will, directly or indirectly:
(i) solicit, initiate, encourage or facilitate (including
by way of furnishing or disclosing non-public information) any
inquiries, offers or proposals that constitute, or are
reasonably likely to lead to, a Grey Wolf Acquisition Proposal,
and upon becoming aware of any violation of this
Section 5.5(a)(i), Grey Wolf shall, and shall cause
the Grey Wolf Subsidiaries and Representatives to, stop
soliciting, initiating, encouraging, facilitating (including by
way of furnishing or disclosing non-public information) or
taking any action designed to facilitate, directly or
indirectly, any inquiry, offer or proposal that constitutes, or
is reasonably likely to lead to, a Grey Wolf Acquisition
Proposal; (ii) engage in discussions or negotiations with,
furnish or disclose any non-public information or data relating
to the Grey Wolf Companies to, or in response to a request
therefor, give access to the properties, assets or books and
records of the Grey Wolf Companies to, any Person who has made
or may be considering making a Grey Wolf Acquisition Proposal or
take any action which may otherwise lead to a Grey Wolf
Acquisition Proposal; (iii) approve, endorse or recommend
any Grey Wolf Acquisition Proposal; or (iv) enter into any
agreement in principle, letter of intent, arrangement,
understanding or other Contract relating to any Grey Wolf
Acquisition Proposal.
(b) Except as specifically permitted in
Section 5.5(c) and Section 5.5(d), Grey
Wolf shall, and shall cause each of the Grey Wolf Subsidiaries
and Representatives to, immediately cease and terminate any
existing solicitations, discussions, negotiations or other
activity with any Person with respect to any Grey Wolf
Acquisition Proposal or which could reasonably be expected to
lead to a Grey Wolf Acquisition Proposal, and shall inform the
Grey Wolf Subsidiaries and Representatives which are engaged in
any such solicitations, discussions, negotiations or other
activity of Grey Wolf’s obligations under this
Section 5.5. Grey Wolf shall promptly inform its
Representatives who have been involved with or otherwise
providing assistance in connection with the negotiation of this
Agreement and the transactions contemplated by this Agreement of
Grey Wolf’s obligations under this Section 5.5.
Grey Wolf shall promptly demand that any Person (and the legal,
financial or other representatives of any such Person) who has
heretofore executed a confidentiality agreement with or for the
benefit of any of the Grey Wolf Companies with respect to such
Person’s consideration of a possible Grey Wolf Acquisition
Proposal promptly return or destroy (and Grey Wolf shall use
commercially reasonable efforts to cause any such destruction to
be certified in writing by any such Person to Grey Wolf) all
confidential information heretofore furnished by the Grey Wolf
Companies or any of their legal, financial or other
representatives to such Person or any of its legal, financial or
other representatives in accordance with the terms of the
confidentiality agreement with such Person.
(c) Notwithstanding anything in this Agreement to the
contrary, prior to obtaining the Required Grey Wolf Vote,
nothing in this Agreement shall prevent Grey Wolf or the Grey
Wolf Board from:
(i) after the date of this Agreement, engaging in
discussions or negotiations with, furnishing or disclosing any
information or data relating to the Grey Wolf Companies to, or
in response to a request therefor, giving access to the
properties, assets or books and records of the Grey Wolf
Companies to, any Person who has made an unsolicited, bona fide,
written Grey Wolf Acquisition Proposal after the date hereof
that did not result from a violation by the Grey Wolf Companies
of this Section 5.5; provided,
however, that prior to engaging in discussions or
negotiations with, furnishing or disclosing any information or
data relating to the Grey Wolf Companies to, or giving access to
the properties, assets or books and records of the Grey Wolf
Companies to, such Person, (A) the Grey Wolf Board, acting
in good faith, has determined (I) after consultation with
its outside legal counsel and financial advisors and based on
such other matters as it deems relevant, that such Grey Wolf
Acquisition Proposal is reasonably likely to result in a Grey
Wolf Superior Proposal and (II) that such Person has the
financial and legal capacity to consummate such Grey Wolf
Acquisition Proposal and (B) Grey Wolf (I) enters into
a confidentiality agreement with such Person with use and
disclosure limitations and other material terms that are no more
favorable to such Person than those contained in the
Confidentiality Agreement; provided that such
confidentiality agreement shall not be required to contain
“standstill” provisions or may contain a less
restrictive standstill provision (in which event, the
Confidentiality Agreement shall be automatically
amended, without any further action of the parties thereto,
(i) to remove the standstill provision or (ii) to the
extent the confidentiality agreement contains a standstill
provision of such Person that is less restrictive than the Basic
standstill contained in the Confidentiality Agreement, to amend
such Basic standstill to be on the same terms) and shall not
contain any provision preventing Grey Wolf from complying with
its required disclosure to Grey Wolf pursuant to this
Section 5.5 and (II) has complied with
Section 5.5(d); and
(ii) subject to compliance by Grey Wolf with
Section 5.5(e), (A) withdrawing (or amending or
modifying in a manner adverse to Basic), or publicly proposing
to withdraw (or to amend or modify in a manner adverse to
Basic), the approval, recommendation or declaration of
advisability by the Grey Wolf Board or any committee thereof (as
the case may be) of this Agreement, the Mergers or the
transactions contemplated hereby (the actions referred to in
this clause (A) being collectively referred to herein as a
“Grey Wolf Adverse Recommendation Change”),
(B) recommending, adopting or approving, or proposing
publicly to recommend, adopt or approve, any Grey Wolf
Acquisition Proposal (the actions referred to in this
clause (B) being collectively referred to as a
“Grey Wolf Acquisition
Proposal Recommendation”), or (C) entering
into any agreement, including any agreement in principle, letter
of intent or understanding, acquisition or Merger Agreement,
option agreement, joint venture agreement, partnership agreement
or similar agreement, arrangement or understanding which
constitutes, relates to, is intended to lead to or could
reasonably be expected to lead to a Grey Wolf Acquisition
Proposal (other than a confidentiality agreement contemplated by
Section 5.5(c)(i)(B)(I)) (each a “Grey Wolf
Acquisition Agreement”); provided, however, that
(X) in the case of a Grey Wolf Adverse Recommendation
Change not involving a Grey Wolf Acquisition Proposal, the Grey
Wolf Board, acting in good faith, has previously determined,
after consultation with its outside legal counsel, that the
failure to take such action is reasonably likely to be
inconsistent with its fiduciary obligations to the stockholders
of Grey Wolf under Applicable Law, (Y) in the case of a
Grey Wolf Adverse Recommendation Change involving a Grey Wolf
Acquisition Proposal, a Grey Wolf Acquisition
Proposal Recommendation or an entry into a Grey Wolf
Acquisition Agreement, the Grey Wolf Board, acting in good
faith, has previously determined, after consultation with its
outside legal counsel and financial advisors and based on such
other matters as it deems relevant, that such Grey Wolf
Acquisition Proposal or Grey Wolf Acquisition Agreement
constitutes a Grey Wolf Superior Proposal and (Z) in the
case of entry into a Grey Wolf Acquisition Agreement, Grey Wolf
concurrently terminates this Agreement pursuant to and after
complying with the provisions of Section 7.1(d)(iii)
and Section 5.5(e)(ii). Grey Wolf acknowledges and
agrees that the taking of any action inconsistent with any of
the restrictions set forth in this Section 5.5 by
any of the Grey Wolf Companies or their Representatives shall be
deemed a breach of this Section 5.5 by Grey Wolf.
For the avoidance of doubt, the Parties acknowledge and agree
that a Grey Wolf Adverse Recommendation Change may or may not
involve a Grey Wolf Acquisition Proposal.
(d) If Grey Wolf or any Grey Wolf Representative receives a
request for information from a Person who has made an
unsolicited, bona fide, written Grey Wolf Acquisition Proposal,
and Grey Wolf is permitted to provide such Person with
information pursuant to this Section 5.5, Grey Wolf
will provide to Basic a copy of the confidentiality agreement
with such Person promptly upon its execution and provide to
Basic a list of, and copies of, all information provided to such
Person as promptly as practicable after its delivery to such
Person and promptly provide Basic with access to all information
to which such Person was provided access, in each case only to
the extent not previously provided to Basic. Grey Wolf shall
promptly provide notice to Basic, in writing, of the receipt of
any Grey Wolf Acquisition Proposal or any inquiry with respect
to or that is likely to lead to a Grey Wolf Acquisition Proposal
(but in no event more than twenty-four hours after the receipt
thereof), which notice shall include the identity of the Person
or group requesting such information or making such inquiry or
Grey Wolf Acquisition Proposal and the material terms and
conditions of any such Grey Wolf Acquisition Proposal. Grey Wolf
shall promptly provide Basic with copies of any written changes
to any Grey Wolf Acquisition Proposal and shall promptly provide
Basic written notice of any changes (whether oral or in writing)
in the price or form of consideration or other material changes
in the status or terms of such Grey Wolf Acquisition Proposal.
(e) Notwithstanding anything herein to the contrary, the
Grey Wolf Board shall not (i) make a Grey Wolf Adverse
Recommendation Change, (ii) make a Grey Wolf Acquisition
Proposal Recommendation or (iii) enter into any Grey
Wolf Acquisition Agreement relating to a Grey Wolf Acquisition
Proposal, unless:
(i) Grey Wolf complies with the terms of
Section 5.5(c)(ii) and
Section 5.5(d); and
(ii) In the case of a Grey Wolf Acquisition Proposal,
promptly upon a determination by the Grey Wolf Board that a Grey
Wolf Acquisition Proposal constitutes a Grey Wolf Superior
Proposal, Grey Wolf immediately notifies, in writing, Basic of
such determination and describes in reasonable detail the
material terms and conditions of such Grey Wolf Superior
Proposal and the identity of the Person making such Grey Wolf
Superior Proposal. Basic shall have five Business Days after
delivery of such written notice to submit an offer to engage in
an alternative transaction or to modify the terms and conditions
of this Agreement such that Grey Wolf may proceed with this
Agreement (a “Basic Revised Offer”). During
such five Business Day period, Grey Wolf and its financial and
legal advisors shall negotiate in good faith exclusively with
Basic to enable Basic to submit a Basic Revised Offer. Any
amendment to the price or any other material term of a Grey Wolf
Superior Proposal shall require a new notice from Grey Wolf and
an additional three Business Day period within which Basic may
negotiate a Basic Revised Offer.
(f) Nothing contained in this Section 5.5 shall
prohibit Grey Wolf or the Grey Wolf Board from taking and
disclosing to the stockholders of Grey Wolf a position with
respect to a Grey Wolf Acquisition Proposal pursuant to
Rule 14d-9
and 14e-2(a)
promulgated under the Exchange Act or from making any similar
disclosure, in either case to the extent required by Applicable
Law.
(g) All notices to be given by the Parties under this
Section 5.5 shall be given by facsimile transmission
in accordance with Section 8.3 (which notice shall
be considered delivered effective as of the day of transmission
if transmitted on or before
5:00 p.m. U.S. Central Standard Time on the date
of transmission, otherwise the next day after transmission).
Section 5.6 Stockholders’
Meetings. Promptly after the Registration
Statement is declared effective under the Securities Act, each
of Basic and Grey Wolf shall take all necessary action, in
accordance with Applicable Law, the rules and regulations of the
AMEX or the NYSE (as the case may be) and the Basic Charter
Documents or Grey Wolf Charter Documents (as the case may be),
to properly give notice of and hold a meeting of its
stockholders for the purpose of voting on the Basic Proposals or
Grey Wolf Proposals (as the case may be). Subject to
Section 5.5 and Article 7, the Grey Wolf
Board shall recommend approval of Grey Wolf Proposals, and
subject to Section 5.4 and Article 7,
the Basic Board shall recommend approval of the Basic Proposals.
Basic and Grey Wolf, through their respective board of
directors, shall use their commercially reasonable best efforts
to take all lawful actions to solicit approval by its
stockholders of the Basic Proposals and the Grey Wolf Proposals,
respectively, including timely mailing the Proxy
Statement/Prospectus to the stockholders of Basic and the
stockholders of Grey Wolf, as applicable. Basic and Grey Wolf
shall coordinate and cooperate with respect to the timing of
their respective stockholder meetings and use reasonable efforts
to hold such meetings on the same day and within 45 days
after the date the Registration Statement is declared effective.
Section 5.7 Registration
Statement and Proxy Statement/Prospectus.
(a) Basic and Grey Wolf shall cooperate and promptly
prepare the Registration Statement and the Proxy
Statement/Prospectus and Holdings shall file the Registration
Statement in which the Proxy Statement/Prospectus will be
included as a prospectus with the SEC as soon as practicable
after the date hereof, and Basic, Grey Wolf and Holdings shall
cooperate to promptly respond to any comments made by the SEC
and otherwise use their respective commercially reasonable best
efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as practicable
after filing. Basic and Grey Wolf will provide each other and
Holdings with any information which may be required to prepare
and file the Proxy Statement/Prospectus and the Registration
Statement. Each of Basic and Grey Wolf will cause the Proxy
Statement/Prospectus to be mailed to its stockholders at the
earliest practicable time after the Registration Statement is
declared effective by the SEC. If at any time prior to the
Effective Time any event occurs which
is required to be set forth in an amendment or supplement to the
Proxy Statement/Prospectus or the Registration Statement, Basic
or Grey Wolf, as applicable, will promptly inform the other of
such occurrence, and Basic, Grey Wolf and Holdings will
cooperate in filing such amendment or supplement with the SEC,
use their respective commercially reasonable best efforts to
cause such amendment to become effective as promptly as possible
and, if required, mail such amendment or supplement to the
respective stockholders of Basic and Grey Wolf. Holdings shall
use its commercially reasonable best efforts, and Basic and Grey
Wolf shall cooperate with Holdings, to obtain any and all
necessary state securities laws or “blue sky” permits,
approvals and registrations in connection with the issuance of
the Holdings Common Stock pursuant to the Mergers.
(b) Holdings will cause the Registration Statement (and to
the extent Basic or Grey Wolf provide information to be
contained in the Proxy Statement/Prospectus, Basic or Grey Wolf
will cause the Proxy Statement/Prospectus), at the time it
becomes effective under the Securities Act, to comply as to form
in all material respects with the applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations
of the SEC thereunder. Basic and Grey Wolf shall be responsible
for furnishing to each other and to Holdings true, accurate and
complete information regarding themselves and their respective
stockholders for inclusion in the Proxy Statement/Prospectus.
(c) Basic hereby covenants and agrees with Grey Wolf that:
(i) the Registration Statement (at the time it becomes
effective under the Securities Act through the Effective Time)
will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading
(provided, however, that this clause (i)
shall apply only to information included or incorporated by
reference in the Registration Statement that was supplied by
Basic for inclusion therein); and (ii) the Proxy
Statement/Prospectus (at the time it is first mailed to
stockholders of Basic, through the time of Basic Meeting, and
until the Effective Time) will not contain an untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are
made, not misleading (provided, however, that this
clause (ii) shall apply only to information included or
incorporated by reference in the Proxy Statement/Prospectus that
was supplied by Basic for inclusion therein). If, at any time
prior to the Effective Time, any event with respect to Basic, or
with respect to other information supplied by Basic for
inclusion in the Registration Statement or the Proxy
Statement/Prospectus, occurs and such event is required to be
described in an amendment or supplement to the Registration
Statement or the Proxy Statement/Prospectus, Basic shall
promptly notify Grey Wolf of such occurrence and Basic shall
cooperate with Grey Wolf and Holdings in the preparation, filing
an dissemination of such amendment or supplement.
(d) Grey Wolf hereby covenants and agrees with Basic that:
(i) the Registration Statement (at the time it becomes
effective under the Securities Act and until the Effective Time)
will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading
(provided, however, that this clause (i)
shall apply only to any information included or incorporated by
reference in the Registration Statement that was supplied by
Grey Wolf or Holdings for inclusion therein); and (ii) the
Proxy Statement/Prospectus (at the time it is first mailed to
stockholders of Grey Wolf, through the time of the Grey Wolf
Meeting, and until the Effective Time) will not contain an
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under
which they are made, not misleading (provided,
however, that this clause (ii) shall apply only to
any information included or incorporated by reference in the
Proxy Statement/Prospectus that was supplied by Grey Wolf or
Holdings for inclusion therein). If, at any time prior to the
Effective Time, any event with respect to Grey Wolf or Holdings,
or with respect to other information included in the
Registration Statement with respect to Grey Wolf or Holdings,
occurs and such event is required to be described in an
amendment or supplement to the Registration Statement or the
Proxy Statement/Prospectus, Grey Wolf shall promptly notify
Basic of such occurrence and Grey Wolf and Holdings shall
cooperate with Basic in the preparation, filing and
dissemination of such supplement.
(e) None of the Registration Statement, the Proxy
Statement/Prospectus or any amendment or supplement thereto will
be filed or disseminated to the stockholders of Basic or Grey
Wolf without the approval of both
Basic and Grey Wolf, such approval not to be unreasonably
withheld, conditioned or delayed. Each Party shall advise the
other Parties promptly after it receives notice thereof, of the
time when the Registration Statement has become effective under
the Securities Act, the issuance of any stop order with respect
to the Registration Statement, the suspension of the
qualification of the Holdings Common Stock issuable in
connection with the Mergers for offering or sale in any
jurisdiction, or any comments or requests for additional
information by the SEC with respect to the Registration
Statement.
(f) Basic shall use its commercially reasonable best
efforts to cause to be delivered to Grey Wolf and Holdings two
comfort letters from KPMG LLP, Basic’s independent
auditors, one dated on the date on which the Registration
Statement shall become effective, and one bring-down letter
dated on the Closing Date, each addressed to Grey Wolf and
Holdings and customary in scope and substance for letters
delivered by independent auditors in connection with public
offerings.
(g) Grey Wolf shall use its commercially reasonable best
efforts to cause to be delivered to Basic and Holdings two
comfort letters from KPMG LLP, Grey Wolf’s independent
auditors, one dated on the date on which the Registration
Statement shall become effective, and one bring-down letter
dated on the Closing Date, each addressed to Basic and Holdings
and customary in scope and substance for letters delivered by
independent auditors in connection with public offerings.
Section 5.8 NYSE
Listing. Holdings shall prepare and submit to the
NYSE a listing application covering the shares of Holdings
Common Stock issued or issuable (a) in the Mergers,
(b) upon conversion of the Grey Wolf Convertible Notes,
(c) upon exercise of Basic Options or Grey Wolf Options
assumed by Holdings as contemplated hereby and (d) pursuant
to awards made under the Holdings Plan. Each of Basic and Grey
Wolf will promptly cooperate with Holdings and each other in
preparing and submitting such NYSE listing application and in
responding to comments and inquiries from the NYSE with respect
thereto. Each of Basic, Grey Wolf and Holdings shall use their
respective commercially reasonable best efforts to enable
Holdings to obtain, prior to the Effective Time, approval of the
NYSE for the listing of all shares of Holdings Common Stock
covered by such application, subject to official notice of
issuance, under the trading symbol “GW.”
Section 5.9 Regulatory
Filings.
(a) Subject to the terms and conditions herein provided,
each of Grey Wolf, Basic and Holdings shall take, or cause to be
taken, all action and shall do, or cause to be done, all things
necessary, appropriate or desirable under any Applicable Law
(including the HSR Act) or under applicable Contracts so as to
enable the Closing to occur as soon as reasonably practicable,
including using its commercially reasonable best efforts to
obtain all necessary waivers, consents and approvals, remove all
impediments to the Closing, and to identify and make all Basic
Regulatory Filings and Grey Wolf Regulatory Filings (the
“Regulatory Filings”). Basic, Grey Wolf and
Holdings each will cause all documents it is responsible for
filing with any Governmental Authority under this
Section 5.9 to comply with all Applicable Laws. For
the avoidance of doubt, the Parties agree that their respective
obligations and rights with respect to filings with the SEC and
the application of securities laws in connection with the
transactions contemplated hereby shall be governed only by
Section 5.7 and not this Section 5.9(a).
(b) Each of Basic and Grey Wolf shall furnish the other
Party with such information and reasonable assistance as such
other Party and its respective affiliates may reasonably request
in connection with their preparation of any Regulatory Filings
with any Governmental Authorities; provided,
however, that if the provisions of the HSR Act would
prevent a Party from disclosing such information to the other
Party, then such information may be disclosed to such
Party’s counsel.
(c) Each of Basic and Grey Wolf shall take, or cause to be
taken, all action or shall do, or cause to be done, all things
necessary, appropriate or desirable to cause the covenants and
conditions applicable to the transactions contemplated hereby to
be performed or satisfied as soon as practicable, including
responding promptly to requests for additional information made
by the DOJ or the FTC, and to cause the waiting periods under
the HSR Act to terminate or expire at the earliest possible date
after the date of filing.
(d) Each of Basic and Grey Wolf shall use its reasonable
best efforts to avoid the entry of, or to have vacated or
terminated, any decree, Order, ruling or injunction that would
restrain, prevent or delay the Closing. Furthermore, if any
Governmental Authority shall have issued any Order, decree,
ruling or injunction, or taken any other action, that would have
the effect of restraining, enjoining or otherwise prohibiting,
delaying or preventing the consummation of the transactions
contemplated hereby, each of Basic and Grey Wolf shall use its
reasonable best efforts to have such Order, decree, ruling or
injunction or other action declared ineffective as soon as
practicable.
(e) Basic and Grey Wolf shall promptly notify each other of
any communication concerning this Agreement or the Mergers from
any Governmental Authority and, subject to Applicable Law,
permit the other Party to review in advance any proposed
communication to any Governmental Authority concerning this
Agreement or the Mergers. In addition, Basic and Grey Wolf shall
not agree to participate in any substantive meeting or
discussion with any Governmental Authority in respect of any
filings, investigation or another inquiry concerning this
Agreement or the Mergers, or enter into any agreements with any
Governmental Authority, including, without limitation, extending
any antitrust waiting periods, unless it consults with the other
Party in advance and, to the extent permitted by such
Governmental Authority, gives the other Party the opportunity to
attend and participate thereat. Basic and Grey Wolf shall
furnish counsel to the other Party with copies of all
correspondence, filings and communications (and memoranda
setting forth the substance thereof) between them and their
affiliates and their respective representatives on the one hand,
and any Governmental Authorities or members of their respective
staffs on the other hand, relating to this Agreement and the
Mergers.
(f) Notwithstanding the foregoing, nothing contained in
this Agreement shall be construed to require Basic, Grey Wolf or
Holdings or their respective Subsidiaries or Affiliates to
dispose of any of its assets or to limit its freedom of action
with respect to any of their businesses, or to consent to any
disposition of their assets or limits on their freedom of action
with respect to any of their businesses, whether prior to or
after the Effective Time, or to commit or agree to any of the
foregoing, to obtain any consents, approvals, permits or
authorizations or to remove any impediments to the Mergers
relating to the HSR Act, or other antitrust, competition,
pre-merger notification, trade regulation or similar Applicable
Laws (collectively, “Antitrust Laws”) or to
avoid the entry of, or to effect the dissolution of, any
injunction, temporary restraining order or other order in any
suit or proceeding relating to Antitrust Laws or
non-U.S. Antitrust
Laws, other than such dispositions, limitations or consents,
commitments or agreements that in each such case may be
conditioned upon the consummation of the Mergers and the
transactions contemplated hereby and that in each such case,
individually or in the aggregate, do not have or cause and would
not be reasonably be expected to have or cause a Material
Adverse Effect on Holdings after the Mergers; provided,
however, that neither Basic on the one hand or Grey Wolf
and Holdings on the other hand shall take or agree to any action
required or permitted by this Section 5.9(f) without
the prior written consent of the other Party (which consent
shall not be unreasonably withheld or delayed).
Section 5.10 Rule 16b-3
Approval. Prior to the Closing, Basic, Grey Wolf
and Holdings, and their respective Boards of Directors or
committees thereof, shall use their commercially reasonable best
efforts to take all actions to cause any dispositions of Grey
Wolf Common Stock or Basic Common Stock (including derivative
securities with respect to Grey Wolf Common Stock or Basic
Common Stock) or acquisitions of Holdings Common Stock
(including derivative securities with respect to Holdings Common
Stock) resulting from the transactions contemplated hereby by
each individual who is subject to the reporting requirements of
Section 16(a) of the Exchange Act to be exempt from
Section 16(b) of the Exchange Act under
Rule 16b-3
promulgated under the Exchange Act in accordance with the terms
and conditions set forth in no-action letters issued by the SEC
in similar transactions.
Section 5.11 Taking
of Necessary Action; Further Action. Subject to
the terms and conditions of this Agreement, each of the Parties
shall use its commercially reasonable best efforts to take all
actions as may be necessary or appropriate in order to
effectuate the Mergers under the TBCA and the DGCL as promptly
as commercially practicable. In addition, the Parties agree to
execute and deliver any additional instruments necessary to
consummate the transactions contemplated by this Agreement. If,
at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this
Agreement and to vest the
Surviving Corporation with full right, title and possession to
all assets, real estate and other property, rights, privileges,
powers and franchises of Basic or Grey Wolf, the officers and
directors of Holdings are fully authorized, in the name of the
Surviving Corporation or otherwise to take, and shall take, all
such lawful and necessary action.
Section 5.12 Public
Announcements. On the date this Agreement is
executed (or if executed after the close of business, no later
than the first to occur of the opening of the NYSE or AMEX on
the next day), Basic and Grey Wolf shall issue a joint press
release with respect to the execution hereof and the
transactions contemplated hereby. Except in respect of a public
announcement as may be required by Applicable Law or any listing
agreement with or rule of any regulatory body, national
securities exchange or association, Basic and Grey Wolf shall
consult with each other before issuing any press release, making
any other public statement or scheduling any press conference or
conference call with investors or analysts with respect to this
Agreement or the transactions contemplated by this Agreement.
Section 5.13 Notification
of Certain Matters. Each Party shall give prompt
notice to the others of any of the following for which it
becomes aware: (i) any representation or warranty made by
it becoming untrue or inaccurate if such untruth or inaccuracy
would reasonably be expected to cause any condition set forth in
Article 6 not to be satisfied, (ii) the
occurrence of any event or development that would cause (or
would reasonably be expected to cause) any representation or
warranty by it herein to be untrue or inaccurate if such untruth
or inaccuracy would reasonably be expected to cause any
condition set forth in Article 6 not to be
satisfied, or (iii) any failure by it to comply with or
satisfy in all material respects any covenant, condition, or
agreement to be complied with or satisfied by it hereunder;
provided, however, that no such notification shall affect
the representations, warranties, covenants or agreements of any
Party hereto.
Section 5.14 Payment
of Expenses. Whether or not the Mergers are
consummated, and except as provided in Section 7.3,
each Party shall pay its own expenses incident to preparing for,
entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby, regardless
of whether the Mergers are consummated, except that Basic and
Grey Wolf shall equally share the following: (a) all fees
and expenses, other than attorneys’, accountants’,
financial advisers’ and consultants’ fees and expenses
(which shall be paid by the Party incurring same), incurred in
relation to the filing with the SEC and printing of the Proxy
Statement/Prospectus, including preliminary materials related
thereto, and the Registration Statement, including financial
statements and exhibits and any amendments and supplements
thereto, (b) the filing fees for the Registration Statement
and the Notification and Report Forms filed with the FTC and DOJ
under the HSR Act, (c) the fees and expenses (other than
attorneys’ fees) associated with the NYSE listing
application referred to in Section 5.8 above,
(d) all costs and expenses of negotiating, documenting and
obtaining the Holdings Credit Facilities (and borrowings
thereunder) including the fees and expenses of the lenders and
the fees and expenses of the lenders’ attorneys in
connection therewith, but excluding fees and expenses of
Basic’s and Grey Wolf’s attorneys in connection
therewith, and (e) the costs and expenses (but not
attorneys’ fees) incurred by Holdings in connection with
this Agreement and the transactions contemplated hereby.
Section 5.15 Indemnification
and Insurance.
(a) From and after the Effective Time, Holdings shall
subject to Applicable Law: honor all indemnification,
advancement and expenses and exculpation agreements or other
obligations of Basic and Grey Wolf with respect to their
respective current or former officers and directors including
those agreements or obligations included in the Basic Charter
Documents, the Grey Wolf Charter Documents, and any Contract of
Basic or Grey Wolf with their respective current or former
officers or directors, or arising under Applicable Law.
(b) From and for a period of six years after the Effective
Time, Holdings shall indemnify, defend, hold harmless and
advance expenses to each person who is now, has been at any time
prior to the date of this Agreement, or becomes prior to the
Effective Time, an officer, director, employee, controlling
stockholder or agent (including a trustee or fiduciary of a
Basic Benefit Plan or Grey Wolf Benefit Plan) of any of the
Basic Companies or Grey Wolf Companies (collectively, the
“Indemnified Parties”) to the fullest extent
permitted by Applicable Law against all losses, expenses
(including reasonable outside attorneys’ fees), claims,
damages,
fines, costs, liabilities or amounts that are paid in settlement
with the approval of the indemnifying party (which approval
shall not be unreasonably withheld) resulting from, or otherwise
arising in connection with, any threatened or actual claim,
action, suit, proceeding or investigation (a
“Claim”), based in whole or in part on, or
arising in whole or in part out of, the fact that the
Indemnified Party (or the Person controlled by the Indemnified
Party) is or was a director, officer, employee, controlling
stockholder or agent (including a trustee or fiduciary of any
Basic Benefit Plan or Grey Wolf Benefit Plan) of any of the
Basic Companies or the Grey Wolf Companies and pertaining to any
matter existing, or arising out of actions or omissions or
alleged actions or omissions occurring, at or prior to the
Effective Time (including any Claim arising out of this
Agreement or any of the transactions contemplated hereby),
whether asserted or claimed prior to, at or after the Effective
Time. Holdings shall pay any expenses to each Indemnified Party,
as incurred, in advance of the final disposition of any such
Claim to the fullest extent permitted under Applicable Law. Each
Indemnified Party will be entitled to receive such advances from
Holdings within ten Business Days of receipt by Holdings from
the Indemnified Party of a request therefor; provided
that any Person to whom expenses are advanced provides an
undertaking, if and only to the extent required by Applicable
Law, to repay such advances if it is ultimately determined that
such Person is not entitled to indemnification. Without limiting
the foregoing, in the event any such Claim is brought against
any Indemnified Party (whether arising before or after the
Effective Time): (i) Holdings shall have the right to
control the defense of such matter with Holdings’ regularly
engaged legal counsel or other counsel selected by Holdings and
reasonably satisfactory to the Indemnified Party, and Holdings
shall pay all reasonable fees and expenses of such counsel; and
(ii) the Indemnified Party will cooperate with Holdings, at
Holdings’ expense, in the defense of any such matter.
Holdings shall not settle, compromise or consent to the entry of
any judgment in any Claim for which indemnification could be
sought by any Indemnified Party hereunder, unless such
settlement, compromise or consent includes an unconditional
release of such Indemnified Party from all liability arising out
of such Claim and does not include any finding of fact admission
or stipulation with respect to fault, intent or culpability of
the Indemnified Party, or such Indemnified Party otherwise
consents. In the event of any Claim, any Indemnified Party
wishing to claim indemnification shall promptly notify Holdings
thereof (provided that failure to so notify Holdings will
not affect the obligations of Holdings except to the extent that
Holdings shall have been materially prejudiced as a result of
such failure) and shall deliver to Holdings any undertaking
required by Applicable Law, but without any requirement for the
posting of a bond. Without limiting the foregoing, in the event
any Claim is brought against any of the Indemnified Parties,
Holdings shall be required to retain only one counsel (plus one
local counsel, if necessary) to represent all such Indemnified
Parties with respect to each such matter unless the use of one
counsel to represent the Indemnified Parties would present such
counsel with a conflict of interest, or the representation of
all of the Indemnified Parties by the same counsel would be
inappropriate due to actual or apparent differing interests
between them, in which case such additional counsel as may be
required (as shall be reasonably determined by the Indemnified
Parties and Holdings) may be retained by the Indemnified Parties
at the cost and expense of Holdings and Holdings shall pay all
reasonable fees and expenses of such counsel for such
Indemnified Parties. Notwithstanding the foregoing, nothing
contained in this Section 5.15 shall be deemed to
grant any right to any Indemnified Party which is not permitted
to be granted to an officer, director, employee, controlling
stockholder or agent of Basic or Grey Wolf under a non-waivable
provision of Applicable Law.
(c) From and for not less than six years after the
Effective Time, Holdings shall use its reasonable best efforts
to maintain in effect directors’ and officers’
liability insurance policies covering those persons who are
covered by Basic’s and Grey Wolf’s respective
directors’ and officers’ respective liability
insurance policies as of the Effective Time on terms
substantially no less advantageous to such Persons than such
existing insurance with respect to Claims arising from facts or
events that occurred on or prior to the Effective Time;
provided, however, that (i) Holdings may
substitute therefor policies, issued by an insurance carrier
with the same or better credit rating as Grey Wolf’s and
Basic’s current insurance carrier, of at least the same
coverage containing terms and conditions which are no less
advantageous than Grey Wolf’s and Basic’s current
policy, provided that such substitution shall not result
in gaps or lapses in coverage with respect to matters occurring
prior to the Effective Time; and (ii) Holdings shall not be
required to pay an annual premium in excess of 250% of the last
annual premium paid by Grey Wolf or Basic (whichever premium was
higher) prior to the date hereof. In the event that the annual
premium for such insurance exceeds such maximum amount,
Holdings shall purchase as much coverage per policy year as
reasonably obtainable for such maximum amount.
(d) This covenant is intended to be for the benefit of, and
shall be enforceable by, each of the Indemnified Parties and
their respective heirs and legal representatives. The
indemnification and advancement of expenses provided for herein
shall not be deemed exclusive of any other rights to which an
Indemnified Party is entitled, whether pursuant to Applicable
Law, Contract or otherwise.
(e) In the event that Holdings, or any of its respective
successors or assigns, (i) consolidates with or merges into
any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its
and its subsidiaries’ properties and assets (taken as a
whole) to any Person, then, and in each such case, proper
provision shall be made by Holdings so that the successors and
assigns of Holdings, as the case may be, shall succeed to the
obligations set forth in this Section 5.15.
Section 5.16 Holdings
Employee Matters.
(a) At the Effective Time, Holdings and its Subsidiaries
shall continue employment of all the employees who are employed
by Basic or any of its Subsidiaries as of the day immediately
prior to the Effective Time, and all of the employees who are
employed by Grey Wolf or any of its Subsidiaries as of the day
immediately prior to the Effective Time. The Basic Employees and
Grey Wolf Employees so employed are collectively referred to
herein as the “Continuing Employees.”
(b) During the period from the Effective Time to and
including December 31, 2008, Holdings and its Subsidiaries
shall provide each Continuing Employee with an annual salary
rate, bonus opportunity and hourly wage rate, as applicable,
that is not less favorable to such Continuing Employee than the
annual salary rate, bonus arrangements or hourly wage rate
provided to such Continuing Employee by Basic or Grey Wolf, as
the case may be, immediately prior to the Effective Time.
(c) During the period from the Effective Time to and
including December 31, 2008, Holdings and its Subsidiaries
shall provide medical, dental, pharmaceutical and vision
benefits and other employee benefits that (i) with respect
to Basic Employees shall be no less favorable, in the aggregate,
than those provided by Basic or the Basic Subsidiaries
immediately prior to the Effective Time and (ii) with
respect to Grey Wolf Employees shall be, no less favorable, in
the aggregate, than those provided by Grey Wolf or the Grey Wolf
Subsidiaries immediately prior to the Effective Time.
Notwithstanding anything herein to the contrary, nothing herein
shall require Holdings to provide or continue any stock option
plans, restricted stock grant plans or other equity award or
purchase plans of either Basic or Grey Wolf, except as otherwise
provided in Article 2 hereof, or to assume or
provide retiree medical benefits to any Continuing Employee,
except as described in Section 5.16 of the Grey Wolf
Disclosure Letter.
(d) With respect to each Continuing Employee, Holdings
shall credit, or cause its Subsidiaries to credit, the period of
employment and service recognized by the applicable employer
(including its affiliates and their predecessors if so
recognized by the employer) for such Continuing Employee
immediately prior to the Effective Time for purposes of
Holdings’ corresponding benefit plans, programs, policies
or similar employment-related arrangements to have been
employment and service with Holdings or its Subsidiaries for
purposes of determining the Continuing Employee’s
eligibility to join (subject to satisfaction of all non-service
related eligibility criteria), vesting and benefit accrual (but
not benefit accrual for any purpose other than vacation pay,
severance and termination pay and sick leave, and vesting in
employer contributions under a 401(k) or profit sharing
arrangement that is tax qualified under Code
Section 401) under all employee benefit plans,
programs, policies or similar employment-related arrangements of
Holdings and its Subsidiaries in which the Continuing Employee
is eligible to participate. No such period of employment and
service credit shall be provided to the extent that it will
result in a duplication of credit or employment benefits.
(e) Holdings and its Subsidiaries shall waive, and the
extent necessary to effect the terms hereof, shall use their
commercially reasonable efforts to cause the relevant insurance
carriers and other third parties to waive, any restrictions and
limitations for medical conditions existing as of the Effective
Time of each Continuing Employee and the Continuing
Employee’s dependents who are covered immediately prior to
the
Effective Time under a group health plan maintained by Basic or
Grey Wolf, as the case may be, but only to the extent such
pre-existing medical condition would have been covered by
Holdings’ group health plan if it were not a pre-existing
medical condition and only to the extent that such pre-existing
medical condition limitations would not have applied to such
Continuing Employee or the Continuing Employee’s dependents
(as the case may be) under Basic’s or Grey Wolf’s
group health plan, as applicable, prior to the Effective Time.
Additionally, Holdings shall use its commercially reasonable
efforts to offer, or cause its Subsidiaries to offer, at the
Effective Time to each Continuing Employee coverage under a
group health plan (as defined in Section 5000(b)(1) of the
Code) which credits such Continuing Employee towards the
deductibles, co-insurance and maximum out of pocket provisions
imposed under such group health plan, for the year during which
the Effective Time (or such later date as the Continuing
Employee participates in such group health plan) occurs, with
any applicable expenses already incurred during such year under
Basic’s or Grey Wolf’s group health plan, as the case
may be.
(f) Nothing in this Agreement shall be considered a
contract between Basic, Grey Wolf, Holdings, or any of their
respective Subsidiaries and any Continuing Employee or
consideration for, or inducement with respect to, any such
Continuing Employees’ continued employment with Holdings
and, without limitation, all such Continuing Employees are and
will continue to be considered employees at will pursuant to the
applicable employment at will laws or doctrine, subject to any
express written agreement to the contrary with such Continuing
Employee. For the avoidance of doubt and without limiting the
generality of Section 8.6, nothing in this
Section 5.16 is intended to make any Person a
third-party beneficiary of the agreements contained in this
Section 5.16, and nothing in this
Section 5.16 shall constitute an amendment of any
Basic Benefit Plan or Grey Wolf Benefit Plan.
(g) The Parties agree that Holdings shall establish a
severance plan and an employee retention plan prior to the
Effective Time, each having terms generally summarized in
Section 5.16(g) to the Basic Disclosure Letter.
(h) Each of the Parties agree to cooperate in good faith
prior to the Effective Time to establish a process to integrate
the Basic Benefit Plans and the Grey Wolf Benefit Plans
following the Effective Time.
(i) Each of the Parties agree that the initial
organizational chart of Holdings and the job descriptions for
the chairman of the board, chief executive officer and chief
operating officer of Holdings shall be as set forth in
Section 5.16(i) of the Basic Disclosure Letter.
(j) Each of the Parties agree to recommend that their
respective stockholders approve, and use commercially reasonable
efforts to seek their respective stockholders’ approval of,
the Holdings Plan, in the substantially the form attached as
Section 5.16(j) to the Grey Wolf Disclosure Letter.
If the Basic Plan Proposal is approved by the stockholders of
Basic and the Grey Wolf Plan Proposal is approved by the
stockholders of Grey Wolf, Holdings shall cause the Basic Stock
Plans and the Grey Wolf Stock Plans to be frozen as of the
Effective Time and no future awards shall be made from those
plans and the awards outstanding under each of the Basic Stock
Plans and the Grey Wolf Stock Plans shall be adjusted as
provided in Article 2.
Section 5.17 Basic
Employee Matters.
(a) The Parties hereby acknowledge and agree that the
consummation of the Mergers will constitute a “Change in
Control” or “Change of Control” of Basic under
each of the executive employment agreements of Basic described
in Section 5.17 of the Basic Disclosure Letter and
awards granted under the Basic 2003 Plan and unvested employer
contributions to the Brown Deferred Compensation Plan;
provided, with respect to any awards issued under the
Basic 2003 Plan to directors of Basic who will be Continuing
Directors of Holdings following the consummation of the Mergers,
Basic shall use its commercially reasonably efforts to cause
such Continuing Directors to waive any rights to vesting based
on the “Change of Control” or “Change in
Control” that may otherwise be deemed to have occurred as a
result of the Mergers.
(b) Contemporaneously with the execution and delivery of
this Agreement, Basic and each of Kenneth V. Huseman and Alan
Krenek shall enter into amendments to their respective
employment agreements with
Basic, for no or nominal consideration, each to become effective
as of the Effective Time and each to be in substantially the
form included in Section 5.17 of the Basic
Disclosure Letter.
(c) Basic may amend any of its employment agreements to
amend the “Change in Control” definition to amend or
add any items consistent with the definitions of “Change of
Control” in the Grey Wolf employment agreements in the
forms included in Section 5.18(a) of the Grey Wolf
Disclosure Letter.
Section 5.18 Grey
Wolf Employee Matters.
(a) Grey Wolf will use its commercially reasonable efforts
to, and to cause each of its officers with whom it has an
employment agreement that is described in
Section 5.18(a) of the Grey Wolf Disclosure Letter
to, enter into amendments to their respective employment
agreements with Grey Wolf each to become effective immediately
prior to the Effective Time and each to be in substantially the
form included in Section 5.18(a) of the Grey Wolf
Disclosure Letter. The commercially reasonable efforts to be
used by Grey Wolf to cause the amended employment agreements to
be signed by its officers will not require Grey Wolf to
terminate or threaten to terminate any such officer or take any
action that might reasonably constitute a “Constructive
Termination Without Cause” as defined in the officer’s
current employment agreements.
(b) Grey Wolf will use its commercially reasonable efforts
to, and to cause each of its employees who are participants in
its Executive Severance Plan to, enter into amendments to the
Executive Severance Plan with Grey Wolf each to become effective
immediately prior to the Effective Time and each to be in
substantially the form included in Section 5.18(b)
of the Grey Wolf Disclosure Letter. The commercially reasonable
efforts to be used by Grey Wolf to cause the amended Executive
Severance Plan to be signed by its employees will not require
Grey Wolf to terminate or threaten to terminate any such
employee or take any action that might reasonably constitute a
“Qualifying Termination” as defined in the Executive
Severance Plan.
(c) Grey Wolf will use its commercially reasonable efforts
to, and to cause each of the individuals with whom it has a
restricted stock award agreement to, enter into amendments to
their respective restricted stock award agreement with Grey Wolf
each to become effective immediately prior to the Effective Time
and each to be in substantially the form included in
Section 5.18(c) of the Grey Wolf Disclosure Letter.
The commercially reasonable efforts to be used by Grey Wolf to
cause the amended restricted stock award agreements to be signed
by such individuals will not require Grey Wolf to terminate or
threaten to terminate any such employee or take any action that
might reasonably constitute a “constructive termination
without Cause” as defined in any employment agreement
between Grey Wolf and the individual or a “Qualifying
Termination” as defined in the Executive Severance Plan.
(d) Grey Wolf will use its commercially reasonable efforts
to, and to cause each of the individuals with whom it has a
Non-Qualified Option Agreement to, enter into amendments to
their respective Non-Qualified Option Agreement with Grey Wolf
each to become effective immediately prior to the Effective Time
and each to be in substantially the form included in
Section 5.18(d) of the Grey Wolf Disclosure Letter.
The commercially reasonable efforts to be used by Grey Wolf to
cause the amended Non-Qualified Option Agreements to be signed
by such individuals will not require Grey Wolf to terminate or
threaten to terminate any such employee or take any action that
might reasonably constitute a “constructive termination
without Cause” as defined in any employment agreement
between Grey Wolf and the individual or a “Qualifying
Termination” as defined in the Executive Severance Plan.
(e) Contemporaneously with the execution and delivery of
this Agreement, Grey Wolf and the Chairman of Grey Wolf’s
Board of Directors shall enter into a consulting agreement to
become effective at the Effective Time in substantially the form
included in Section 5.18(e) of the Grey Wolf
Disclosure Letter.
(f) Grey Wolf shall cause all vesting and other
restrictions on Grey Wolf Restricted Stock owned by each current
director who will not become a Continuing Director to be
terminated at the Effective Time.
Section 5.19 Tax
Matters.
(a) Basic, Grey Wolf and Holdings shall each use its
commercially reasonable best efforts to cause each Merger to
qualify as a “reorganization” within the meaning of
Section 368(a) of the Code and to obtain the Tax opinions
set forth in Section 6.2(d) and
Section 6.3(d). Basic, Grey Wolf and Holdings agree
to file all
Tax Returns consistent with the treatment of each Merger as a
“reorganization” within the meaning of
Section 368(a) of the Code. This Agreement is intended to
constitute a “plan of reorganization” within the
meaning of Treasury Regulation Sec. 1.368-2(g).
(b) Basic shall deliver to Andrews Kurth LLP and
Porter & Hedges, L.L.P. an officers’ certificate
dated as of the Closing Date and signed by the Chief Executive
Officer or the Chief Financial Officer of Basic, containing
representations of Basic, and Grey Wolf shall deliver to
Porter & Hedges, L.L.P. and Andrews Kurth LLP an
officers’ certificate dated as of the Closing Date and
signed by the Chief Executive Officer or the Chief Financial
Officer of Grey Wolf, containing representations of Grey Wolf,
in each case as shall be reasonably necessary or appropriate to
enable Andrews Kurth LLP to render the opinion described in
Section 6.2(d) of this Agreement and
Porter & Hedges, L.L.P. to render the opinion
described in Section 6.3(d) of this Agreement. Each
of Basic, Grey Wolf and Holdings shall use its commercially
reasonable best efforts not to take or cause to be taken any
action that would cause to be untrue (or fail to take or cause
not to be taken any action which would cause to be untrue) any
of the certifications and representations included in the
officers’ certificates described in this
Section 5.19.
(c) Basic and Grey Wolf shall each provide Holdings with a
certification in accordance with the requirements of Treasury
Regulation Section 1.1445-2(c)(3)
that it is not a United States real property holding corporation.
(d) The Parties intend and believe that this Agreement
constitutes a binding Contract for fixed consideration pursuant
to Treasury
Regulation Section 1.368-1T(e)(2).
Section 5.20 Continuing
Obligation to Call, Hold and Convene Stockholders’ Meeting;
No Other Vote. Notwithstanding anything herein to
the contrary, the obligations of Basic or Grey Wolf (as the case
may be) to call, give notice of, convene and hold the Basic
Meeting or Grey Wolf Meeting (as applicable) shall not be
limited or otherwise affected by the commencement, disclosure,
announcement or submission to it of any Basic Acquisition
Proposal or Grey Wolf Acquisition Proposal with respect to it,
or by any determination by the Basic Board or Grey Wolf Board
(as the case may be) to modify, withdraw, amend or modify its
recommendation in favor of the Mergers. Prior to the earlier of
the Effective Time or the termination of this Agreement in
accordance with Section 7.1, neither Basic nor Grey
Wolf shall submit to the vote of its stockholders any Basic
Acquisition Proposal or Grey Wolf Acquisition Proposal (as the
case may be), or propose to do so. For the avoidance of doubt,
nothing in this Section 5.20 shall in any way limit
the ability of Grey Wolf to terminate this Agreement pursuant to
Section 7.1(d)(iii) or Basic to terminate this
Agreement pursuant to Section 7.1(c)(iii).
Section 5.21 Control
of Other Party’s Business. Nothing contained
in this Agreement shall give Grey Wolf, directly or indirectly,
the right to control or direct Basic’s operations or give
Basic, directly or indirectly, the right to control or direct
Grey Wolf’s operations prior to the Effective Time. Prior
to the Effective Time, each of Basic and Grey Wolf shall
exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision over its respective
operations.
Section 5.22 The
Financing.
(a) Grey Wolf will use its commercially reasonable efforts
to arrange and obtain the Financing on the terms and conditions
described in the Commitment Letter. Each of Grey Wolf and Basic
will use its commercially reasonable efforts (i) to enter
into and to cause Holdings and each of the Subsidiaries of Grey
Wolf or Basic, as the case may be, to enter into definitive
agreements with respect to the Financing on the terms and
conditions reflected in the Commitment Letter; (ii) to
satisfy on a timely basis all conditions applicable to it and to
Holdings in such definitive agreements no later than the
Closing; and (iii) to consummate the Financing no later
than the Closing. If any Party becomes aware that the Financing
is not available to consummate the transactions contemplated by
this Agreement, then that Party shall promptly notify each of
the other Parties, and each Party shall use its commercially
reasonable efforts to obtain, and each of the other Parties
shall use commercially reasonable efforts to assist the other
Parties in obtaining, alternative financing on terms (taken in
the aggregate) that are no less favorable to Holdings than those
set forth in the Commitment Letter and in an amount (when added
to cash of Basic and Grey Wolf forecast to be
on hand immediately prior to the Mergers) that is adequate to
pay the Basic Cash Consideration and the Grey Wolf Cash
Consideration and all fees and expenses associated with the
transactions contemplated by this Agreement, to make any other
payments necessary to consummate the transactions contemplated
by this Agreement (the “Alternative Financing”).
(b) Each Party shall provide, and shall cause its
Subsidiaries and the directors, officers, employees,
consultants, advisors, legal counsel, accountants and other
agents of it and each of its Subsidiaries to provide, all
cooperation in connection with the Parties’ efforts to
obtain the Financing or the Alternative Financing as may
reasonably be requested by any of the other Parties or by the
Joint Lead Arrangers, including, without limitation,
(i) participating on a timely basis in meetings, drafting
sessions, due diligence sessions and other presentations,
including presentations with potential lenders and with rating
agencies; (ii) furnishing to the Joint Lead Arrangers and
to each other Party as promptly as reasonably practicable all
financial statements, pro forma statements, financial
projections, business plans, budgets and other reasonably
pertinent data and information as may be available (or
obtainable without unreasonable expense) and reasonably
requested by either of the Joint Lead Arrangers;
(iii) participating in the marketing presentations and
other marketing efforts of the Joint Lead Arrangers for any
portion of the Financing or the Alternative Financing and
assisting the Joint Lead Arrangers in the timely preparation of
bank information memoranda, presentations and similar documents
and of material for rating agency presentations; (iv) being
responsible for, and indemnifying the Joint Lead Arrangers and
each other Party against, liability, cost or expense with
respect to any financial or other information provided by such
Party for incorporation into any such memoranda, documents or
material; (v) using commercially reasonable efforts to
satisfy the conditions set forth in the Commitment Letter,
including to obtain and provide opinions of counsel, corporate
approvals of the transactions contemplated by the Financing or
the Alternative Financing and certifications with respect to
such approvals and other matters as may reasonably be required
by either of the Joint Lead Arrangers and customary payoff
letters in respect of any indebtedness required to be repaid at
Closing, in form and substance reasonably satisfactory to the
Joint Lead Arrangers, including specification of all amounts
required to be repaid in order to discharge fully at Closing all
liabilities with respect to such indebtedness and all related
obligations and commitments under any Contract relating thereto
and to obtain releases at the Closing of all Liens granted to
secure any such indebtedness, obligations or commitments;
(vi) using commercially reasonable efforts to obtain legal
opinions, ratings and other documentation and items relating to
such financing as are reasonably requested by either of the
Joint Lead Arrangers; (vii) executing and delivering any
guarantees, mortgages, pledge and security documents, other
definitive financing documents or other certificates, legal
opinions or documents as may be reasonably requested by either
of the Joint Lead Arrangers; and (viii) taking such actions
and providing such information and assistance as either of the
Joint Lead Arrangers may reasonably request in connection with
creating Liens upon or pledging collateral to secure the
Financing or the Alternative Financing.
(c) Notwithstanding anything in this Agreement to the
contrary, in the event that either the Basic Merger or the Grey
Wolf Merger is not consummated due to the failure to obtain the
Financing (or any Alternative Financing) no Party shall have any
liability to any other party arising out of such failure,
provided, however, that the foregoing shall not
relieve Grey Wolf or Basic, as the case may be, of its
obligations under Section 5.22(a) or
Section 5.22(b), respectively. Each Party
acknowledges that (i) notwithstanding anything in this
Agreement to the contrary, no other Party is intended to have
any greater risk or liability with respect to any failure to
obtain the Financing (or any Alternative Financing) and
(ii) no other Party would have entered into this Agreement
but for the agreement of the Parties set forth in this
Section 5.22.
Section 5.23 Obligations
of Holdings. Grey Wolf and Basic shall each take
all action necessary to cause Holdings to perform its
obligations under this Agreement and to consummate the
Financing, any Alternative Financing and the Mergers on the
terms and conditions set forth in this Agreement.
Section 5.24 Amendment
to Basic Voting Agreement. Grey Wolf will not
enter into an amendment to the Basic Voting Agreement without
the prior written consent of Basic, which consent shall not be
unreasonably withheld, conditioned or delayed.
Section 6.1 Conditions
to Each Party’s Obligation to Effect the
Mergers. The respective obligations of each Party
to effect the Mergers shall be subject to the satisfaction, at
or prior to the Closing Date, of each of the following
conditions, any or all of which may be waived in writing in
whole or in part only by both Basic and Grey Wolf (to the extent
permitted by Applicable Law):
(a) Stockholder Approval. The Basic
Merger Proposal and the Grey Wolf Merger Proposal shall have
been duly and validly approved and adopted by the requisite vote
of the stockholders of Basic and Grey Wolf, respectively.
(b) Other Approvals. Any applicable
waiting period under the HSR Act (including extensions thereof)
shall have expired or been terminated and all filings required
to be made by the Parties prior to the Effective Time with, and
all consents, approvals, permits and authorizations required to
be obtained by the Parties prior to the Effective Time from, any
Governmental Authority in connection with the execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby shall have been made or
obtained (as the case may be), except for any failures to make
such filings or obtain such consents, approvals, permits and
authorizations that, individually or in the aggregate, would not
reasonably be expected to have or cause a Material Adverse
Effect on or with respect to Holdings (assuming the Mergers have
taken place).
(c) Securities Law Matters. The
Registration Statement shall have been declared effective by the
SEC under the Securities Act and shall be effective at the
Effective Time, and no stop order suspending such effectiveness
shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend such effectiveness shall
have been initiated and be continuing, and any and all necessary
approvals under state securities laws relating to the issuance
or trading of the Holdings Common Stock to be issued in the
Mergers shall have been received.
(d) No Injunctions or Restraints. No
Governmental Authority of competent jurisdiction shall have
issued, promulgated, enforced or entered any Order, decree,
temporary restraining order, preliminary or permanent
injunction, or other legal restraint or prohibition that is
continuing and which prevents the consummation of the Mergers.
There shall not be any pending suit, action or proceeding
asserted by any Governmental Authority challenging or seeking to
restrain or prohibit the consummation of the Mergers or the
transactions contemplated hereunder.
(e) NYSE Listing. The shares of Holdings
Common Stock required to be included in the NYSE listing
application referred to in Section 5.8 above shall
have been authorized for listing on the NYSE, subject to
official notice of issuance.
(f) Financing. All conditions to the
funding under the Financing or a commitment with respect to
Alternative Financing (in each case other than conditions that
by their nature cannot be satisfied until the Closing) shall
have been satisfied so that, at the time of Closing, sufficient
funds will be available at and after the Closing to fund the
payment of the Grey Wolf Cash Consideration and the Basic Cash
Consideration, and to pay all fees and expenses associated with
the transactions contemplated by this Agreement.
Section 6.2 Conditions
to Obligations of Basic. The obligations of Basic
to effect the Mergers are subject to the satisfaction of each of
the following conditions, any or all of which may be waived in
writing in whole or in part by Basic:
(a) Representations and
Warranties. (i) The representations and
warranties of Grey Wolf and Holdings set forth in
Sections 3.2 (Authorization, Validity and Effect of
Agreement), 3.3 (Capitalization) and 3.16 (No
Brokers) shall be true, accurate and complete in all material
respects as of the date of this Agreement and (except to the
extent such representation or warranty speaks as of an earlier
date, in which case the representation or warranty shall be true
and correct in all material respects as of such date) as of the
Closing Date as though made on and as of that time and
(ii) the representations and
warranties of Grey Wolf set forth in Article 3
(other than the representations and warranties set forth in
Sections 3.2, 3.3 and 3.16) shall be
true, accurate and complete (disregarding any qualifications as
to materiality or Material Adverse Effect) as of the date of
this Agreement and (except to the extent such representation or
warranty speaks as of an earlier date, in which case the
representation or warranty shall be true and correct as of such
date) as of the Closing Date as though made on and as of that
time, except in each case for any failures of such
representations and warranties to be so true, accurate and
complete that, individually or in the aggregate, do not have or
cause and would not reasonably be expected to have or cause a
Grey Wolf Material Adverse Effect, and Basic shall have received
a certificate signed by a Responsible Officer of Grey Wolf to
such effect.
(b) Performance of Covenants and Agreements by Grey
Wolf. Grey Wolf shall have performed in all
material respects all covenants and agreements required to be
performed by it under this Agreement at or prior to the Closing
Date, and Basic shall have received a certificate signed by a
Responsible Officer of Grey Wolf to such effect.
(c) No Material Adverse Change. From the
date of this Agreement through the Closing, there shall not have
occurred any event, occurrence or development that has had or
caused or would reasonably be expected to have or cause a Grey
Wolf Material Adverse Effect.
(d) Tax Opinion. Basic and Holdings shall
have received an opinion (reasonably acceptable in form and
substance to Basic) from Andrews Kurth LLP, dated as of the
Closing Date, to the effect that for federal income Tax purposes
(i) the Mergers will be treated as a reorganization within
the meaning of Section 368(a) of the Code, and
(ii) each of Basic, Grey Wolf and Holdings will be a party
to such reorganization within the meaning of Section 368(b)
of the Code, and such opinion shall not have been withdrawn,
revoked or modified. Such opinion will be based upon
representations of the Parties contained in this Agreement and
in the officers’ certificates described in
Section 5.19(b).
Section 6.3 Conditions
to Obligation of Grey Wolf. The obligation of
Grey Wolf to effect the Mergers is subject to the satisfaction
of each of the following conditions, any or all of which may be
waived in writing in whole or in part by Grey Wolf:
(a) Representations and
Warranties. (i) The representations and
warranties of Basic and Holdings set forth in
Sections 4.2, (Authorization, Validity and Effect of
Agreement) 4.3 (Capitalization) and 4.16 (No
Brokers) shall be true, accurate and complete in all material
respects as of the date of this Agreement and (except to the
extent such representation or warranty speaks as of an earlier
date, in which case the representation or warranty shall be true
and correct in all material respects as of such date) as of the
Closing Date as though made on and as of that time and
(ii) the representations and warranties of Basic set forth
in Article 4 (other than the representations and
warranties set forth in Sections 4.2, 4.3 and
4.16) shall be true, accurate and complete (disregarding
any qualifications as to materiality or Material Adverse Effect)
as of the date of this Agreement and (except to the extent such
representation or warranty speaks as of an earlier date, in
which case the representation or warranty shall be true and
correct as of such date) as of the Closing Date as though made
on and as of that time, except in each case for any failures of
such representations and warranties to be so true, accurate and
complete that, individually or in the aggregate, do not have or
cause and would not reasonably be expected to have or cause a
Basic Material Adverse Effect, and Grey Wolf shall have received
a certificate signed by a Responsible Officer of Basic to such
effect.
(b) Performance of Covenants and Agreements by
Basic. Basic shall have performed in all material
respects all covenants and agreements required to be performed
by it under this Agreement at or prior to the Closing Date, and
Grey Wolf shall have received a certificate signed by a
Responsible Officer of Basic to such effect.
(c) No Material Adverse Change. From the
date of this Agreement through the Closing, there shall not have
occurred any event, occurrence or development that has had or
caused or would reasonably be expected to have or cause a Basic
Material Adverse Effect.
(d) Tax Opinion. Grey Wolf and Holdings
shall have received an opinion (reasonably acceptable in form
and substance to Grey Wolf) from Porter & Hedges,
L.L.P., dated as of the Closing Date, to the effect that for
federal income Tax purposes (i) the Mergers will be treated
as a reorganization within the meaning of Section 368(a) of
the Code, and (ii) each of Basic, Grey Wolf and Holdings
will be a party to such reorganization within the meaning of
Section 368(b) of the Code, and such opinion shall not have
been withdrawn, revoked or modified. Such opinion will be based
upon representations of the Parties contained in this Agreement
and in the officers’ certificates described in
Section 5.19(b).
ARTICLE 7
TERMINATION
Section 7.1 Termination
Rights. This Agreement may be terminated and the
Mergers may be abandoned at any time prior to the Effective
Time, whether before or after approval of Grey Wolf Merger
Proposal by the stockholders of Grey Wolf or approval of the
Basic Merger Proposal by the stockholders of Basic (except as
provided below), by action taken by the board of directors of
the terminating Party or Parties upon the occurrence of any of
the following:
(a) By mutual written consent duly authorized by the Basic
Board and the Grey Wolf Board.
(b) By either Grey Wolf or Basic if:
(i) the Mergers have not been consummated by
November 30, 2008 (the “Termination Date”)
(provided, however, that the right to terminate
this Agreement pursuant to this clause (i) shall not be
available to any Party whose breach of any representation or
warranty or failure to perform or satisfy any covenant or
agreement under this Agreement has been the principal cause of
or resulted in the failure of the Mergers to occur on or before
such date);
(ii) any Governmental Authority shall have issued an Order,
decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the consummation
of the Mergers or making consummation of the Mergers illegal,
and such Order, decree, ruling or other action shall have become
final and nonappealable (provided, however, that
the right to terminate this Agreement pursuant to this
clause (ii) shall not be available to any Party whose
failure to fulfill any material obligation under this Agreement
has been the principal cause of or resulted in such Order,
decree, ruling or other action);
(iii) the Grey Wolf Merger Proposal shall not have been
approved by the Required Grey Wolf Vote at the Grey Wolf Meeting
or at any adjournment or postponement thereof; provided,
however, that the right to terminate this Agreement
pursuant to this clause (iii) shall not be available to
Grey Wolf if the failure to obtain approval of the Grey Wolf
Merger Proposal is caused by the action or failure to act of
Grey Wolf and such action or failure to act constitutes a
material breach of this Agreement; or
(iv) the Basic Merger Proposal shall not have been approved
by the Required Basic Vote at the Basic Meeting or at any
adjournment or postponement thereof; provided,
however, that the right to terminate this Agreement
pursuant to this clause (iv) shall not be available to
Basic if the failure to obtain approval of the Basic Merger
Proposal is caused by the action or failure to act of Basic and
such action or failure to act constitutes a material breach of
this Agreement.
(c) By Basic if:
(i) there has been a material breach of the representations
and warranties made by Grey Wolf in Article 3 of
this Agreement, which breach (A) would cause a failure of
the condition described in Section 6.2(a) and
(B) is incapable of being cured by Grey Wolf within
60 days following receipt of written notice from Basic of
such breach (but not later than the Termination Date);
(ii) Grey Wolf has failed to comply in any material respect
with any of its covenants or agreements contained in this
Agreement, which failure to comply (A) would cause a
failure of the
condition described in Section 6.2(b) and
(B) is incapable of being cured by Grey Wolf within
60 days following written notice from Basic of such failure
(but not later than the Termination Date);
(iii) prior to the approval of the Basic Merger Proposal by
the Required Basic Vote, Basic elects to enter into a Basic
Acquisition Agreement as permitted by (and not in violation of)
Section 5.4; provided, however, that Basic
may not terminate this Agreement pursuant to this
Section 7.1(c)(iii) unless Basic shall have complied
with the provisions of Section 5.4(e)(ii) and shall
not have otherwise breached any other term of
Section 5.4 in any material respect. No termination
pursuant to this Section 7.1(c)(iii) shall be
effective unless Basic simultaneously pays in full the payment
required by Section 7.3(d) and provides Grey Wolf
with a written acknowledgment from each other party to the Basic
Acquisition Agreement that such party is aware of the amounts
due to Grey Wolf under Section 7.3(d) and that such
party irrevocably waives any right it may have to litigate, sue
or bring any Claim to contest such amounts; or
(iv) (A) Grey Wolf shall have breached in any material
respect any of its obligations under Section 5.5,
(B) the Grey Wolf Board (or any committee thereof) shall
have made a Grey Wolf Adverse Recommendation Change or a Grey
Wolf Acquisition Proposal Recommendation, (C) any Grey
Wolf Company shall have entered into a Grey Wolf Acquisition
Agreement or (D) Grey Wolf or the Grey Wolf Board (or any
committee thereof) publicly shall have announced its intention
to do any of the foregoing.
(d) By Grey Wolf if:
(i) there has been a material breach of the representations
and warranties made by Basic in Article 4 of this
Agreement, which breach (A) would cause a failure of the
condition described in Section 6.3(a), and
(B) is incapable of being cured by Basic within
60 days following receipt of written notice from Grey Wolf
of such breach (but not later than the Termination Date);
(ii) Basic has failed to comply in any material respect
with any of its covenants or agreements contained in this
Agreement, which failure to comply (A) would cause a
failure of the condition described in Section 6.3(b)
and (B) is incapable of being cured by Basic within
60 days following receipt of written notice from Grey Wolf
of such failure (but not later than the Termination Date);
(iii) prior to the approval of Grey Wolf Merger Proposal by
the Required Grey Wolf Vote, Grey Wolf elects to enter into a
Grey Wolf Acquisition Agreement as permitted by (and not in
violation of) Section 5.5; provided,
however, that Grey Wolf may not terminate this Agreement
pursuant to this Section 7.1(d)(iii) unless Grey
Wolf shall have complied with the provisions of
Section 5.5(e)(ii) and shall not have otherwise
breached any other term of Section 5.5 in any
material respect. No termination pursuant to this
Section 7.1(d)(iii) shall be effective unless Grey
Wolf simultaneously pays in full the payment required by
Section 7.3(a) and provides Basic with a written
acknowledgment from each other party to the Grey Wolf
Acquisition Agreement that such party is aware of the amounts
due Basic under Section 7.3(a) and that such party
irrevocably waives any right it may have to litigate, sue or
bring any Claim to contest such amounts; or
(iv) (A) Basic shall have breached in any material
respect any of its obligations under Section 5.4,
(B) the Basic Board (or any committee thereof) shall have
made a Basic Adverse Recommendation Change or a Basic
Acquisition Proposal Recommendation, (C) any Basic
Company shall have entered into a Basic Acquisition Agreement,
or (D) Basic or the Basic Board (or any committee thereof)
shall have publicly announced its intention to do any of the
foregoing.
Section 7.2 Effect
of Termination. If this Agreement is terminated
by either Grey Wolf or Basic pursuant to the provisions of
Section 7.1, this Agreement shall forthwith become
void, and there shall be no further obligation on the part of
any Party or its Affiliates, directors, officers or stockholders
except pursuant to the provisions of Section 5.3(d),
Section 5.7(c), Section 5.7(d),
Section 5.14, this Section 7.2,
Section 7.3, Article 8 and the
Confidentiality Agreement (which shall continue pursuant to
their terms); provided, however, that a
termination of this Agreement shall not relieve any Party from
any liability for damages incurred as a
result of a willful or intentional breach by such Party of its
representations, warranties, covenants, agreements or other
obligations hereunder occurring prior to such termination.
Section 7.3 Fees
and Expenses. Notwithstanding the provisions of
Section 5.14:
(a) Grey Wolf will, immediately upon termination of this
Agreement pursuant to Sections 7.1(c)(iv),
7.1(d)(iii) or 7.1(b)(iii) (but in the case of
Section 7.1(b)(iii) only if prior to such Grey Wolf
Meeting a Grey Wolf Adverse Recommendation Change or a Grey Wolf
Acquisition Proposal Recommendation has been made), pay, or
cause to be paid, to Basic by wire transfer of immediately
available funds to an account designated by Basic a termination
fee in the amount of $30.0 million.
(b) Grey Wolf will, immediately upon termination of this
Agreement pursuant to Section 7.1(b)(iii), pay, or
cause to be paid, to Basic by wire transfer of immediately
available funds to an account designated by Basic
$5.0 million as a reasonable estimate of Basic’s
expenses; provided that no amount shall be payable under
this Section 7.3(b) if the termination fee is paid
pursuant to Section 7.3(a).
(c) Grey Wolf will pay, or cause to be paid, to Basic a
termination fee in the amount of $30.0 million less the
amount of the payment, if any, previously made by Grey Wolf
pursuant to Section 7.3(b) if (i) this
Agreement is terminated pursuant to
Section 7.1(b)(i) or 7.1(b)(iii),
(ii) prior to such termination, there has been publicly
announced a Grey Wolf Acquisition Proposal and (iii) within
365 days of such termination, any Grey Wolf Company enters
into any definitive agreement with respect to or consummates any
Grey Wolf Acquisition Proposal (regardless of whether such Grey
Wolf Acquisition Proposal is the same Acquisition Proposal
referred to in clause (ii) above); provided that no
amount shall be payable under this Section 7.3(c) if
the termination fee is paid pursuant to
Section 7.3(a). Such termination fee shall be paid
on the day such Grey Wolf Company consummates such Grey Wolf
Acquisition Proposal, by wire transfer of immediately available
funds to an account designated by Basic. Notwithstanding the
foregoing, Grey Wolf shall not be required to pay, or cause to
be paid, to Basic any amounts pursuant to this
Section 7.3(c) if the reason the Mergers have not
been timely consummated is as the result of a failure to satisfy
the conditions set forth in Sections 6.1(b),
6.1(c), 6.1(d), 6.1(e) or 6.1(f).
(d) Basic will, immediately upon termination of this
Agreement pursuant to Sections 7.1(c)(iii),
7.1(d)(iv) or 7.1(b)(iv) (but in the case of
Section 7.1(b)(iv) only if prior to such Basic
Meeting a Basic Adverse Recommendation Change or a Basic
Acquisition Proposal Recommendation has been made), pay, or
cause to be paid, to Grey Wolf by wire transfer of immediately
available funds to an account designated by Grey Wolf a
termination fee in the amount of $30.0 million.
(e) Basic will, immediately upon termination of this
Agreement pursuant to Section 7.1(b)(iv) pay, or
cause to be paid, to Grey Wolf by wire transfer of immediately
available funds to an account designated by Grey Wolf
$5.0 million as a reasonable estimate of Grey Wolf’s
expenses; provided that no amount shall be payable under
this Section 7.3(e) if the termination fee is paid
pursuant to Section 7.3(d).
(f) Basic will pay, or cause to be paid, to Grey Wolf a
termination fee in the amount of $30.0 million (less the
amount of the payment, if any, previously made by Basic pursuant
to Section 7.3(e)) if (i) this Agreement is
terminated pursuant to Section 7.1(b)(i) or
7.1(b)(iv), (ii) prior to such termination, there
has been publicly announced a Basic Acquisition Proposal and
(iii) within 365 days of such termination, any Basic
Company enters into any definitive agreement with respect to or
consummates any Basic Acquisition Proposal (regardless of
whether such Basic Acquisition Proposal is the same Basic
Acquisition Proposal referred to in clause (ii) above);
provided that no amount shall be payable under this
Section 7.3(f) if the termination fee is paid
pursuant to Section 7.3(d). Such termination fee
shall be paid on the day such Basic Company consummates such
Basic Acquisition Proposal, by wire transfer of immediately
available funds to an account designed by Grey Wolf.
Notwithstanding the foregoing, Basic shall not be required to
pay, or cause to be paid, to Grey Wolf any amounts pursuant to
this Section 7.3(f) if the reason the Mergers have
not been timely consummated is as the result of a failure to
satisfy the conditions set forth in Sections 6.1(b),
6.1(c), 6.1(d), 6.1(e) or 6.1(f).
(g) Grey Wolf acknowledges that the agreements contained in
this Section 7.3 are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, Basic would not
have entered into this Agreement. Accordingly, if Grey Wolf
fails to pay promptly any amounts due pursuant to this
Section 7.3, Grey Wolf shall pay to Basic its costs
and expenses (including attorneys’ fees and expenses) in
connection with collecting these amounts, together with interest
on the amounts so owed, at the rate of interest per annum
specified as the Prime Rate in the Wall Street Journal as of the
date of termination plus 2.0%, from the date of termination of
this Agreement until the date all such amounts are paid to Basic.
(h) Basic acknowledges that the agreements contained in
this Section 7.3 are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, Grey Wolf would not have entered into this
Agreement. Accordingly, if Basic fails to pay promptly any
amounts due pursuant to this Section 7.3, Basic
shall pay to Grey Wolf its costs and expenses (including
attorneys’ fees and expenses) in connection with collecting
these amounts, together with interest on the amounts so owed, at
the rate of interest per annum specified as the Prime Rate in
the Wall Street Journal as of the date of termination plus 2.0%,
from the date of termination of this Agreement until the date
all such amounts are paid to Grey Wolf.
ARTICLE 8
MISCELLANEOUS
Section 8.1 Nonsurvival
of Representations and Warranties. None of the
representations or warranties contained in this Agreement or in
any instrument delivered pursuant to this Agreement (other than
the Lock-Up
Agreements) shall survive the consummation of the Mergers.
Section 8.2 Amendment. This
Agreement may be amended by the Parties at any time before or
after approval of the Basic Merger Proposal by the stockholders
of Basic or of the Grey Wolf Merger Proposal by the stockholders
of Grey Wolf; provided, however, that, after any
such approval, no amendment shall be made that by Applicable Law
requires further approval by such stockholders without such
further approval. This Agreement may not be amended except by a
written instrument signed by an authorized representative of
each of the Parties.
Section 8.3 Notices. Any
notice or other communication required or permitted hereunder
shall be in writing and, unless delivery instructions are
otherwise expressly set forth above herein, either delivered
personally (effective upon delivery), by facsimile transmission
(effective on the next day after transmission), by recognized
overnight delivery service (effective on the next day after
delivery to the service), or by registered or certified mail,
postage prepaid and return receipt requested (effective on the
third Business Day
after the date of mailing), at the following addresses or
facsimile transmission numbers (or at such other address(es) or
facsimile transmission number(s) for a Party as shall be
specified by like notice):
To Basic or Holdings:
Basic Energy Services, Inc.
500 W. Illinois Midland, Texas79701
Attention: Chief Executive Officer
Facsimile: (432) 620-5501
with a copy
(which shall not constitute notice) to:
Davis Polk & Wardwell
450 Lexington Avenue New York, New York10017
Attention: George R. Bason, Jr.
Michael
Davis
Facsimile: (212) 450-3800
and
Andrews Kurth LLP
600 Travis, Suite 4299 Houston, Texas77022
Attention: David C. Buck
Facsimile: (713) 220-4285
To Grey Wolf or Holdings:
Grey Wolf, Inc.
10370 Richmond Avenue, Suite 600 Houston, Texas77042
Attention: Chief Executive Officer
Facsimile: (713) 435-6171
with a copy (which shall not constitute notice) to:
Porter & Hedges, L.L.P.
1000 Main, 36th Floor Houston, Texas77002
Attention: Nick D. Nicholas
Christopher
A. Ferazzi
Facsimile: (713) 226-6237
Section 8.4 Counterparts. This
Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall
become effective when one or more counterparts have been signed
by each of the Parties and delivered to the other Parties, it
being understood that all Parties need not sign the same
counterpart.
Section 8.5 Severability. Any
term or provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall, as to such
jurisdiction, be deemed modified to the minimum extent necessary
to make such term or provision valid and enforceable,
provided that if such term or provision is incapable of
being so modified, then such term or provision shall be deemed
ineffective to the extent of such invalidity or unenforceability
without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision
shall be interpreted to be only so broad as is enforceable.
Section 8.6 Entire
Agreement; No Third Party Beneficiaries. This
Agreement (together with the Confidentiality Agreement and the
documents and instruments delivered by the Parties in connection
with this Agreement): (a) constitutes the entire agreement
and supersedes all other prior agreements and understandings,
both written and oral, among the Parties with respect to the
subject matter hereof; and (b) except as provided in
Section 5.15 (which is intended to be for the
benefit of the Persons covered thereby) is solely for the
benefit of the Parties and their respective successors, legal
representatives and assigns and does not confer on any Person
other than the Parties any rights or remedies hereunder. The
representations and warranties in this Agreement are the product
of negotiations among the Parties and are for the sole benefit
of the Parties. Any inaccuracies in such representations and
warranties are subject to waiver by the Party for whose benefit
such
representation and warranty was made in accordance with
Section 8.11 without notice of liability to any
other Person. In some instances, the representations and
warranties in this Agreement may represent an allocation among
the Parties of risks associated with particular matters
regardless of knowledge of any of the Parties. Consequently,
Persons other than the Parties may not rely upon the
representations and warranties in this Agreement as
characterizations of actual facts or circumstances as of the
date of this Agreement or as of any other date.
Section 8.7 Applicable
Law.THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE
LAWS OF THE STATE OF DELAWARE (INCLUDING THE LAWS OF DELAWARE
WITH RESPECT TO STATUTES OF LIMITATION AND STATUTES OF REPOSE)
WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS THEREOF THAT
WOULD CAUSE THE LAWS OF ANY OTHER JURISDICTION TO APPLY.
Section 8.8 Jurisdiction. The
Parties agree that any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of
or in connection with, this Agreement or the transactions
contemplated hereby shall be exclusively brought in any federal
court located in the State of Delaware or any Delaware state
court, and each of the parties hereby irrevocably consents to
the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection that it may now or hereafter
have to the laying of the venue of any such suit, action or
proceeding in any such court or that any such suit, action or
proceeding brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or
proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court.
Without limiting the foregoing, each party agrees that service
of process on such party as provided in Section 8.3
shall be deemed effective service of process on such party.
Section 8.9 No
Remedy in Certain Circumstances. Each Party
agrees that should any Governmental Authority hold any provision
of this Agreement or part hereof to be null, void or
unenforceable, or order any Party to take any action
inconsistent herewith or not to take an action consistent
herewith or required hereby, the validity, legality and
enforceability of the remaining provisions and obligations
contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or
the failure to take any action constitutes a material breach of
this Agreement or makes this Agreement impossible to perform, in
which case this Agreement shall terminate pursuant to
Article 7. Except as otherwise contemplated by this
Agreement, to the extent that a Party took an action
inconsistent herewith or failed to take action consistent
herewith or required hereby pursuant to an Order or judgment of
a court or other competent Governmental Authority, such Party
shall not incur any liability or obligation unless such Party
breached its obligations under Section 5.9 or did
not in good faith seek to resist or object to the imposition or
entering of such Order or judgment.
Section 8.10 Assignment. Neither
this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the Parties (whether by
operation of Applicable Law or otherwise) without the prior
written consent of the other Parties, and any such attempted
assignment without such consent shall be immediately null and
void. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the
Parties and their respective successors and assigns.
Section 8.11 Waivers. At
any time prior to the Effective Time, to the extent legally
allowed: (a) any Party may extend the time for the
performance of any of the obligations or other acts of the other
Parties, (b) any Party for whose benefit a representation
or warranty was made may waive any inaccuracies in the
representations and warranties of the other Parties contained
herein or in any document delivered pursuant hereto, and
(c) any Party may waive performance of any of the covenants
or agreements of the other Parties, or satisfaction of any of
the conditions to its obligations to effect the Mergers,
contained herein. Any agreement on the part of a Party to any
such extension or waiver shall be valid only if set forth in a
written instrument signed by an authorized representative of
such Party. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including any investigation by
or on behalf of any Party, shall be deemed to constitute a
waiver by the Party taking such action of compliance with any
representations,
warranties, covenants or agreements contained in this Agreement.
The waiver by any Party of a breach of any provision hereof
shall not operate or be construed as a waiver of any prior or
subsequent breach of the same or any other provisions hereof.
Section 8.12 Confidentiality
Agreement. The Confidentiality Agreement shall
remain in full force and effect following the execution of this
Agreement is hereby incorporated herein by reference, and shall
constitute a part of this Agreement for all purposes;
provided, however, that any standstill provisions
contained therein will, effective as of the Closing, be deemed
to have been waived to the extent necessary for the Parties to
consummate the Mergers in accordance with the terms of this
Agreement. Any and all information received by Basic and Grey
Wolf pursuant to the terms and provisions of this Agreement
shall be governed by the applicable terms and provisions of the
Confidentiality Agreement.
Section 8.13 Incorporation. Exhibits
and Schedules referred to herein are attached to and by this
reference are incorporated herein for all purposes.
This lock-up
agreement (this
“Lock-Up
Agreement”) is being delivered to you in connection
with the Agreement and Plan of Merger (the “Merger
Agreement”) entered into by and between Basic Energy
Services, Inc., a Delaware corporation
(“Basic”), Grey Wolf, Inc., a Texas corporation
(“Grey Wolf”) and Horsepower Holdings, Inc., a
Delaware corporation (“Holdings”) that will be
the surviving corporation in the Mergers contemplated by the
Merger Agreement. Capitalized terms not defined herein shall
have the meaning assigned to them in the Merger Agreement.
In connection with the Merger Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned agrees that for a period
beginning on the Closing Date (as defined in the Merger
Agreement), and ending 60 days after the Closing Date, the
undersigned will not, without the prior written consent of
Holdings, (i) sell, offer to sell, contract to sell,
hypothecate, pledge, grant any option to purchase or otherwise
dispose of, directly or indirectly, contract to dispose of, or
enter into any transaction which is designed to, or might
reasonably be expected to, result in the disposition with
respect to, any shares of Holdings Common Stock or any
securities convertible into or exercisable or exchangeable for
Holdings Common Stock, or warrants or other rights to purchase
Holdings Common Stock, or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any
of the economic consequences of ownership of Holdings Common
Stock or any securities convertible into or exercisable or
exchangeable for Holdings Common Stock, or warrants or other
rights to purchase Holdings Common Stock, whether any such
transaction is to be settled by delivery of Holdings Common
Stock or such other securities, in cash or otherwise.
The foregoing paragraph shall not apply to (a) bona fide
gifts, provided the recipient or recipients thereof agree in
writing to be bound by the terms of this
Lock-Up
Agreement and confirm that he/she/it has been in compliance with
the terms of this
Lock-Up
Agreement since the date hereof; or (b) dispositions to any
trust for the direct or indirect benefit of the undersigned
and/or the
immediate family of the undersigned, provided that such
trust agrees in writing to be bound by the terms of this
Lock-Up
Agreement and confirms that it has been in compliance with the
terms of this
Lock-Up
Agreement since the date hereof.
Intending to be legally bound hereby, the undersigned has
executed this
Lock-Up
Agreement on and as of the date set forth above.
FIRST: The name of the corporation is Grey
Wolf, Inc. (hereinafter called the
“Corporation”).
SECOND: The address of the Corporation’s
registered office in the State of Delaware is 615 South Dupont
Highway, Dover, Kent County, Delaware19901. The name of the
registered agent of the corporation at such address is Capitol
Services, Inc.
THIRD: The purpose of the Corporation is to
engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of
Delaware, as from time to time amended.
FOURTH: The total number of shares of all
classes of capital stock which the Corporation shall have
authority to issue is 300,000,000, of which
10,000,000 shares shall be Preferred Stock, par value
$.01 per share, and 290,000,000 shares shall be Common
Stock, par value $.01 per share.
A. Preferred Stock. (1) Preferred Stock may be issued
from time to time in one or more series without further
stockholder approval and in such amounts as may be determined by
the Board of Directors. The voting powers, designations,
preferences and relative, participating, optional or other
special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, of the Preferred Stock of each
series shall be such as are fixed by the Board of Directors,
authority so to do being hereby expressly granted, and as are
stated and expressed in a resolution or resolutions adopted by
the Board of Directors providing for the issue of such series of
Preferred Stock (herein called the
‘‘Directors’ Resolution”).
Without limitation, such Directors’ Resolution may
(i) fix the number of shares of such series that may be
issued, (ii) provide for a sinking fund for the purchase or
redemption of shares of such series and specify the terms and
conditions governing the operations of any such fund,
(iii) grant voting rights, full or limited, to the holders
of shares of such series, or provide that such shares shall have
no voting rights, or provide that such shares may have more or
less than one vote per share on some or all matters,
(iv) provide for fixed, variable or contingent dividends
and impose conditions or restrictions upon the payment of
dividends upon, or the making of other distributions to, or the
acquisition of, shares ranking junior to the Preferred Stock or
to any series thereof with respect to dividends or distributions
of assets upon liquidation, (v) state the time or times,
the price or prices or the rate or rates of exchange and other
terms, conditions and adjustments upon which shares of any such
series may be made convertible into, or exchangeable for, at the
option of the holder or the Corporation or upon the occurrence
of a specified event, shares of any other class or classes or of
any other series of Preferred Stock or any other class or
classes of stock or other securities of the Corporation, and
(vi) grant such other special rights and impose such
qualifications, limitations or restrictions thereon as shall be
fixed by the Board of Directors, to the extent not inconsistent
with this Article FOURTH and to the full extent now or
hereafter permitted by the laws of the State of Delaware.
(2) Except as expressly required by law, or except as may
be provided in any Directors’ Resolution, the Preferred
Stock shall have no right or power to vote on any question or in
any proceeding or to be represented at, or to receive notice of,
any meeting of stockholders of the Corporation.
(3) Preferred Stock that is redeemed or purchased by the
Corporation shall be retired by the Corporation if so provided
in the Directors’ Resolution and, if not so provided, may
be retired by the Corporation upon a resolution duly adopted by
the Board of Directors, and upon any such retirement, the
Preferred Stock shall assume the status of authorized but
unissued Preferred Stock without designation as to series and
may thereafter, subject to the provisions of any Directors’
Resolution providing for the issue of any particular series of
Preferred Stock, be reissued in the same manner as authorized
but previously unissued Preferred Stock.
B. Common Stock. All shares of the Common Stock of the
Corporation shall be identical and except as otherwise required
by law or as otherwise provided in the Directors’
Resolution or resolutions, if any, adopted
by the Board of Directors with respect to any series of
Preferred Stock, the holders of the Common Stock shall
exclusively possess all voting power, and each share of Common
Stock shall have one vote.
FIFTH: The following provisions are inserted
for the regulation of certain stockholder action matters and
with respect to certain voting rights applicable to the
Corporation’s capital stock:
A. Subject to the rights of the holders of any series of
Preferred Stock, any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the
Corporation and may not be effected by any consent in writing by
such stockholders.
B. Except as otherwise required in a Directors’
Resolution with respect to a series of Preferred Stock or by
applicable law, (i) no stockholder shall have any right of
cumulative voting and (ii) each outstanding share,
regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of stockholders.
SIXTH: The following provisions are inserted
for certain matters relating to the Board of Directors:
A. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. In
addition to the powers and authority expressly conferred upon
them by statute or by this Certificate of Incorporation or the
Bylaws of the Corporation, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation
B. The number of directors of the Corporation shall be
fixed from time to time by the Board of Directors pursuant to a
resolution adopted by a majority of the Whole Board. For
purposes of this Amended and Restated Certificate of
Incorporation, the term “Whole Board”
shall mean the total number of authorized directors whether or
not there exist any vacancies in previously authorized
directorships.
C. The Board of Directors shall be divided into three
classes designated as Class I, Class II and
Class III. Each director shall serve for a term expiring on
the third annual meeting of stockholders following the annual
meeting stockholders at which such director was elected;
provided, however, that the directors designated at the
Effective Time (as defined in this Article SIXTH) pursuant
to the Merger Agreement (as defined in this Article SIXTH)
shall serve the following term: the directors designated to
Class I shall serve for a term expiring on the
Corporation’s first annual meeting of stockholders after
the Effective Time, the directors designated to Class II
shall serve for a term expiring on the Corporation’s second
annual meeting of stockholders after the Effective Time and the
directors designated to Class III shall serve for a term
expiring on the Corporation’s third annual meeting of
stockholders after the Effective Time. Each director shall hold
office until the annual meeting of stockholders at which the
director’s term expires and, notwithstanding the foregoing,
shall serve until his or her successor shall have been duly
elected and qualified, or until his or her earlier death,
designation or removal. The number of directors in each class
shall be the whole number contained in the quotient arrived at
by dividing the authorized number of directors by three, and if
a fraction is also contained in such quotient then if such
fraction is one-third (1/3), the extra director shall be a
member of Class I, and if the fraction is two-thirds (2/3),
one of the extra directors shall be a member of Class I and
the other member of Class II. In the event of any increase
or decrease in the authorized number of directors, (i) each
director then serving as such shall nevertheless continue as a
director of the class of which he is a member and (ii) the
newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors so as to ensure
that no one class has more than one director more than any other
class. To the extent possible, consistent with the foregoing
rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates
following such allocation, and any newly eliminated
directorships shall be subtracted from those classes whose terms
of office are to expire at the earliest dates following such
allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors. No decrease in the
number of directors constituting the number of directors
comprising the Whole Board shall have the effect of shortening
the term of any incumbent director.
D. In accordance with the Merger Agreement (as defined
below), effective as of the Effective Time (as defined below),
the Board of Directors shall consist of nine directors: four
Brown Directors (as defined below) and five Green Directors (as
defined below). At the Effective Time: Class I shall
consist of two Green Directors and one Brown Director;
Class II shall consist of two Brown Directors and one Green
Director; and Class III shall consist of two Green
Directors and one Brown Director. In the event of the death,
removal or resignation of a Brown Director prior
to , 2009 (the date one year after
the date of this Certificate of Incorporation), the remaining
Brown Directors shall be constituted as a committee to designate
an individual to fill such vacancy. In the event of the death,
removal or resignation of a Green Director prior
to ,
2009 (the date one year after the date of this Certificate of
Incorporation), the remaining Green Directors shall be
constituted as a committee to designate an individual to fill
such vacancy.
“Brown Director” means each of those four
individuals designated by Brown to serve as members of the Board
of Directors as of the Effective Time pursuant to the Merger
Agreement (which granted Brown a contractual right to designate
such directors).
“Effective Time” has the meaning set forth in
the Merger Agreement.
“Merger Agreement” means the Agreement and Plan
of Merger dated April 20, 2008, by and among Brown, Green
and the Corporation, as the same may be amended from time to
time, a copy of which shall be made available to any stockholder
upon request.
“Green Director” means each of those five
individuals designated by Green to serve as members of the Board
of Directors as of the Effective Time pursuant to the Merger
Agreement (which granted Green a contractual right to designate
such directors).
E. At each annual election, directors chosen to succeed
those whose terms then expire shall be of the same class as the
directors they succeed unless, by reason of any intervening
changes in the authorized number of directors, the Board of
Directors shall designate one or more directorships whose term
then expires as directorships of another class in order more
nearly to achieve equality of number of directors among the
classes.
F. In case any vacancy shall occur on the Board of
Directors because of death, resignation or removal, such vacancy
shall only be filled by a majority of the directors remaining in
office (though less than a quorum) or by the sole remaining
director, except for any vacancy in the Board of the Directors
with respect to a Brown Director or a Green Director that occurs
prior
to ,
2009 (the date one year after the date of this Certificate of
Incorporation), which vacancy shall be filled in the manner
described in Clause D of this Article SIXTH. The
director so appointed shall serve for the unexpired term of his
predecessor or until his successor is elected and qualified or
until his earlier death, resignation or removal. If there are no
directors then in office, an election of directors may be held
in the manner provided by applicable law. Any newly-created
directorship shall only be filled by a majority of the directors
then in office (though less than a quorum), or by the sole
remaining director. Each director so appointed shall hold office
until his successor is elected and qualified or until his
earlier death, resignation or removal. Except as expressly
required by law, stockholders shall not have any right to fill
vacancies on the Board of Directors, including newly-created
directorships.
G. Notwithstanding the foregoing provisions of this
Article SIXTH, if Directors’ Resolutions creating any
series of Preferred Stock entitle the holders of such preferred
stock, voting separately by series, to elect additional
directors under specified circumstances, then all provisions of
such resolutions relating to the nomination, election, term of
office, removal, filling of vacancies and other features of such
directorships shall, as to such directorships, govern and
control over any conflicting provisions of this
Article SIXTH.
H. Election of directors need not be by written ballot
unless the bylaws so provide.
SEVENTH: In furtherance and not in limitation
of the powers conferred by law, subject to any limitations
contained elsewhere in this Certificate of Incorporation, the
bylaws of the Corporation, or imposed by Delaware law in effect
from time to time, bylaws of the Corporation may be altered,
amended or repealed or new bylaws may be adopted by the
affirmative vote of a majority of the Whole Board, but any
bylaws adopted by the Board
of Directors may be amended or repealed by the stockholders
entitled to vote thereon as outlined in this
Article SEVENTH. The bylaws of the Corporation may not be
altered, amended or rescinded, nor may new bylaws be adopted, by
the Stockholders except by the affirmative vote of the holders
of not less than
662/3%
of all outstanding shares of the Corporation entitled to vote
generally in the election of directors, voting together as a
single class. Election of directors need not be by written
ballot unless the bylaws so provide.
EIGHTH: To the maximum extent permitted by
Delaware law in effect from time to time, a director of the
Corporation shall not be personally liable either to the
Corporation or to any stockholder for monetary damages for
breach of fiduciary duty as a director. Neither amendment nor
repeal of this Article EIGHTH nor the adoption of any
provision of the Certificate of Incorporation inconsistent with
this Article EIGHTH shall eliminate or reduce the effect of
this Article EIGHTH in respect of any matter occurring, or
any cause of action, suit or claim that, but for this
Article EIGHTH, would accrue or arise, prior to such
amendment, repeal or adoption of any inconsistent provision. If
the General Corporation Law of the State of Delaware is amended
to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of
the State of Delaware, as so amended.
NINTH: To the maximum extent permitted by
Delaware law in effect from time to time, the Corporation shall
indemnify and, without requiring a preliminary determination of
the ultimate entitlement to indemnification, shall pay or
reimburse reasonable expenses in advance of final disposition of
a threatened or pending proceeding to (a) any individual
who is a present or former director or officer of the
Corporation and who was or is made a party, or was or is
threatened to be made a party, to the proceeding by reason of
his service in that capacity or (b) any individual who,
while a director of the Corporation and at the request of the
Corporation, serves or has served another corporation, real
estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director,
officer, partner or trustee of such corporation, real estate
investment trust, partnership, joint venture, trust, employee
benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity against
judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them. The Corporation may, with the
approval of its Board of Directors, provide such indemnification
and advance for expenses to a person who served a predecessor of
the Corporation in any of the capacities described in
(a) or (b) above and to any employee or agent of the
Corporation or a predecessor of the Corporation.
The Corporation shall, as a condition to advancing expenses to a
director or officer, obtain a written undertaking by or on
behalf of such director or officer to repay the amount paid or
reimbursed by the Corporation if it shall ultimately be
determined that such persons are not entitled to be indemnified
by the Corporation under Delaware law or any applicable contract.
Neither the amendment nor repeal of this Article NINTH, nor
the adoption or amendment of any other provision of the
Certificate of Incorporation of the Corporation inconsistent
with this Article NINTH shall eliminate or reduce the
effect of this Article NINTH in respect of any matter
occurring, or any cause of action, suit or claim that, but for
this Article NINTH, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, employee benefit plan trust or other enterprise
against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such
person’s status as such, whether of not the Corporation
would have the power to indemnify such person against such
liability under the provisions of this Article NINTH or
otherwise.
TENTH: The Corporation is to have perpetual
existence.
ELEVENTH: The vote of stockholders holding at
least
662/3%
of the outstanding voting power present in person or represented
by proxy at the meeting and entitled to vote generally in the
election of directors shall be required to amend
Articles FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH or this
Article ELEVENTH.
AMENDED
AND RESTATED BYLAWS
OF
GREY WOLF, INC.
(EFFECTIVE AS
OF ,
2008)
PREAMBLE
These Amended and Restated Bylaws(“Bylaws”) are subject to, and governed
by, the General Corporation Law of the State of Delaware
(“DGCL”) and the Certificate of
Incorporation of Grey Wolf, Inc. (the
‘‘Corporation”), as amended (the
“Certificate of Incorporation”, such
term to include the resolutions of the Board of Directors of the
Corporation (the “Board of Directors”)
creating any series of preferred stock, par value $0.01 per
share, of the Corporation). In the event of a direct conflict
between the provisions of these Bylaws and the mandatory
provisions of the DGCL or the provisions of the Certificate of
Incorporation, such provisions of the DGCL and the Certificate
of Incorporation, as the case may be, will be controlling.
ARTICLE I
Offices and Records
Section 1.1. Registered
Office and Agent. The registered office and
registered agent of the Corporation shall be as designated from
time to time by the appropriate filing by the Corporation in the
office of the Secretary of State of the State of Delaware.
Section 1.2. Other
Offices. The Corporation may also have
offices at such other places, both within and without the State
of Delaware, as the Board of Directors may from time to time
determine or the business of the Corporation may require.
Section 1.3. Books
and Records. The books and records of the
Corporation shall be kept at the Corporation’s principal
office in Houston, Texas or at such other locations within or
outside the State of Delaware as may from time to time be
designated by the Board of Directors.
ARTICLE II
Meetings of Stockholders
Section 2.1. Annual
Meetings. (a) An annual meeting of the
Corporation’s stockholders (the
“Stockholders”) shall be held each
calendar year for the purposes of (i) electing directors as
provided in Article III and (ii) transacting such
other business as may properly be brought before the meeting.
Each annual meeting shall be held on such date and at such time
as shall be designated by the Board of Directors and stated in
the notice or waivers of notice of such meeting.
Section 2.2. Special
Meetings. Special meetings of the
Stockholders, for any purpose or purposes, may be called at any
time by the Chairman of the Board (if any), by the Chief
Executive Officer and shall be called by the Secretary within
ten (10) days after the written request, or by resolution
adopted by the affirmative vote, of a majority of the Whole
Board (as defined in the following sentence), which request or
resolution shall fix the date, time and place, and state the
purpose or purposes, of the proposed meeting. For purposes of
these Bylaws, the term “Whole Board”
shall mean the total number of authorized directors whether or
not there exist any vacancies in previously authorized
directorships. Except as required by applicable law,
Stockholders shall not be entitled to call a special meeting of
Stockholders or to require the Board of Directors or any officer
to call such a meeting or to propose business at such a meeting.
Business transacted at any special meeting of Stockholders shall
be limited to the purposes stated in the notice or waivers of
notice of such meeting.
Section 2.3. Place
of Meetings. The Board of Directors may
designate the place of meeting (either within or without the
State of Delaware) for any meeting of Stockholders. If no
designation is made by the Board of Directors, the place of
meeting shall be held at the principal executive office of the
Corporation. In addition, the Board of Directors may determine
that the meeting shall not be held at any place, but may instead
be held solely by means of remote communications as authorized
by these Bylaws.
Section 2.4. Notice
of Meetings. (a) Except as otherwise
required by law, written notice of each meeting of Stockholders
shall be delivered to each Stockholder of record entitled to
vote thereat, which notice shall (i) state the place, if
any, date and time of the meeting, the means of remote
communications, if any, by which Stockholders and proxy holders
may be deemed to be present in person and vote at any such
meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, and (ii) be given
not less than 10 nor more than 60 days before the date of
the meeting.
(b) If any two successive notices addressed to a
Stockholder at the address of such Stockholder appearing on the
books of the Corporation is returned to the Corporation by the
United States Postal Service marked to indicate that the United
States Postal Service is unable to deliver the notice to the
Stockholder at such address, all further notices to such
Stockholder at such address shall be deemed to have been duly
given without further mailing if the same shall be available to
such Stockholder upon written demand of such Stockholder at the
principal executive office of the Corporation.
(c) Any previously scheduled meeting of the Stockholders
may be postponed by resolution of the Board of Directors upon
public notice given prior to the time previously scheduled for
such meeting.
(d) Notice of the time, place and purpose of any meeting of
Stockholders may be waived in writing, either before or after
the meeting, and to the extent permitted by law, will be waived
by any Stockholder by attendance thereat, in person or by proxy,
except when the person objects at the beginning of the meeting
to the transaction of any business because the meeting is not
lawfully called or convened.
Section 2.5. Voting
List. At least 10 days before each
meeting of Stockholders, the Secretary or other officer or agent
of the Corporation who has charge of the Corporation’s
stock ledger shall prepare a complete list of the Stockholders
entitled to vote at such meeting, arranged in alphabetical order
and showing, with respect to each Stockholder, his address and
the number of shares registered in his name. Such list shall be
open to the examination of any Stockholder, for any purpose
germane to the meeting, for a period of at least 10 days
prior to the meeting: (i) on a reasonably accessible
electronic network, provided that the information required to
gain access to such list is provided with the notice of the
meeting, or (ii) during ordinary business hours, at the
principal place of business of the Corporation. If the list is
made available on an electronic network, then the Corporation
may take reasonable steps to ensure that such information is
available only to Stockholders. If the meeting is to held at a
place, the list shall be produced and kept at the time of the
meeting during the whole time thereof, and may be inspected by
any Stockholder who is present. If the meeting is to be held
solely by means of remote communication, then the list shall
also be open to the examination of any Stockholder during the
whole time of the meeting on a reasonable accessible electronic
network, and the information required to access such list shall
be provided with the notice of the meeting. The stock ledger of
the Corporation shall be the only evidence as to who are the
Stockholders entitled to examine any list required by this
Section 2.5 or to vote in person or by proxy at any meeting
of Stockholders.
Section 2.6. Quorum
and Adjournment. The holders of a majority of
the voting power of the outstanding shares of the Corporation
entitled to vote generally in the election of directors (the
“Voting Stock”), present in person or
represented by proxy, shall constitute a quorum at any meeting
of Stockholders, except as otherwise required by applicable law,
the Certificate of Incorporation or these Bylaws. Except as
otherwise required by law, if a quorum is present at any meeting
of Stockholders, such quorum shall not be broken by the
withdrawal of enough Stockholders to leave less than a quorum
and the Stockholders may continue to transact business until
adjournment. If a quorum shall not be present at any meeting of
Stockholders, the holders of a majority of the voting stock
represented at such meeting or any officer of the Corporation
may adjourn such meeting from time to time until a quorum shall
be present. Notwithstanding anything in these Bylaws to the
contrary, the chairman of any meeting of Stockholders shall have
the right, acting in his sole discretion, to adjourn such
meeting from time to time.
Section 2.7. Adjourned
Meetings. When a meeting of Stockholders is
adjourned to another time or place, unless otherwise provided by
these Bylaws, notice need not be given of the adjourned meeting
if the time, place, if any, thereof, and the means of remote
communications, if any, by which Stockholders and proxy holders
may be deemed present in person and vote at such adjourned
meeting, are announced at the meeting at which the adjournment
is taken; provided, however, if an adjournment is for
more than 30 days or if after an adjournment a new record
date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each Stockholder entitled to
vote thereat. At any adjourned meeting, the Stockholders
entitled to vote thereat may transact any business which might
have been transacted at the meeting as originally noticed.
Section 2.8. Voting.
(a) Election of directors at all meetings of Stockholders
need not be by written ballot, unless otherwise provided in the
Certificate of Incorporation; if authorized by the board of
directors, such requirement of a written ballot shall be
satisfied by a ballot submitted by electronic transmission,
provided that any such electronic transmission must either set
forth or be submitted with information from which it can
determined that electronic transmission was authorized by the
Stockholder or proxy holder. Except as otherwise provided in the
Certificate of Incorporation, directors shall be elected by a
plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the
election of directors. Except as otherwise required by
applicable law, the Certificate of Incorporation or these
Bylaws, all matters other than the election of directors
submitted to the Stockholders at any meeting shall be decided by
the vote of the holders of stock having a majority of the voting
power present in person or represented by proxy and entitled to
vote on the subject matter.
(b) Shares standing in the name of another corporation
(whether domestic or foreign) may be voted by such officer,
agent or proxy as the bylaws of such corporation may prescribe
or, in the absence of such provision, as the board of directors
of such corporation may determine. Shares standing in the name
of a deceased person may be voted by the executor or
administrator of such deceased person, either in person or by
proxy. Shares standing in the name of a guardian, conservator or
trustee may be voted by such fiduciary, either in person or by
proxy, but no fiduciary shall be entitled to vote shares held in
such fiduciary capacity without a transfer of such shares into
the name of such fiduciary. Shares standing in the name of a
receiver may be voted by such receiver. A Stockholder whose
shares are pledged shall be entitled to vote such shares, unless
in the transfer by the pledgor on the books of the Corporation
he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee (or his proxy) may represent the stock and
vote thereon.
(c) If shares or other securities having voting power stand
of record in the name of two or more persons (whether
fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety or otherwise) or if two or more
persons have the same fiduciary relationship respecting the same
shares, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so
provided, their acts with respect to voting shall have the
following effect:
(i) if only one votes, his act binds all;
(ii) if more than one votes, the act of the majority so
voting binds all; and
(iii) if more than one votes but the vote is evenly split
on any particular matter, each faction may vote the securities
in question proportionately or any person voting the shares, or
a beneficiary, (if any) may apply to the Delaware Court of
Chancery or such other court as may have jurisdiction to appoint
an additional person to act with the person so voting the
shares, which shall then be voted as determined by a majority
such persons and the person so appointed by the court.
If the instrument so filed shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose
of the paragraph (c) shall be a majority or even-split in
interest.
Section 2.9. Proxies. (a) At
any meeting of Stockholders, each Stockholder having the right
to vote thereat may be represented and vote either in person or
by proxy executed in writing by such Stockholder or
by his duly authorized
attorney-in-fact.
Each such proxy shall be filed with the Secretary of the
Corporation at or before the beginning of each meeting at which
such proxy is to be voted. Unless otherwise provided therein, no
proxy shall be valid after three years from the date of its
execution. Each proxy shall be revocable unless expressly
provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power or unless
otherwise made irrevocable by applicable law.
(b) A proxy shall be deemed signed if the
Stockholder’s name is placed on the proxy (whether by
manual signature, electronic transmission or otherwise) by the
Stockholder or his
attorney-in-fact.
(c) Except as otherwise required by applicable law, by the
Certificate of Incorporation or by these Bylaws, the Board of
Directors may, in advance of any meeting of Stockholders,
prescribe additional regulations concerning the manner of
execution and filing of proxies (and the validation of same)
which may be voted at such meeting.
Section 2.10. Record
Date. For the purpose of determining the
Stockholders entitled to notice of or to vote at any meeting of
Stockholders (or any adjournment thereof) or to receive payment
of any dividend or other distribution or allotment of any rights
or to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which
record date shall not precede the date on which the resolution
fixing the record date is adopted by the Board of Directors or
be more than 60 nor less than 10 days prior to the date of
such meeting. If no record date is fixed, (i) the record
date for determining Stockholders entitled to notice of or to
vote at a meeting of Stockholders shall be at the close of
business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held and
(ii) the record date for determining Stockholders for any
other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating
thereto. A determination of Stockholders of record entitled to
notice of or to vote at a meeting of Stockholders shall apply to
any adjournment of the meeting; provided, however, that
the Board of Directors may fix a new record date for the
adjourned meeting.
Section 2.11. Conduct
of Meetings; Agenda. (a) Meetings of the
Stockholders shall be presided over by the Chairman of the Board
of Directors, if one shall have been elected, or in the
Chairman’s absence or if one shall not have been elected,
the person designated by the Board of Directors, or in the
absence of such designation, the vote of the majority of the
directors present at such meeting. At each meeting of
Stockholders, the Secretary (or in the Secretary’s absence
or inability to act, the person whom the chairman of the meeting
shall appoint secretary of the meeting) shall act as secretary
of the meeting. The order of business at each meeting of
Stockholders shall be as determined by the chairman of the
meeting, including such regulation of the manner of voting and
the conduct of discussion as seems to him in order.
(b) The Board of Directors may, in advance of any meeting
of Stockholders, adopt an agenda for such meeting, adherence to
which the chairman of the meeting may enforce.
Section 2.12. Inspectors
of Election; Opening and Closing of
Polls. (a) Before any meeting of
Stockholders, the Corporation may, and if required by law shall,
appoint one or more persons to act as inspectors of election at
such meeting or any adjournment thereof. If any person appointed
as inspector fails to appear or fails or refuses to act, the
chairman of the meeting may, and if required by law or requested
by any Stockholder entitled to vote or his proxy shall, appoint
a substitute inspector. If no inspectors are appointed by the
Corporation, the chairman of the meeting may, and if required by
law shall, appoint one or more inspectors at the meeting.
Notwithstanding the foregoing, inspectors shall be appointed
consistent with the mandatory provisions of Section 231 of
the DGCL.
(b) Inspectors may include individuals who serve the
Corporation in other capacities (including as officers,
employees, agents or representatives); provided, however,
that no director or candidate for the office of director shall
act as an inspector. Inspectors need not be Stockholders.
(c) The inspectors shall (i) determine the number of
shares of capital stock of the Corporation outstanding and the
voting power of each, the number of shares represented at the
meeting, the existence of a quorum and the validity and effect
of proxies and (ii) receive votes or ballots, hear and
determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes and
ballots,
determine the results and do such acts as are proper to conduct
the election or vote with fairness to all Stockholders. On
request of the chairman of the meeting, the inspectors shall
make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact
found by them. The inspectors shall have such other duties as
may be prescribed by Section 231 of the DGCL.
(d) The chairman of the meeting may, and if required by the
DGCL shall, fix and announce at the meeting the date and time of
the opening and the closing of the polls for each matter upon
which the Stockholders will vote at the meeting.
Section 2.13. Procedures
for Bringing Business before Annual
Meetings. (a) Notwithstanding anything
in these Bylaws to the contrary, no business shall be conducted
at an annual meeting of Stockholders except in accordance with
the procedures hereinafter set forth in this Section 2.13;
provided, however, that nothing in this Section 2.13
shall be deemed to preclude discussion by any Stockholder of any
business properly brought before any annual meeting of
Stockholders in accordance with such procedures.
(b) At any annual meeting of Stockholders, only such
business shall be conducted as shall have been properly brought
before the meeting. To be properly brought before an annual
meeting, business must be (i) specified in the notice of
meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought
before the meeting by or at the direction of the Board of
Directors or (iii) properly brought before the meeting by a
Stockholder. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by
a Stockholder, the Stockholder must have given timely notice
thereof in writing to the Secretary. To be timely, a
Stockholder’s notice must be delivered to or mailed and
received at the principal executive office of the Corporation
not less than 120 days nor more than 150 days in
advance of the first anniversary of the date of the
Corporation’s proxy statement released to Stockholders in
connection with the 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 contemplated at the time of the
previous year’s proxy statement, the notice must be
received by the Corporation no earlier than 150 days prior
to the date of the meeting and no later than the later of
120 days prior to the date of the meeting or the
10th day following the day on which public announcement of
the meeting was first made. Any meeting of Stockholders which is
adjourned, for purposes of any Stockholder’s notice
contemplated by this paragraph (b), shall be deemed to be a
continuation of the original meeting, and no business may be
brought before such adjourned meeting by any Stockholder unless
timely notice of such business was given to the Secretary of the
Corporation for the meeting as originally noticed.
(c) Each notice given by a Stockholder as contemplated by
paragraph (b) above (other than a proposed nomination
of any person for election or reelection as a director, which is
addressed in Section 3.4) shall set forth, as to each
matter the Stockholder proposes to bring before the annual
meeting: (i) the nature of the proposed business with
reasonable particularity, including the exact text of any
proposal to be presented for adoption and any supporting
statement, which proposal and supporting statement shall not in
the aggregate exceed 500 words, and his reasons for conducting
such business at the annual meeting; (ii) any material
interest of the Stockholder or any Stockholder Associated Person
(as defined below) in such business; (iii) the name,
principal occupation and record address of the Stockholder;
(iv) as to the Stockholder and any Stockholder Associated
Person, the class and number of shares of the Corporation which
are held of record or beneficially owned by the Stockholder and
by such Stockholder Associated Person; (v) as to the
Stockholder and any Stockholder Associated Person, the dates
upon which the Stockholder and such Stockholder Associated
Person acquired such shares of stock and documentary support for
any claims of beneficial ownership; (vi) as to the
Stockholder and any Stockholder Associated Person, whether and
the extent to which any hedging or other transaction or series
of transactions has been entered into by or on behalf of, or any
other agreement, arrangement or understanding (including any
short position or any borrowing or lending of shares) has been
made, the effect or intent of which is to mitigate loss to or
manage risk or benefit of share price changes for, or to
increase or decrease the voting power of, such Stockholder or
any such Stockholder Associated Person with respect to any share
of stock of the Corporation; (vii) as to any Stockholder
Associated Person covered by clauses (ii) through
(vi) above, the name, principal occupation and record
address of such Stockholder Associated Person; and
(viii) such other matters as may be required by the
Certificate of Incorporation. “Stockholder Associated
Person” of any Stockholder means (A) any
person controlling, directly or indirectly, or acting in concert
with, such Stockholder, (B) any beneficial owner of shares
of stock of the Corporation owned of record or beneficially by
such Stockholder and (C) any person controlling, controlled
by or under common control with such Stockholder Associated
Person.
(d) The foregoing right of a Stockholder to propose
business for consideration at an annual meeting of Stockholders
shall be subject to such conditions, restrictions and
limitations as may be imposed by the Certificate of
Incorporation. Nothing in this Section 2.13 shall entitle
any Stockholder to propose business for consideration at any
special meeting of Stockholders.
(e) The chairman of any meeting of Stockholders shall
determine whether business has been properly brought before the
meeting and, if the facts so warrant, may refuse to transact any
business at such meeting which has not been properly brought
before the meeting.
(f) Notwithstanding any other provision of these Bylaws,
the Corporation shall be under no obligation to include any
Stockholder proposal in its proxy statement or otherwise present
any such proposal to Stockholders at a meeting of Stockholders
if the Board of Directors reasonably believes that the
proponents thereof have not complied with Sections 13 and
14 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and the rules and
regulations promulgated thereunder, and the Corporation shall
not be required to include in its proxy statement to
Stockholders any Stockholder proposal not required to be
included in its proxy statement to Stockholders in accordance
with the Exchange Act and such rules or regulations.
(g) Nothing in this Section 2.13 shall be deemed to
affect any rights of Stockholders to request inclusion of
proposals in the Corporation’s proxy statement pursuant to
Rule 14a-8
of the Exchange Act.
(h) Reference is made to Section 3.4 for procedures
relating to the nomination of any person for election or
reelection as a director of the Corporation.
Section 2.14. Action
Without Meeting. No action shall be taken by
Stockholders except at an annual or special meeting of
Stockholders. Stockholders may not act by written consent in
lieu of a meeting.
ARTICLE III
Board of Directors — Powers, Number, Classification,
Nominations, Resignations, Removal, Vacancies and
Compensation
Section 3.1. Management. The
business and affairs of the Corporation shall be managed by and
under the direction of the Board of Directors. In addition to
the powers and authorities expressly conferred upon the Board of
Directors by these Bylaws, the Board of Directors may exercise
all the powers of the Corporation and do all such lawful acts
and things as are not by law, by the Certificate of
Incorporation or by these Bylaws directed or required to be
exercised or done by the Stockholders.
Section 3.2. Number
and Qualification. The number of directors
shall be fixed from time to time as set forth in the Certificate
of Incorporation. A director need not be a Stockholder or
resident of the State of Delaware. Each director must have
attained twenty-one (21) years of age. The maximum number
of directors may not be increased by the Board of Directors to
exceed ten (10) without the affirmative vote of two-thirds
(2/3) of the members of Whole Board.
Section 3.3. Classes
of Directors; Election; Term of
Office. (a) The Board of Directors shall
be divided into three classes designated as Class I,
Class II and Class III. Each director shall serve for
a term expiring on the third annual meeting of Stockholders
following the annual meeting of Stockholders at which such
director was elected; provided, however, that the directors
designated at the Effective Time (as defined in
Section 3.3(c) below) pursuant to the Merger Agreement (as
defined in Section 3.3(c) below) shall serve the following
term: the directors designated to Class I shall serve for a
term expiring on the Corporation’s first annual meeting of
Stockholders after the Effective Time, the directors designated
to Class II shall serve for a term expiring on the
Corporation’s second annual meeting of Stockholders after
the Effective Time and the
directors designated to Class III shall serve for a term
expiring on the Corporation’s third annual meeting of
Stockholders after the Effective Time. Each director shall hold
office until the annual meeting of Stockholders at which the
director’s term expires and, notwithstanding the foregoing,
shall serve until his or her successor shall have been duly
elected and qualified, or until his or her earlier death,
designation or removal. The number of directors in each class
shall be the whole number contained in the quotient arrived at
by dividing the authorized number of directors by three, and if
a fraction is also contained in such quotient then if such
fraction is one-third (1/3), the extra director shall be a
member of Class I, and if the fraction is two-thirds (2/3),
one of the extra directors shall be a member of Class I and
the other member of Class II. In the event of any increase
or decrease in the authorized number of directors, (i) each
director then serving as such shall nevertheless continue as a
director of the class of which he is a member and (ii) the
newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors so as to ensure
that no one class has more than one director more than any other
class. To the extent possible, consistent with the foregoing
rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates
following such allocation, and any newly eliminated
directorships shall be subtracted from those classes whose terms
of office are to expire at the earliest dates following such
allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors. No decrease in the
number of directors constituting the number of directors
comprising the Whole Board shall have the effect of shortening
the term of any incumbent director.
(b) At each annual election, directors chosen to succeed
those whose terms then expire shall be of the same class as the
directors they succeed unless, by reason of any intervening
changes in the authorized number of directors, the Board of
Directors shall designate one or more directorships whose term
then expires as directorships of another class in order more
nearly to achieve equality of number of directors among the
classes.
(c) In accordance with the Merger Agreement (as defined
below), effective as of the Effective Time (as defined below),
the Board of Directors shall consist of nine directors: four
Brown Directors (as defined below) and five Green Directors (as
defined below). At the Effective Time: Class I shall
consist of two Green Directors and one Brown Director;
Class II shall consist of two Brown Directors and one Green
Director; and Class III shall consist of two Green
Directors and one Brown Director. In the event of the death,
removal or resignation of a Brown Director prior
to ,
2009 (the date one year after the date of these Bylaws), the
remaining Brown Directors shall be constituted as a committee to
designate an individual to fill such vacancy. In the event of
the death, removal or resignation of a Green Director prior
to ,
2009 (the date one year after the date of these Bylaws), the
remaining Green Directors shall be constituted as a committee to
designate an individual to fill such vacancy.
(i) “Brown Director” means each of
those four individuals designated by Brown to serve as members
of the Board of Directors as of the Effective Time pursuant to
the Merger Agreement (which granted Brown a contractual right to
designate such directors).
(ii) “Effective Time” has the
meaning set forth in the Merger Agreement.
(iii) “Merger Agreement” means the
Agreement and Plan of Merger dated April 20, 2008, by and
among Brown, Green and the Corporation, as the same may be
amended from time to time, a copy of which shall be made
available to any stockholder upon request.
(iv) “Green Director” means each of
those five individuals designated by Green to serve as members
of the Board of Directors as of the Effective Time pursuant to
the Merger Agreement (which granted Green a contractual right to
designate such directors).
Section 3.4. Nominations.
(a) Notwithstanding anything in these Bylaws to the
contrary, only persons who are nominated in accordance with the
procedures hereinafter set forth in this Section 3.4 shall
be eligible for election as directors of the Corporation.
(b) Nominations of persons for election to the Board of
Directors at a meeting of Stockholders may be made only
(i) by or at the direction of the Board of Directors or
(ii) by any Stockholder entitled to vote for the election
of directors at the meeting and who complies with the notice
procedures set forth in this Section 3.4 and in the
Certificate of Incorporation; provided, however,
Stockholders may not nominate persons for election to the Board
of Directors at any special meeting of Stockholders unless the
business to be transacted at such special meeting, as set forth
in the notice of such meeting, includes the election of
directors. Nominations by Stockholders shall be made pursuant to
timely notice in writing to the Secretary. 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 Corporation
not less than 120 days nor more than 150 days in
advance of the first anniversary of the date of the
Corporation’s proxy statement released to Stockholders in
connection with the 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 contemplated at the time of the
previous year’s proxy statement, the notice must be
received by the Corporation no earlier than 150 days prior
to the date of the meeting and no later than the later of
120 days prior to the date of the meeting or the
10th day following the day on which public announcement of
the meeting was first made. To be timely, a Stockholder’s
notice given in the context of a special meeting of Stockholders
shall be delivered to or mailed and received at the principal
executive office of the Corporation not later than the close of
business on the 10th day following the day on which public
announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be
elected at such special meeting. For purposes of the foregoing,
“public announcement” means the disclosure in a press
release reported by the PR Newswire, Dow Jones News Service,
Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act. Any meeting of Stockholders which is
adjourned, for purposes of any notice contemplated by this
paragraph (b), shall be deemed to be a continuation of the
original meeting and no nominations by a Stockholder of persons
to be elected directors of the Corporation may be made at any
such reconvened meeting other than pursuant to a notice that was
timely for the meeting on the date originally noticed.
(c) Each notice given by a Stockholder as contemplated by
paragraph (b) above shall set forth the following
information, in addition to any other information or matters
required by the Certificate of Incorporation:
(i) as to each person whom the Stockholder proposes to
nominate for election or re-election as a director, (A) the
exact name of such person, (B) such person’s age,
principal occupation, business address and telephone number and
residence address and telephone number, (C) the number of
shares (if any) of each class of stock of the Corporation owned
directly or indirectly by such person and (D) all other
information relating to such person that would be required to be
disclosed in solicitations of proxies for election of directors
pursuant to Regulation 14A under the Exchange Act or any
successor regulation thereto (including such person’s
notarized written acceptance of such nomination, consent to
being named in the proxy statement as a nominee and statement of
intention to serve as a director if elected);
(ii) as to the Stockholder giving the notice (A) his
name and address, as they appear on the Corporation’s
books, (B) his principal occupation, business address and
telephone number and residence address and telephone number,
(C) the class and number of shares of the Corporation which
are held of record or beneficially owned by the Stockholder and
by any Stockholder Associated Person, (D) the dates upon
which he and any such Stockholder Associated Person acquired
such shares of stock and documentary support for any claims of
beneficial ownership, (E) whether and the extent to which
any hedging or other transaction or series of transactions has
been entered into by or on behalf of, or any other agreement,
arrangement or understanding (including any short position or
any borrowing or lending of shares) has been made, the effect or
intent of which is to mitigate loss to or manage risk or benefit
of share price changes for, or to increase or decrease the
voting power of, such Stockholder or any such Stockholder
Associated Person with respect to any share of stock of the
Corporation and (F) the information required by
clauses (A) and (B) above with respect to any
Stockholder Associated Person covered by clauses (C)
through (E) above; and
(iii) a description of all arrangements or understandings
between the Stockholder giving the notice (or any Stockholder
Associated Person covered by clause (ii) above) and each
nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to
be made by such Stockholder.
At the request of the Board of Directors, any person nominated
by the Board of Directors for election as a director shall
furnish to the Secretary of the Corporation that information
required to be set forth in a Stockholder’s notice of
nomination which pertains to the nominee.
(d) The foregoing right of a Stockholder to nominate a
person for election or reelection to the Board of Directors
shall be subject to such conditions, restrictions and
limitations as may be imposed by the Certificate of
Incorporation.
(e) Nothing in this Section 3.4 shall be deemed to
affect any rights of Stockholders to request inclusion of
proposals in the Corporation’s proxy statement pursuant to
Rule 14a-8
of the Exchange Act.
(f) The chairman of a meeting of Stockholders shall have
the power and duty to determine whether a nomination was made in
accordance with the procedures set forth in this
Section 3.4 and, if any nomination is not in compliance
with this Section 3.4, to declare that such defective
nomination shall be disregarded.
Section 3.5. Resignations. Any
director may resign at any time by giving written or electronic
notice to the Board of Directors or the Secretary. Such
resignation shall take effect at the date of receipt of such
notice or at any later time specified therein. Acceptance of
such resignation shall not be necessary to make it effective.
Section 3.6. Removal. No
director may be removed before the expiration of his term of
office except for cause and then only by a resolution adopted by
the affirmative vote of not less than a majority of the Voting
Stock.
Section 3.7. Vacancies. (a) In
case any vacancy shall occur on the Board of Directors because
of death, resignation or removal, such vacancy shall only be
filled by a majority of the directors remaining in office
(though less than a quorum) or by the sole remaining director
except for any vacancy in the Board of the Directors with
respect to a Brown Director or a Green Director that occurs
prior
to ,
2009 (the date one year after the date of these Bylaws), which
vacancy shall be filled in the manner described in
Section 3.3(c). The director so appointed shall serve for
the unexpired term of his predecessor or until his successor is
elected and qualified or until his earlier death, resignation or
removal. If there are no directors then in office, an election
of directors may be held in the manner provided by applicable
law.
(b) Any newly-created directorship resulting from any
increase in the number of directors constituting the total
number of directors which the Corporation would have if there
were no vacancies shall only be filled by a majority of the
directors then in office (though less than a quorum), or by the
sole remaining director. Each director so appointed shall hold
office until his successor is elected and qualified or until his
earlier death, resignation or removal.
(c) Except as expressly required in these Bylaws or the
Certificate of Incorporation or as otherwise required by law,
Stockholders shall not have any right to fill vacancies on the
Board of Directors, including newly-created directorships.
(d) If, as a result of a disaster or emergency (as
determined in good faith by the then remaining directors), it
becomes impossible to ascertain whether or not vacancies exist
on the Board of Directors and a person is or persons are elected
by the directors, who in good faith believe themselves to be a
majority of the remaining directors, or the sole remaining
director (or the applicable directors having the right to fill
such vacancy pursuant to Section 3.3(c)), to fill a vacancy
or vacancies that such remaining directors in good faith believe
exists, then the acts of such person or persons who are so
elected as directors shall be valid and binding upon the
Corporation and the Stockholders, although it may subsequently
develop that at the time of the election (i) there was in
fact no vacancy or vacancies existing on the Board of Directors
or (ii) the directors, or the sole remaining director, who
so elected such person or persons did not in fact constitute a
majority of the remaining directors.
Section 3.8. Subject
to Rights of Holders of Preferred
Stock. Notwithstanding the foregoing
provisions of this Article III, if the resolutions of the
Board of Directors creating any series of preferred stock of the
Corporation entitle the holders of such preferred stock, voting
separately by series, to elect additional directors under
specified circumstances, then all provisions of such resolutions
relating to the nomination, election, term of office, removal,
filling of vacancies and other features of such directorships
shall, as to such directorships, govern and control over any
conflicting provisions of this Article III.
Section 3.9. Compensation. The
Board of Directors shall have the authority to fix, and from
time to time to change, the compensation of directors. Each
director shall be entitled to reimbursement from the Corporation
for his reasonable expenses incurred in attending meetings of
the Board of Directors (or any committee thereof) and meetings
of the Stockholders. Nothing contained in these Bylaws shall
preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor, subject to
applicable law and the rules and regulations of the applicable
exchange or other securities market on which any shares of the
Corporation’s capital stock are then listed or traded.
Members of special or standing committees may be allowed like
compensation for attending such meetings.
ARTICLE IV
Board of Directors — Meetings and Actions
Section 4.1. Place
of Meetings. The directors may hold their
meetings at such place or places, within or without the State of
Delaware, as the Board of Directors may from time to time
determine.
Section 4.2. Regular
Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place,
within or without the State of Delaware, as shall from time to
time be determined by the Board of Directors. Except as
otherwise required by applicable law, any business may be
transacted at any regular meeting of the Board of Directors.
Section 4.3. Special
Meetings. Special meetings of the Board of
Directors shall be called by the Secretary at the request of the
Chairman of the Board (if any) or the Chief Executive Officer on
not less than 24 hours’ notice to each director,
specifying the time, place and purpose of the meeting. Special
meetings shall be called by the Secretary on like notice at the
written request of any two directors, which request shall state
the purpose of the meeting.
Section 4.4. Quorum;
Voting. (a) At all meetings of the Board
of Directors, a majority of the Whole Board shall be necessary
and sufficient to constitute a quorum for the transaction of
business. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn
the meeting from time to time until a quorum shall be present. A
meeting of the Board of Directors at which a quorum is initially
present may continue to transact business notwithstanding the
withdrawal of directors; provided, however, that no
action of the remaining directors shall constitute the act of
the Board of Directors unless the action is approved by at least
a majority of the required quorum for the meeting or such
greater number of directors as shall be required by applicable
law, by the Certificate of Incorporation or by these Bylaws.
(b) The act of a majority of the directors present at any
meeting of the Board of Directors at which there is a quorum
shall be the act of the Board of Directors unless by express
provision of law, the Certificate of Incorporation or these
Bylaws a different vote is required, in which case such express
provision shall govern and control.
Section 4.5. Conduct
of Meetings. At meetings of the Board of
Directors, business shall be transacted in such order as shall
be determined by the chairman of the meeting unless the Board of
Directors shall otherwise determine the order of business. The
Board of Directors shall keep regular minutes of its proceedings
which shall be placed in the minute book of the Corporation.
Section 4.6. Action
Without Meeting. Unless otherwise provided in
the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting if all directors
consent thereto in writing or by electronic transmission, and
the
writing or writings or electronic transmission or transmissions
are filed with the minutes of proceedings of the Board of
Directors. Such filing shall be in proper form if the minutes
are maintained in paper and shall be in electronic form if the
minutes are maintained in electronic form.
Section 4.7. Telephonic
Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the
Board of Directors may participate in a meeting of the Board of
Directors by means of conference telephone or other
communications equipment by means of which all persons
participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person
at such meeting.
ARTICLE V
Committees of the Board of Directors
Section 5.1. Executive
Committee. (a) The Board of Directors
may, by resolution adopted by the affirmative vote of a majority
of the number of directors then in office, designate an
Executive Committee which, during the intervals between meetings
of the Board of Directors and subject to Section 5.11,
shall have and may exercise, in such manner as it shall deem to
be in the best interests of the Corporation, all of the powers
of the Board of Directors in the management or direction of the
business and affairs of the Corporation, except as reserved to
the Board of Directors or as delegated by the Board of Directors
to another committee of the Board of Directors or as may be
prohibited by law. The Executive Committee shall consist of not
less than two directors, the exact number to be determined from
time to time by the affirmative vote of a majority of the number
of directors then in office. None of the members of the
Executive Committee need be an officer of the Corporation.
(b) Meetings of the Executive Committee may be called at
any time by the Chairman of the Board (if any) or the Chief
Executive Officer on not less than one day’s notice to each
member given verbally or in writing, which notice shall specify
the time, place and purpose of the meeting.
Section 5.2. Other
Committees. (a) The Board of Directors
may, by resolution adopted by a majority of the number of
directors then in office, establish additional standing or
special committees of the Board of Directors, each of which
shall consist of two or more directors (the exact number to be
determined from time to time by the Board of Directors) and,
subject to Section 5.11, shall have such powers and
functions as may be delegated to it by the Board of Directors.
No member of any such additional committee need be an officer of
the Corporation.
(b) At the Effective Time, the Board of Directors shall
have the following committees: the Audit Committee; the
Compensation Committee; and the Nominating and Governance
Committee. At the Effective Time and
until ,
2009 (the date one year after the date of these Bylaws),
(i) the chairman of each of the Audit Committee and the
Nominating and Governance Committee shall be designated by a
committee consisting of the Green Directors then in office and
each shall consist of two Green Directors and one Brown
Director, and (ii) the chairman of the Compensation
Committee shall be designated by a committee consisting of the
Brown Directors then in office and shall consist of two Brown
Directors and one Green Director.
Section 5.3. Subcommittees. Unless
otherwise provided in the Certificate of Incorporation or the
resolution of the Board of Directors designating the committee,
a committee may create one or more subcommittees, each
subcommittee to consist of one or more members of the committee,
and delegate to a subcommittee any or all of the powers and
authority of the committee.
Section 5.4. Term. Each
member of a committee of the Board of Directors shall serve as
such until the earliest of (i) his death, (ii) the
time a successor shall have been duly chosen and qualified,
(iii) his resignation as a member of such committee or as a
director and (iv) his removal as a member of such committee
or as a director.
Section 5.5. Committee
Changes; Removal. Subject to
Section 5.2(b), the Board of Directors shall have the power
at any time to fill vacancies in, to change the membership of
and to abolish any committee of
the Board of Directors; provided, however, that no such
action shall be taken in respect of the Executive Committee
unless approved by a majority of the number of directors then in
office.
Section 5.6. Alternate
Members. The Board of Directors may designate
one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of
the committee. If no alternate members have been so appointed or
each such alternate committee member is absent or disqualified,
the committee member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any
absent or disqualified member.
Section 5.7. Rules
and Procedures. (a) Subject to
Section 5.2(b), the Board of Directors may designate one
member of each committee as chairman of such committee;
provided, however, that, except as provided in the
following sentence, no person shall be designated as chairman of
the Executive Committee unless approved by a majority of the
number of directors then in office. If a chairman is not so
designated for any committee, the members thereof shall
designate a chairman.
(b) Each committee shall adopt its own rules (not
inconsistent with these Bylaws or with any specific direction as
to the conduct of its affairs as shall have been given by the
Board of Directors) governing the time, place and method of
holding its meetings and the conduct of its proceedings and
shall meet as provided by such rules.
(c) If a committee is comprised of an odd number of
members, a quorum shall consist of a majority of that number. If
a committee is comprised of an even number of members, a quorum
shall consist of one-half of that number. If a committee is
comprised of two members, a quorum shall consist of both
members. If a quorum is not present at a meeting of any
committee, a majority of the members present may adjourn the
meeting from time to time until a quorum is present. The act of
a majority of the members present at any meeting at which a
quorum is in attendance shall be the act of a committee, unless
the act of a greater number is required by law, the Certificate
of Incorporation, these Bylaws or the committee’s rules as
adopted in Section 5.7(b).
(d) Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when
requested.
(e) Unless otherwise provided by these Bylaws or by the
rules adopted by any committee, notice of the time and place of
each meeting of such committee shall be given to each member of
such committee as provided in these Bylaws with respect to
notices of special meetings of the Board of Directors.
Section 5.8. Action
Without Meeting. Unless otherwise provided in
the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of a committee
of the Board of Directors may be taken without a meeting if all
members of such committee consent thereto in writing or by
electronic transmission, and the writing or writings or
electronic transmission or transmissions are filed with the
minutes of proceedings of the committee. Such filing shall be in
proper form if the minutes are maintained in paper and shall be
in electronic form if the minutes are maintained in electronic
form.
Section 5.9. Telephonic
Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of any
committee of the Board of Directors may participate in a meeting
of such committee by means of conference telephone or other
communications equipment by means of which all persons
participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person
at such meeting.
Section 5.10. Resignations. Any
committee member may resign at any time by giving written or
electronic notice to the Board of Directors or the Secretary.
Such resignation shall take effect at the date of receipt of
such notice or at any later time specified therein. Acceptance
of such resignation shall not be necessary to make it effective.
Section 5.11. Limitations
on Authority. Unless otherwise provided in
the Certificate of Incorporation, no committee of the Board of
Directors shall have the power or authority to
(i) authorize an amendment to the Certificate of
Incorporation, (ii) adopt an agreement of merger or
consolidation, recommend to the
Stockholders the sale, lease or exchange of all or substantially
all of the Corporation’s property and assets,
(iii) recommend to the Stockholders a dissolution of the
Corporation or a revocation of a dissolution, or (iv) amend
these Bylaws; provided, however, that the Executive
Committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of preferred
stock adopted by the Board of Directors as provided in the
Certificate of Incorporation, fix the designations and any of
the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock
or authorize the decrease or increase of the shares of any such
series.
ARTICLE VI
Officers and Non-Executive Chairman
Section 6.1. Number;
Titles; Qualification; Term of
Office. (a) The officers of the
Corporation shall be a Chief Executive Officer, a President, a
Secretary and a Treasurer. The Board of Directors from time to
time may also elect such other officers (including, without
limitation, one or more Executive Vice Presidents, Senior Vice
Presidents or Vice Presidents, Assistant Treasurers and
Assistant Secretaries) as the Board of Directors deems
appropriate or necessary. Each officer shall hold office until
his successor shall have been duly elected and shall have been
qualified or until his earlier death, resignation or removal.
Any two or more offices may be held by the same person. None of
the officers need be a Stockholder or a resident of the State of
Delaware. No officer need be a director.
(b) The Board of Directors may delegate to the Chief
Executive Officer the power to appoint one or more employees of
the Corporation as divisional or departmental vice presidents
and fix their duties as such appointees. However, no such
divisional or departmental vice presidents shall be considered
an officer of the Corporation, the officers of the Corporation
being limited to those officers elected by the Board of
Directors.
(c) The Board of Directors may elect a Chairman, provided
such person’s authority as noted below in these Bylaws
shall be limited as a non-executive Chairman.
Section 6.2. Election. At
the first meeting of the Board of Directors after each annual
meeting of Stockholders at which a quorum shall be present, the
Board of Directors shall elect the officers of the Corporation
and the Chairman. In accordance with the Merger Agreement, the
election of any person other than Kenneth V. Huseman as Chief
Executive Officer, and of any person other than Thomas A.
Richards as Chairman, shall require the consent of at least
two-thirds (2/3) of the number of directors then in office, in
each case
until ,
2009 (the date one year after the date of these Bylaws).
Section 6.3. Removal.
(a) Any officer may be removed, either with or without
cause, by the Board of Directors; provided, however, that
(i) until ,
2009 (the date one year after the date of these Bylaws), the
removal of Kenneth V. Huseman as Chief Executive Officer shall
require the affirmative vote of not less than two-thirds (2/3)
of the number of directors then in office, (ii) to the
extent the foregoing clause (i) is not applicable, the
Chief Executive Officer may be removed only by the affirmative
vote of a majority of the number of directors then in office and
(iii) the removal of any officer shall be without prejudice
to the contract rights, if any, of such officer. Election or
appointment of an officer shall not of itself create contract
rights.
(b) The Chairman may be removed, either with or without
cause, by the Board of Directors; provided, however, that
(i) until ,
2009 (the date one year after the date of these Bylaws), the
removal of Thomas A. Richards as Chairman shall require the
affirmative vote of not less than two-thirds (2/3) of the number
of directors then in office, (ii) to the extent the
foregoing clause (i) is not applicable, the Chairman may be
removed as Chairman (even if not also removed as a director in
accordance with Section 3.6) only by the affirmative vote
of a majority of the number of directors then in office and
(iii) the removal of the Chairman shall be without
prejudice to the contract rights, if any, of the Chairman.
Election or appointment of the Chairman shall not of itself
create contract rights.
Section 6.4. Resignations. Any
officer may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board (if any) or the
Chief Executive Officer (other than to himself if notice is
given by such persons). Any such resignation shall take effect
on receipt of such notice or at any later time specified
therein. Unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Any such resignation is without prejudice to the rights, if any,
of the Corporation under any contract to which the officer is a
party.
Section 6.5. Vacancies. If
a vacancy shall occur in any office because of death,
resignation, removal, disqualification or any other cause, the
Board of Directors may elect or appoint a successor to fill such
vacancy for the remainder of the term.
Section 6.6. Salaries. The
salaries of all officers of the Corporation shall be fixed by
the Board of Directors or pursuant to its direction, and no
officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the Corporation.
Section 6.7. Chairman
of the Board. The Chairman of the Board (if
any) shall be a non-executive position, but have all other
powers and shall perform all duties incident to the office of
Chairman of the Board and such other powers and duties as may be
prescribed by the Board of Directors or these Bylaws. The
Chairman of the Board, if present, shall preside at all meetings
of the Board of Directors and of the Stockholders.
Section 6.8. Chief
Executive Officer. (a) The Chief
Executive Officer shall be the chief executive officer of the
Corporation and, subject to the supervision, direction and
control of the Board of Directors, shall have general
supervision, direction and control of the business and officers
of the Corporation with all such powers as may be reasonably
incident to such responsibilities. He shall have the general
powers and duties of management usually vested in the chief
executive officer of a corporation.
(b) During the time of any vacancy in the office of the
Chairman of the Board or in the event of the absence or
disability of the Chairman of the Board, the Chief Executive
Officer shall have the duties and powers of the Chairman of the
Board unless otherwise determined by the Board of Directors.
During the time of any vacancy in the office of President or in
the event of the absence or disability of the President, the
Chief Executive Officer shall have the duties and powers of the
President unless otherwise determined by the Board of Directors.
In no event shall any third party having any dealings with the
Corporation be bound to inquire as to any facts required by the
terms of this Section 6.8 for the exercise by the Chief
Executive Officer of the powers of the Chairman of the Board or
the President.
Section 6.9. President. (a) The
President shall be the chief operating officer of the
Corporation and, subject to the supervision, direction and
control of the Chief Executive Officer and the Board of
Directors, shall manage the
day-to-day
operations of the Corporation. He shall have the general powers
and duties of management usually vested in the president and
chief operating officer of a corporation having a chief
executive officer as its most senior officer, and such other
powers and duties as may be assigned to him by the Board of
Directors, the Chief Executive Officer or these Bylaws.
(b) During the time of any vacancy in the office of the
Chief Executive Officer or in the event of the absence or
disability of the Chief Executive Officer, the President shall
have the duties and powers of the Chief Executive Officer unless
otherwise determined by the Board of Directors. In no event
shall any third party having any dealings with the Corporation
be bound to inquire as to any facts required by the terms of
this Section 6.9 for the exercise by the President of the
powers the Chief Executive Officer.
Section 6.10. Vice
Presidents. In the absence or disability of
the President, the Vice Presidents, if any, in order of their
rank as fixed by the Board of Directors, or if not ranked, the
Vice President designated by the Board of Directors, shall
perform all the duties of the President as chief operating
officer of the Corporation, and when so acting shall have all
the powers of, and be subject to all the restrictions upon, the
President as chief operating officer of the Corporation. In no
event shall any third party having dealings with the Corporation
be bound to inquire as to any facts required by the terms of
this Section 6.10 for the exercise by any Vice President of
the powers of the President as chief operating officer of the
Corporation. The Vice
Presidents shall have such other powers and perform such other
duties as from time to time may be assigned to them by the Board
of Directors, the Chief Executive Officer or the President.
Section 6.11. Treasurer. The
Treasurer shall (i) have custody of the Corporation’s
funds and securities, (ii) keep full and accurate account
of receipts and disbursements, (iii) deposit all monies and
valuable effects in the name and to the credit of the
Corporation in such depository or depositories as may be
designated by the Board of Directors and (iv) perform such
other duties as may be prescribed by the Board of Directors or
the Chief Executive Officer.
Section 6.12. Assistant
Treasurers. Each Assistant Treasurer shall
have such powers and duties as may be assigned to him by the
Board of Directors, the Chief Executive Officer or the
President. In case of the absence or disability of the
Treasurer, the Assistant Treasurer designated by the President
(or, in the absence of such designation, the Treasurer) shall
perform the duties and exercise the powers of the Treasurer
during the period of such absence or disability. In no event
shall any third party having dealings with the Corporation be
bound to inquire as to any facts required by the terms of this
Section 6.12 for the exercise by any Assistant Treasurer of
the powers of the Treasurer under these Bylaws.
Section 6.13. Secretary. (a) The
Secretary shall keep or cause to be kept, at the principal
office of the Corporation or such other place as the Board of
Directors may order, a book of minutes of all meetings and
actions of the Board of Directors, committees of the Board of
Directors and Stockholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the
notice thereof given, the names of those present at meetings of
the Board of Directors and committees thereof, the number of
shares present or represented at Stockholders’ meetings and
the proceedings thereof. The Secretary shall have the duty,
among other things, to record the proceedings of the meetings of
Stockholders and directors in a book kept for that purpose.
(b) The Secretary shall keep, or cause to be kept, at the
principal office of the Corporation or at the office of the
Corporation’s transfer agent or registrar, a share
register, or a duplicate share register, showing the names of
all Stockholders and their addresses, the number and classes of
shares held by each, the number and date of certificates issued
for the same and the number and date of cancellation of every
certificate surrendered for cancellation.
(c) The Secretary shall give, or cause to be given, notice
of all meetings of the Stockholders and of the Board of
Directors required by these Bylaws or by law to be given, and he
shall keep the seal of the Corporation, if one be adopted, in
safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors, the
Chairman of the Board (if any), the Chief Executive Officer, the
President or these Bylaws.
(d) The Secretary may affix the seal of the Corporation, if
one be adopted, to contracts of the Corporation.
Section 6.14. Assistant
Secretaries. Each Assistant Secretary shall
have such powers and duties as may be assigned to him by the
Board of Directors, the Chairman of the Board (if any), the
Chief Executive Officer or the President. In case of the absence
or disability of the Secretary, the Assistant Secretary
designated by the President (or, in the absence of such
designation, the Secretary) shall perform the duties and
exercise the powers of the Secretary during the period of such
absence or disability. In no event shall any third party having
dealings with the Corporation be bound to inquire as to any
facts required by the terms of this Section 6.14 for the
exercise by any Assistant Secretary of the powers of the
Secretary under these Bylaws.
ARTICLE VII
Stock
Section 7.1. Capital
Stock; Share Certificates. The shares of the
Corporation’s capital stock may be certificated or
uncertificated, as provided under the laws of the State of
Delaware. Except as otherwise provided by law, the rights and
obligations of stockholders are identical whether or not their
shares are represented by certificates. Unless the Board has
determined that shares are uncertificated, each stockholder,
upon written request to the Corporation or its transfer agent,
shall be entitled to a certificate of the capital stock of the
Corporation. If certificated, certificates for shares of stock
of the Corporation shall be in such form as shall be approved by
the Board of Directors, except that a certificate shall not be
in bearer form. The certificates shall be signed (i) by the
Chairman of the Board (if any), the President or a Vice
President and (ii) by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer.
Section 7.2. Signatures
on Certificates. Any or all of the signatures
on the certificates may be a facsimile and the seal of the
Corporation (or a facsimile thereof), if one has been adopted,
may be affixed thereto. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been
placed upon, a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued,
such certificate may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar
at the date of issue.
Section 7.3. Legends. The
Board of Directors shall have the power and authority to provide
that certificates representing shares of stock of the
Corporation bear such legends and statements (including, without
limitation, statements relating to the powers, designations,
preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions
of the shares represented by such certificates) as the Board of
Directors deems appropriate in connection with the requirements
of federal or state securities laws or other applicable laws.
Section 7.4. Lost,
Stolen or Destroyed Certificates. The Board
of Directors, the Secretary and the Treasurer each may direct a
new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, in
each case upon the making of an affidavit of that fact by the
owner of such certificate, or his legal representative. When
authorizing such issue of a new certificate or certificates, the
Board of Directors, the Secretary or the Treasurer, as the case
may be, may, in its or his discretion and as a condition
precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as
the Board of Directors, the Secretary or the Treasurer, as the
case may be, shall require
and/or to
furnish the Corporation a bond in such form and substance and
with such surety as the Board of Directors, the Secretary or the
Treasurer, as the case may be, may direct as indemnity against
any claim, or expense resulting from any claim, that may be made
against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 7.5. Registration
and Transfer of Shares. The Board of
Directors may appoint one or more transfer agents for the
Corporation’s capital stock and may make, or authorize such
agent or agents to make, all such rules and regulations as are
expedient governing the issue, transfer and registration of
shares of capital stock of the Corporation and any certificates
representing such shares. The capital stock of the Corporation
shall be transferable only on the books of the Corporation
either (a) if such shares are certificated, by the
surrender to the Corporation or its transfer agent of the old
stock certificate therefore duly endorsed or accompanied by
proper evidence of succession, assignment or authority to
transfer, or (b) if such shares are uncertificated, upon
proper instructions from the holder thereof, in each case with
such proof of authenticity of signature as the Corporation or
its transfer agent may reasonably require. Prior to due
presentment for registration of transfer of a security (whether
certificated or uncertificated), the Corporation shall treat the
registered owner of such security as the person exclusively
entitled to vote, receive notifications and dividends, and
otherwise to exercise all rights and powers of such security.
Section 7.6. Registered
Stockholders. The Corporation shall be
entitled to treat the holder of record of any share of stock of
the Corporation as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether
or not the Corporation shall have express or other notice
thereof, except as expressly provided by the laws of the State
of Delaware.
Section 7.7. Regulations. The
Board of Directors shall have the power and authority to make
all such rules and regulations as they may deem expedient
concerning the issue, transfer and registration or the
replacement of certificates for shares of stock of the
Corporation. The Board of Directors may (i) appoint and
remove transfer agents and registrars of transfers and
(ii) require all stock certificates to bear the signature
of any such transfer agent
and/or any
such registrar of transfers.
Section 7.8. Stock
Options, Warrants, etc. Unless otherwise
expressly prohibited in the resolutions of the Board of
Directors creating any class or series of preferred stock of the
Corporation, the Board of Directors shall have the power and
authority to create and issue (whether or not in connection with
the issue and sale of any stock or other securities of the
Corporation) warrants, rights or options entitling the holders
thereof to purchase from the Corporation any shares of capital
stock of the Corporation of any class or series or any other
securities of the Corporation for such consideration and to such
persons, firms or corporations as the Board of Directors, in its
sole discretion, may determine, setting aside from the
authorized but unissued stock of the Corporation the requisite
number of shares for issuance upon the exercise of such
warrants, rights or options. Such warrants, rights and options
shall be evidenced by one or more instruments approved by the
Board of Directors. The Board of Directors shall be empowered to
set the exercise price, duration, time for exercise and other
terms of such warrants, rights and operations; provided,
however, that the consideration to be received for any
shares of capital stock subject thereto shall not be less than
the par value thereof.
Section 7.9. Authority
upon Liquidation or Dissolution. Subject to
applicable law and the provisions of the Certificate of
Incorporation, any vote or votes authorizing liquidation of the
Corporation or proceeding for its dissolution may provide,
subject to (i) any agreements among and between
Stockholders, (ii) the rights of creditors and
(iii) rights expressly provided for particular classes or
series of stock, for the distribution pro rata among the
Stockholders of the Corporation of assets of the Corporation,
wholly or in part in kind, whether such assets be in cash or
other property, and may authorize the Board of Directors of the
Corporation to determine the value of the different assets of
the Corporation for the purpose of such liquidation and may
divide, or authorize the Board of Directors of the Corporation
to divide, such assets or any part thereof among the
Stockholders of the Corporation in such manner that every
Stockholder will receive a proportionate amount in value
(determined as aforesaid) of cash or property of the Corporation
upon such liquidation or dissolution even though each
Stockholder may not receive a strictly proportionate part of
each such asset.
ARTICLE VIII
Indemnification
Section 8.1. Third
Party Actions. The Corporation
(i) shall, to the maximum extent permitted from time to
time under the laws of the State of Delaware, indemnify every
person who is or was a party or is or was threatened to be made
a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation), by reason of the fact that such person is or was a
director or officer of the Corporation or any of its direct or
indirect subsidiaries or is or was serving at the request of the
Corporation or any of its direct or indirect subsidiaries as a
director, officer or fiduciary of another corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise, and (ii) may, to the maximum extent
permitted from time to time under the laws of the State of
Delaware, indemnify every person who is or was a party or is or
was threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Corporation), by reason of the fact that such
person is or was an employee or agent of the Corporation or any
of its direct or indirect subsidiaries or is or was serving at
the request of the Corporation or any of its direct or indirect
subsidiaries as an employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including counsel fees),
judgments, fines and amounts paid or owed in settlement,
actually and reasonably incurred by such person or rendered or
levied against such person in connection with such action, suit
or proceeding, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed
to the best interests of the Corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent shall
not, in itself, create a presumption that the person did not act
in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal action or
proceeding, that the person had reasonable cause to believe that
his conduct was unlawful.
Section 8.2. Actions
By or in the Right of the Corporation. The
Corporation (i) shall, to the maximum extent permitted from
time to time under the laws of the State of Delaware, indemnify
every person who is or was a party or who is or was threatened
to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure
a judgment in its favor by reason of the fact that such person
is or was a director or officer of the Corporation or any of its
direct or indirect subsidiaries or is or was serving at the
request of the Corporation or any of its direct or indirect
subsidiaries as a director, officer or fiduciary of another
corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, and (ii) may, to the maximum
extent permitted from time to time under the laws of the State
of Delaware, indemnify every person who is or was a party or who
is or was threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that such person is or was an employee or agent of the
Corporation or any of its direct or indirect subsidiaries or is
or was serving at the request of the Corporation or any of its
direct or indirect subsidiaries as an employee or agent of
another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses
(including counsel fees) actually and reasonably incurred by
such person in connection with the defense or settlement or such
action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed
to the best interests of the Corporation; provided,
however, that no indemnification shall be made with respect
to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to
the extent that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnification.
Section 8.3. Determination. Any
indemnification under Sections 8.1 and 8.2 (unless ordered
by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is
proper in the circumstances because the person has met the
applicable standard of conduct set forth in Sections 8.1
and 8.2. Such determination shall be made, with respect to a
person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who
are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less
than a quorum, or (3) if there are no such directors, or is
such directors so direct, by independent legal counsel in a
written opinion, or (4) by the Stockholders.
Section 8.4. Expenses. Expenses
incurred by a current or former director or officer of the
Corporation or any of its direct or indirect subsidiaries in
defending a civil or criminal action, suit or proceeding shall
be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in
this Article VIII. Such expenses incurred by other
employees and agents of the Corporation and other persons
eligible for indemnification under this Article VIII may be
paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
Section 8.5. Non-exclusivity. The
indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall not be deemed
exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under
any provision of law, the Certificate of Incorporation, the
certificate of incorporation or bylaws or other governing
documents of any direct or indirect subsidiary of the
Corporation, under any agreement, vote of Stockholders or
disinterested directors or under any policy or policies of
insurance maintained by the Corporation on behalf of any person
or otherwise, both as to action in his official capacity and as
to action in another capacity while holding any of the positions
or having any of the relationships referred to in this
Article VIII.
Section 8.6. Enforceability. The
provisions of this Article VIII (i) are for the
benefit of, and may be enforced directly by, each director or
officer of the Corporation the same as if set forth in their
entirety in a written instrument executed and delivered by the
Corporation and such director or officer and
(ii) constitute a
continuing offer to all present and future directors and
officers of the Corporation. The Corporation, by its adoption of
these Bylaws, (A) acknowledges and agrees that each present
and future director and officer of the Corporation has relied
upon and will continue to rely upon the provisions of this
Article VIII in becoming, and serving as, a director or
officer of the Corporation or, if requested by the Corporation,
a director, officer or fiduciary or the like of another
corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, (B) waives reliance upon, and all
notices of acceptance of, such provisions by such directors and
officers and (C) acknowledges and agrees that no present or
future director or officer of the Corporation shall be
prejudiced in his right to enforce directly the provisions of
this Article VIII in accordance with their terms by any act
or failure to act on the part of the Corporation.
Section 8.7. Insurance. The
Board of Directors may authorize the Corporation to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such
liability under the provisions of this Article VIII.
Section 8.8. Survival. The
provisions of this Article VIII shall continue as to any
person who has ceased to be a director or officer of the
Corporation and shall inure to the benefit of the estate,
executors, administrators, heirs, legatees and devisees of any
person entitled to indemnification under this Article VIII.
Section 8.9. Amendment. No
amendment, modification or repeal of this Article VIII or
any provision hereof shall in any manner terminate, reduce or
impair the right of any past, present or future director or
officer of the Corporation to be indemnified by the Corporation,
nor the obligation of the Corporation to indemnify any such
director or officer, under and in accordance with the provisions
of this Article VIII as in effect immediately prior to such
amendment, modification or repeal with respect to claims
arising, in whole or in part, from a state of facts extant on
the date of, or relating to matters occurring prior to, such
amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
Section 8.10. Definitions. For
purposes of this Article VIII, (i) reference to any
person shall include the estate, executors, administrators,
heirs, legatees and devisees of such person,
(ii) “employee benefit plan” and
“fiduciary” shall be deemed to include, but not be
limited to, the meaning set forth, respectively, in
sections 3(3) and 21(A) of the Employee Retirement Income
Security Act of 1974, as amended, (iii) references to the
judgments, fines and amounts paid or owed in settlement or
rendered or levied shall be deemed to encompass and include
excise taxes required to be paid pursuant to applicable law in
respect of any transaction involving an employee benefit plan
and (iv) references to the Corporation shall be deemed to
include any predecessor corporation or entity and any
constituent corporation or entity absorbed in a merger,
consolidation or other reorganization of or by the Corporation
which, if its separate existence had continued, would have had
power and authority to indemnify its directors, officers,
employees, agents and fiduciaries so that any person who was a
director, officer, employee, agent or fiduciary of such
predecessor or constituent corporation or entity, or served at
the request of such predecessor or constituent corporation or
entity as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, shall stand in the same
position under the provisions of this Article VIII with
respect to the Corporation as such person would have with
respect to such predecessor or constituent corporation or entity
if its separate existence had continued.
ARTICLE IX
Notices and Waivers
Section 9.1. Methods
of Giving Notices. Whenever, by applicable
law, the Certificate of Incorporation or these Bylaws, notice is
required to be given to any Stockholder, any director or any
member of a committee of the Board of Directors and no provision
is made as to how such notice shall be given, personal notice
shall not be required and such notice may be given (i) in
writing, by mail, postage prepaid, addressed to such
Stockholder, director or committee member at his address as it
appears on the books or (in the case of a Stockholder) the stock
transfer records of the Corporation or (ii) by any other
method permitted by law (including, but not limited to,
overnight courier service or “electronic transmission”
as defined under and in accordance with Section 232 of the
DGCL). Any notice required or permitted to be given by mail
shall be deemed to be delivered and given at the time when the
same is deposited in the United States mail as aforesaid. Any
notice required or permitted to be given by overnight courier
service shall be deemed to be delivered and given one business
day after delivery to such service with all charges prepaid and
addressed as aforesaid. Any notice required or permitted to be
given by electronic transmission shall be deemed to be delivered
and given: (1) if by facsimile telecommunication, when
directed to a number at which the Stockholder has consented to
receive notice; (2) if by electronic mail, when directed to
an electronic mail address at which the Stockholder has
consented to receive notice; (3) if by posting on an
electronic network together with separate notice to the
Stockholder of such specific posting, upon the later of
(A) such posting and (B) the giving of such separate
notice; and (4) if by any other form of electronic
transmission, when directed to the Stockholder.
Section 9.2. Waiver
of Notice. Whenever any notice is required to
be given to any Stockholder, director or member of a committee
of the Board of Directors by applicable law, the Certificate of
Incorporation or these Bylaws, a waiver thereof in writing
signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be equivalent to
the giving of such notice. Attendance of a Stockholder (whether
in person or by proxy), director or committee member at a
meeting shall constitute a waiver of notice of such meeting,
except where such person attends for the express purpose of
objecting to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
ARTICLE X
Miscellaneous Provisions
Section 10.1. Dividends. Subject
to applicable law and the provisions of the Certificate of
Incorporation, dividends may be declared by the Board of
Directors at any meeting and may be paid in cash, in property or
in shares of the Corporation’s capital stock. Any such
declaration shall be at the discretion of the Board of
Directors. A director shall be fully protected in relying in
good faith upon the books of account of the Corporation or
statements prepared by any of its officers as to the value and
amount of the assets, liabilities or net profits of the
Corporation or any other facts pertinent to the existence and
amount of surplus or other funds from which dividends might
properly be declared.
Section 10.2. Reserves. There
may be created by the Board of Directors, out of funds of the
Corporation legally available therefor, such reserve or reserves
as the Board of Directors from time to time, in its absolute
discretion, considers proper to provide for contingencies, to
equalize dividends or to repair or maintain any property of the
Corporation, or for such other purpose as the Board of Directors
shall consider beneficial to the Corporation, and the Board of
Directors may thereafter modify or abolish any such reserve in
its absolute discretion.
Section 10.3. Facsimile
Signatures. In addition to the provisions for
use of facsimile signatures elsewhere specifically authorized in
these Bylaws, facsimile signatures of any officer or officers of
the Corporation may be used whenever and as authorized by the
Board of Directors.
Section 10.4. Signatory
Authority on Accounts. All checks, drafts or
other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the
Corporation shall be signed by such officer or officers or by
such employees or agents of the Corporation as may be designated
from time to time by the Board of Directors.
Section 10.5. Corporate
Contracts and Instruments. Subject always to
the specific directions of the Board of Directors, the Chairman
of the Board (if any), the President, any Vice President, the
Secretary or the Treasurer may enter into contracts and execute
instruments in the name and on behalf of the Corporation. The
Board of Directors and, subject to the specific directions of
the Board of Directors, the Chairman of the Board
(if any) or the President may authorize one or more officers,
employees or agents of the Corporation to enter into any
contract or execute any instrument in the name of and on behalf
of the Corporation, and such authority may be general or
confined to specific instances.
Section 10.6. Attestation. With
respect to any deed, deed of trust, mortgage or other instrument
executed by the Corporation through its duly authorized officer
or officers, the attestation to such execution by the Secretary
or an Assistant Secretary of the Corporation shall not be
necessary to constitute such deed, deed of trust, mortgage or
other instrument a valid and binding obligation of the
Corporation unless the resolutions, if any, of the Board of
Directors authorizing such execution expressly state that such
attestation is necessary.
Section 10.7. Securities
of Other Corporations. Subject always to the
specific directions of the Board of Directors, the Chairman of
the Board, the Chief Executive Officer, the President or any
Vice President of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent or
take any other action with respect to any securities of another
issuer which may be held or owned by the Corporation and to
make, execute and deliver any waiver, proxy or consent with
respect to any such securities.
Section 10.8. Fiscal
Year. The fiscal year of the Corporation
shall be January 1 through December 31, unless otherwise
fixed by the Board of Directors.
Section 10.9. Seal. The
seal of the Corporation shall be such as from time to time may
be approved by the Board of Directors.
Section 10.10. Time
Periods. In applying any provision of these
Bylaws which requires that an act be done or not be done a
specified number of days prior to an event or that an act be
done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the
act shall be excluded, and the day of the event shall be
included.
Section 10.12. Invalid
Provisions. If any part of these Bylaws shall
be invalid or inoperative for any reason, the remaining parts,
so far as is possible and reasonable, shall remain valid and
operative.
Section 10.13. Headings. The
headings used in these Bylaws have been inserted for
administrative convenience only and shall not limit or otherwise
affect any of the provisions of these Bylaws.
Section 10.14. References/Gender/Number. Whenever
in these Bylaws the singular number is used, the same shall
include the plural where appropriate. Words of any gender used
in these Bylaws shall include the other gender where
appropriate. In these Bylaws, unless a contrary intention
appears, all references to Articles and Sections shall be deemed
to be references to the Articles and Sections of these Bylaws.
Section 10.15. Amendments. These
Bylaws may be altered, amended or repealed or new bylaws may be
adopted by the affirmative vote of a majority of the Whole
Board; provided, however, that (i) no such action
shall be taken at any special meeting of the Board of Directors
unless notice of such action is contained in the notice of such
special meeting; and (ii) the amendment of
Sections 3.2, 3.3, 5.2(b), 6.1, 6.2, 6.3, 6.7 and 6.8,
until ,
2009 (the date one year after the date of these Bylaws), shall
require the affirmative vote of not less than two-thirds (2/3)
of the number of directors then in office. These Bylaws may not
be altered, amended or rescinded, nor may new bylaws be adopted,
by the Stockholders except by the affirmative vote of the
holders of not less than
662/3%
of all outstanding Voting Stock, voting together as a single
class. Each alteration, amendment or repeal of these Bylaws
shall be subject in all respects to Section 8.9.
List of
Basic Energy Services, Inc. Signatories to Voting
Agreement
1.
DLJ Merchant Banking Partners III, L.P.
2.
DLJ ESC II, L.P.
3.
DLJ Offshore Partners III, C.V.
4.
DLJ Offshore Partners III-1, C.V.
5.
DLJ Offshore Partners III-2, C.V.
6.
DLJ Merchant Banking III, Inc., as Advisory General Partner
on behalf of DLJ Offshore Partners III, C.V.
7.
DLJ Merchant Banking III, Inc., as Advisory General Partner
on behalf of DLJ Offshore Partners III-1, C.V. and as
attorney-in-fact
for DLJ Merchant Banking III, L.P., as Associate General
Partner of DLJ Offshore Partners III-1, C.V.
8.
DLJ Merchant Banking III, Inc., as Advisory General Partner
on behalf of DLJ Offshore Partners III-2, C.V. and as
attorney-in-fact
for DLJ Merchant Banking III, L.P., as Associate General
Partner of DLJ Offshore Partners III-2, C.V.
List of
Basic Energy Services, Inc. Signatories to
Lock-Up
Agreements
1.
DLJ Merchant Banking Partners III, L.P.
2.
DLJ ESC II, L.P.
3.
DLJ Offshore Partners III, C.V.
4.
DLJ Offshore Partners III-1, C.V.
5.
DLJ Offshore Partners III-2, C.V.
6.
DLJ Merchant Banking III, Inc., as Advisory General Partner
on behalf of DLJ Offshore Partners III, C.V.
7.
DLJ Merchant Banking III, Inc., as Advisory General Partner
on behalf of DLJ Offshore Partners III-1, C.V. and as
attorney-in-fact
for DLJ Merchant Banking III, L.P., as Associate General
Partner of DLJ Offshore Partners III-1, C.V.
8.
DLJ Merchant Banking III, Inc., as Advisory General Partner
on behalf of DLJ Offshore Partners III-2, C.V. and as
attorney-in-fact
for DLJ Merchant Banking III, L.P., as Associate General
Partner of DLJ Offshore Partners III-2, C.V.
You have requested our opinion as to the fairness from a
financial point of view to the holders of the outstanding shares
of common stock, par value $0.01 per share (the
“Shares”), of Basic Energy Services, Inc. (the
“Company”) of the Merger Consideration (as defined
below), taken in the aggregate, to be received by such holders
pursuant to the Agreement and Plan of Merger, dated as of
April 20, 2008 (the “Agreement”), by and among
Grey Wolf, Inc. (“Grey Wolf”), the Company, and
Horsepower Holdings (“Holdings”), an entity owned
equally by the Company and Grey Wolf. Pursuant to the Agreement,
the Company and Grey Wolf will be merged with and into Holdings,
with Holdings continuing as the surviving corporation, and each
of the Shares will be converted into the right to receive
(i) 0.9195 shares of common stock, par value $0.01 per
share, of Holdings (the “Holdings Common Stock”)
(together with cash in lieu of fractional shares of Holdings
Common Stock, the “Stock Consideration”) and
(ii) an amount in cash equal to $6.70 (the “Cash
Consideration”, and together with the Stock Consideration,
the “Merger Consideration”).
Goldman, Sachs & Co. and its affiliates are engaged in
investment banking and financial advisory services, securities
trading, investment management, principal investment, financial
planning, benefits counseling, risk management, hedging,
financing, brokerage activities and other financial and
non-financial activities and services for various persons and
entities. In the ordinary course of these activities and
services, Goldman, Sachs & Co. and its affiliates may
at any time make or hold long or short positions and
investments, as well as actively trade or effect transactions,
in the equity, debt and other securities (or related derivative
securities) and financial instruments (including bank loans and
other obligations) of the Company, Grey Wolf and any of their
respective affiliates or any currency or commodity that may be
involved in the transaction contemplated by the Agreement (the
“Transaction”) for their own account and for the
accounts of their customers. We have acted as financial advisor
to the Company in connection with, and have participated in
certain of the negotiations leading to, the Transaction. We
expect to receive fees for our services in connection with the
Transaction, the principal portion of which is contingent upon
consummation of the Transaction, and the Company has agreed to
reimburse our expenses and indemnify us against certain
liabilities arising out of our engagement. At your request, an
affiliate of Goldman, Sachs & Co. has entered into
financing commitments to provide Holdings with revolving credit
facilities and a term loan in connection with the consummation
of the Transaction, subject to the terms of such commitments,
and pursuant to which one or more affiliates of Goldman,
Sachs & Co. will receive customary fees. In addition,
we have provided certain investment banking and other financial
services to the Company and its affiliates from time to time,
including having acted as joint bookrunner with respect to the
initial public offering of 14,375,000 shares of common
stock of the Company in December 2005; and as co-manager with
respect to the offering of the Company’s 7.125% Senior
Notes due 2016 (aggregate principal amount $225,000,000) in
April 2006. We also may provide investment banking and other
financial services to the Company, Grey Wolf and Holdings and
their respective affiliates in the future. In connection with
the above-described services we have received, and may receive,
compensation.
In connection with this opinion, we have reviewed, among other
things, the Agreement; annual reports to stockholders and Annual
Reports on
Form 10-K
of the Company for the three fiscal years ended
December 31, 2007 and of Grey Wolf for the five fiscal
years ended December 31, 2007; certain interim reports to
stockholders and Quarterly Reports on
Form 10-Q
of the Company and Grey Wolf; certain other communications from
the Company and Grey Wolf to their respective stockholders;
certain publicly available research analyst reports for the
Company and Grey Wolf; certain internal financial analyses and
forecasts for Grey Wolf prepared by Grey Wolf’s management;
and certain internal financial analyses and forecasts for the
Company prepared by its management and certain internal
financial analyses and forecasts for Grey Wolf and for Holdings
prepared by the management of the Company (the
“Forecasts”), including certain cost savings and
operating synergies projected by the managements of the Company
and Grey Wolf to result from the Transaction (the
“Synergies”). We also have held discussions with
members of the senior managements of the Company and Grey Wolf
regarding their assessment of the strategic rationale for, and
the potential benefits of, the Transaction and the past and
current business operations, financial condition and future
prospects of their respective companies. In addition, we have
reviewed the reported price and trading activity for the Shares
and shares of common stock, par value $0.10 per share, of Grey
Wolf, compared certain financial and stock market information
for the Company and Grey Wolf with similar information for
certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business
combinations in the oilfield services industry specifically and
in other industries generally and performed such other studies
and analyses, and considered such other factors, as we
considered appropriate. We also reviewed (i) the
Appraisal / Inventory Audit Report for the Company
dated January 4, 2008 from Hadco International
Appraisals & Consulting Services and (ii) the
Appraisal Report for Grey Wolf dated December 12, 2007 from
M.E.L. Valuations, Inc., which we received in connection with
the proposed financing for Holdings (collectively, the
“Appraisals”).
For purposes of rendering this opinion, we have relied upon and
assumed, without assuming any responsibility for independent
verification, the accuracy and completeness of all of the
financial, legal, regulatory, tax, accounting and other
information provided to, discussed with or reviewed by us. In
that regard, we have assumed with your consent that the
Forecasts, including the Synergies, have been reasonably
prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company. In
addition, we have not made an independent evaluation or
appraisal of the assets and liabilities (including any
contingent, derivative or off-balance-sheet assets and
liabilities) of the Company or Grey Wolf or any of their
respective subsidiaries and, except for the Appraisals, we have
not been furnished with any such evaluation or appraisal. We
also have assumed that all governmental, regulatory or other
consents and approvals necessary for the consummation of the
Transaction will be obtained without any adverse effect on the
Company, Grey Wolf or Holdings or on the expected benefits of
the Transaction in any way meaningful to our analysis. Our
opinion does not address any legal, regulatory, tax or
accounting matters.
Our opinion does not address the underlying business decision of
the Company to engage in the Transaction, or the relative merits
of the Transaction as compared to any strategic alternatives
that may be available to the Company. This opinion addresses
only the fairness from a financial point of view to the holders
of the Shares, as of the date hereof, of the Merger
Consideration, taken in the aggregate, to be received by the
holders of Shares pursuant to the Agreement. We do not express
any view on, and our opinion does not address, any other term or
aspect of the Agreement or Transaction, including, without
limitation, the fairness of the Transaction to, or any
consideration received in connection therewith by, the holders
of any other class of securities, creditors, or other
constituencies of the Company or Grey Wolf; nor as to the
fairness of the amount or nature of any compensation to be paid
or payable to any of the officers, directors or employees of the
Company or Grey Wolf, or class of such persons in connection
with the Transaction, whether relative to the Merger
Consideration, taken in the aggregate, to be received by the
holders of Shares pursuant to the Agreement or otherwise. We are
not expressing any opinion as to the prices at which shares of
Holdings Common Stock will trade at any time. Our opinion is
necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available
to us as of, the date hereof and we assume no responsibility for
updating, revising or reaffirming this opinion based on
circumstances, developments or events occurring after the date
hereof. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Board of
Directors of the Company in connection with its consideration of
the Transaction and such opinion does not constitute a
recommendation as to how any holder of Shares should vote with
respect to the Merger or any other matter. This opinion has been
approved by a fairness committee of Goldman, Sachs &
Co.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Merger Consideration, taken in the
aggregate, to be received by the holders of Shares pursuant to
the Agreement is fair from a financial point of view to such
holders.
You have requested our opinion as to the fairness from a
financial point of view to the holders of the outstanding shares
of common stock, par value $.01 per share (“Basic Common
Stock”), of Basic Energy Services, Inc., a Delaware
corporation (“Basic”), of the Basic Merger
Consideration (as defined below) to be received by such holders
pursuant to the Agreement and Plan of Merger, dated
April 20, 2008 (the “Agreement”), among Basic,
Horsepower Holdings, Inc., a Delaware corporation
(“Holdings”), and Grey Wolf, Inc., a Texas corporation
(“Grey Wolf”). Holdings was organized by Basic and
Grey Wolf, each of which initially owns 50 shares of common
stock, par value $.01 per share, of Holdings (“Holdings
Common Stock”). Pursuant to the Agreement, Basic will merge
with and into Holdings, with Holdings as the surviving
corporation, and Grey Wolf will merge with and into Holdings,
with Holdings as the surviving corporation. In connection
therewith, (i) each share of Basic Common Stock will be
converted into the right to receive 0.9195 shares of
Holdings Common Stock and $6.70 in cash (together, the
“Basic Merger Consideration”), and (ii) each
share of common stock, par value $0.10 per share (“Grey
Wolf Common Stock”), of Grey Wolf will be converted into
the right to receive 0.25 shares of Holdings Common Stock
and $1.82 in cash. The transactions contemplated by the
Agreement are referred to herein as the “Transactions.”
Tudor, Pickering, Holt & Co. Securities, Inc.
(“TudorPickering”) and its affiliates, as part of
their investment banking business, are continually engaged in
performing financial analyses with respect to businesses and
their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and other transactions as well as for estate,
corporate and other purposes. We have acted as advisor to Basic
with respect to the rendering of this opinion. We expect to
receive fees for rendering this opinion, and Basic has agreed to
reimburse our expenses and indemnify us against certain
liabilities arising out of our engagement.
Although we have not provided investment banking services to
Basic or Grey Wolf, other than with respect to this opinion, we
may provide such services to Basic, Grey Wolf, Holdings and
their respective shareholders, affiliates and portfolio
companies in the future. In connection with the above-described
investment banking services, we may receive compensation.
In connection with this opinion, we have reviewed, among other
things, (i) the Agreement, (ii) annual reports to
stockholders and Annual Reports on
Form 10-K
of Basic for the three years ended December 31, 2007,
(iii) annual reports to shareholders and Annual Reports on
Form 10-K
of Grey Wolf for the five years ended December 31, 2007,
(iv) certain interim reports to stockholders and Quarterly
Reports on
Form 10-Q
of Basic and Grey Wolf; (v) certain other communications
from Basic and Grey Wolf to their respective stockholders;
(vi) certain internal financial information and forecasts
for Basic and Grey Wolf prepared by the management of Basic (the
“Forecasts”); (vii) certain publicly available
research analyst reports with respect to the future financial
performance of Basic and Grey Wolf, which we discussed with the
senior managements of Basic and Grey Wolf; and
(viii) certain cost savings and operating synergies
projected by the managements of Basic and Grey Wolf to result
from the Transactions (the “Synergies”). We also have
held discussions with members of the senior managements of Basic
and Grey Wolf regarding their assessment of the strategic
rationale for, and the potential benefits of, the Transactions
and the past and current business operations, financial
condition and future prospects of their respective entities and
of Holdings. In addition, we have reviewed the
reported price and trading activity for the Basic Common Stock
and Grey Wolf Common Stock, compared certain financial and stock
market information for Basic and Grey Wolf with similar
information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain
recent business combinations in the drilling and oilfield
services industry specifically and in other industries generally
and performed such other studies and analyses, and considered
such other factors, as we considered appropriate.
For purposes of our opinion, we have assumed and relied upon the
accuracy and completeness of all of the financial, accounting,
legal, tax and other information discussed with or reviewed by
or for us, or publicly available, and we have not independently
verified such information. In that regard, we have assumed with
your consent that the Forecasts and Synergies have been
reasonably prepared on a basis reflecting the best currently
available estimates and judgments of Basic. We have also assumed
that all governmental, regulatory or other consents or approvals
necessary for the consummation of the Transactions will be
obtained without any material adverse effect on Basic, Grey
Wolf, Holdings, the holders of Basic Common Stock or the
Transactions. Further, we have assumed the Financing will be
consummated on terms consistent with the Commitment Letter, both
as defined in the Agreement. In addition, we have not made an
independent evaluation or appraisal of the assets and
liabilities (including any contingent, derivative or
off-balance-sheet assets and liabilities) of Basic or any of its
subsidiaries or Grey Wolf or any of its subsidiaries and we have
not been furnished with any such evaluation or appraisal.
Our opinion does not address the underlying business decision of
Basic to engage in the Transactions, or the relative merits of
the Transactions as compared to that or any other alternative
transaction that might be available to Basic. This opinion
addresses only the fairness from a financial point of view, as
of the date hereof, of the Basic Merger Consideration pursuant
to the Agreement. We do not express any view on, and our opinion
does not address, any other term or aspect of the Agreement or
the Transactions, including, without limitation, the fairness of
the Transactions to, or any consideration received in connection
therewith by, creditors or other constituencies of Basic or Grey
Wolf; nor as to the fairness of the amount or nature of any
compensation to be paid or payable to any of the officers,
directors or employees of Basic or Grey Wolf, or any class of
such persons, in connection with the Transactions, whether
relative to the Basic Merger Consideration pursuant to the
Agreement or otherwise. We are not expressing any opinion as to
the price at which the shares of Holdings Common Stock will
trade at any time. Our opinion is necessarily based on economic,
monetary, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
Subsequent developments may affect our opinion, and we do not
have any obligation to update, revise or reaffirm our opinion
and expressly disclaim any responsibility to do so. Our advisory
services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of Basic in
connection with its consideration of the Transactions and such
opinion does not constitute a recommendation as to how any
holder of interests in Basic should vote with respect to such
Transactions. This opinion has been reviewed and approved by
TudorPickering’s fairness opinion committee.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Basic Merger Consideration to be paid
to the holders of outstanding shares of Basic Common Stock
pursuant to the Agreement is fair from a financial point of view
to such holders.
We understand that Grey Wolf, Inc., a Texas corporation
(“Grey Wolf” or the “Company”), is
considering a transaction (the “Transaction”) whereby
the Company and Basic Energy Services, Inc., a Delaware
corporation (“Basic Energy”), will merge with
Horsepower Holdings, Inc., a newly created Delaware corporation
formed by Grey Wolf and Basic Energy for the purposes of the
Transaction (“Holdings”). Pursuant to the terms of an
Agreement and Plan of Merger (the “Agreement”), draft
dated as of April 20, 2008, among Basic Energy, the Company
and Holdings, the Company and Basic Energy will each merge with
and into Holdings. Pursuant to the terms of the Agreement, all
of the issued and outstanding shares of the common stock of
Basic Energy, par value of $0.01 per share (“Basic Energy
Common Stock”), will be converted into the right to receive
for each outstanding share of Basic Energy Common Stock,
(x) 0.9195 shares (the “Basic Energy Stock
Consideration”) of the common stock, par value $0.01, of
Holdings (“Holdings Common Stock”), and (y) $6.70
in cash (collectively with the Basic Energy Stock Consideration,
the “Basic Energy Merger Consideration”). Also
pursuant to the terms of the Agreement, all of the issued and
outstanding shares of the common stock of the Company, par value
of $0.10 per share (“Company Common Stock”), will be
converted into the right to receive for each outstanding share
of Company Common Stock, (x) 0.25 shares (the
“Company Stock Consideration”) of Holdings Common
Stock, and (y) $1.82 in cash (collectively with the Company
Stock Consideration, the “Company Merger
Consideration”). The Basic Energy Merger Consideration
relative to the Company Merger Consideration is the “Basic
Energy Exchange Ratio.”
The terms and conditions of the Transaction are more fully set
forth in the Agreement.
You have requested our opinion as to the fairness, from a
financial point of view, to the Company of the Basic Energy
Exchange Ratio provided for in the Transaction.
UBS Securities LLC (“UBS”) has acted as financial
advisor to the Company in connection with the Transaction and
will receive a fee for its services, a portion of which is
payable in connection with this opinion and a significant
portion of which is contingent upon consummation of the
Transaction. UBS also may provide financing to Holdings in
connection with the Transaction and, in such event, would
receive compensation in connection therewith. In the past, UBS
and its affiliates have provided investment banking services to
Basic Energy unrelated to the proposed Transaction, including
having acted as senior co-manager of Basic Energy’s initial
public offering and as joint bookrunner of a Basic Energy bond
offering, for which UBS and its affiliates received
compensation. In addition, UBS or an affiliate has acted as sole
lead arranger for Basic Energy’s senior secured credit
facility and for subsequent refinancings, for which it received
and continues to receive fees and interest payments. In the
ordinary course of business, UBS and its affiliates may hold or
trade, for their own accounts and the accounts of their
customers, securities of the Company
and/or Basic
Energy and, accordingly, may at any time hold a long or short
position in such securities. The issuance of this opinion was
approved by an authorized committee of UBS.
Our opinion does not address the relative merits of the
Transaction as compared to other business strategies or
transactions that might be available with respect to the Company
or the Company’s underlying business decision to effect the
Transaction. Our opinion does not constitute a recommendation to
any shareholder as to how such shareholder should vote or act
with respect to the Transaction. At your direction, we have not
been asked to, nor do we, offer any opinion as to the terms,
other than the Basic Energy
Exchange Ratio to the extent expressly specified herein, of the
Agreement or any related documents or the form of the
Transaction. In addition, we express no opinion as to the
fairness of the amount or nature of any compensation to be
received by any officers, directors or employees of any parties
to the Transaction, or any class of such persons, relative to
the Basic Energy Merger Consideration or the Company Merger
Consideration. We express no opinion as to what the value of
Holdings Common Stock will be when issued pursuant to the
Transaction or the prices at which Company Common Stock, Basic
Energy Common Stock or Holdings Common Stock will trade at any
time. In rendering this opinion, we have assumed, with your
consent, that (i) the final executed form of the Agreement
will not differ in any material respect from the draft that we
have reviewed, (ii) Basic Energy, Holdings and the Company
will comply with all material terms of the Agreement, and
(iii) the Transaction will be consummated in accordance
with the terms of the Agreement without any adverse waiver or
amendment of any material term or condition thereof. We have
also assumed that all governmental, regulatory or other consents
and approvals necessary for the consummation of the Transaction
will be obtained without any material adverse effect on the
Company, Basic Energy, Holdings or the Transaction.
In arriving at our opinion, we have, among other things:
(i) reviewed certain publicly available business and
financial information relating to Basic Energy and the Company;
(ii) reviewed certain internal financial information and
other data relating to the business and financial prospects of
Basic Energy that were provided to us by the management of Basic
Energy and not publicly available, including financial forecasts
and estimates prepared by the management of Basic Energy that
you have directed us to use for purposes of our analysis;
(iii) reviewed certain internal financial information and
other data relating to the business and financial prospects of
the Company that were provided to us by the management of the
Company and not publicly available, including financial
forecasts and estimates prepared by management of the Company
that you have directed us to use for purposes of our analysis;
(iv) reviewed certain estimates of synergies prepared by
the management of the Company that were provided to us by the
Company and not publicly available that you have directed us to
use for purposes of our analysis; (v) conducted discussions
with members of the senior managements of Basic Energy and the
Company concerning the businesses and financial prospects of
Basic Energy and the Company; (vi) reviewed publicly
available financial and stock market data with respect to
certain other companies we believe to be generally relevant;
(vii) compared the financial terms of the Transaction with
the publicly available financial terms of certain other
transactions we believe to be generally relevant;
(viii) reviewed current and historical market prices of
Basic Energy Common Stock and Company Common Stock;
(ix) considered certain pro forma effects of the
Transaction on the Company’s financial statements;
(x) reviewed the Agreement; and (xi) conducted such
other financial studies, analyses and investigations, and
considered such other information, as we deemed necessary or
appropriate.
In connection with our review, with your consent, we have
assumed and relied upon, without independent verification, the
accuracy and completeness in all material respects of the
information provided to or reviewed by us for the purpose of
this opinion. In addition, with your consent, we have not made
any independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of Basic Energy, the
Company or Holdings, nor have we been furnished with any such
evaluation or appraisal. With respect to the financial
forecasts, estimates, synergies and pro forma effects referred
to above, we have assumed, at your direction, that they have
been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of
Basic Energy as to the future financial performance of Basic
Energy and of the management of the Company as to the future
financial performance of the Company and such synergies and pro
forma effects. In addition, we have assumed with your approval
that the financial forecasts and estimates, including synergies,
referred to above will be achieved at the times and in the
amounts projected. We also have assumed, with your consent, that
the Transaction will qualify for U.S. federal income tax
purposes as a “reorganization” within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended. Our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information
available to us as of, the date hereof.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Basic Energy Exchange Ratio provided
for in the Transaction is fair, from a financial point of view,
to the Company.
This opinion is provided for the benefit of the Board of
Directors in connection with, and for the purpose of, its
evaluation of the Transaction.
We understand that Grey Wolf, Inc. (“Grey Wolf” or
“the Company”), Basic Energy Services, Inc.
(“Basic”) and a corporation formed and owned equally
by Grey Wolf and Basic (“Holdings”), propose to enter
into an Agreement and Plan of Merger by and among Grey Wolf,
Basic and Holdings, substantially in the form of the draft dated
April 20, 2008 (the “Merger Agreement”), which
provides, among other things, for the merger (“theMerger”) of Grey Wolf and Basic with and into Holdings.
Pursuant to the terms of the Merger Agreement, all of the issued
and outstanding shares of the common stock of Grey Wolf, par
value $0.10 per share (the “Grey Wolf Common Stock”),
will be converted into the right to receive for each outstanding
share of Grey Wolf Common Stock, (i) 0.2500 shares of
the common stock, par value $0.01 per share, of Holdings (the
“Holdings Common Stock”), and (ii) cash
consideration of $1.82 per share (together the “Grey Wolf
Merger Consideration”). Pursuant to the terms of the Merger
Agreement, all of the issued and outstanding shares of the
common stock of Basic, par value $0.01 per share (the
“Basic Common Stock”), will be converted into the
right to receive for each outstanding share of Basic Common
Stock, (i) 0.9195 shares of Holdings Common Stock, and
(ii) cash consideration of $6.70 per share (together the
“Basic Merger Consideration”). The terms and
conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked our opinion as to whether the Basic Merger
Consideration relative to the Grey Wolf Merger Consideration
pursuant to the Merger Agreement is fair, from a financial point
of view, to the Company.
In arriving at our opinion, we have reviewed and analyzed, among
other things, the following:
(i) the draft dated April 20, 2008 of the Merger
Agreement;
(ii) the financial statements and other information
concerning the Company, including the Company’s Annual
Reports on
Form 10-K
for each of the years in the three-year period ended
December 31, 2007, certain other communications from the
Company to its stockholders, and the Company’s most recent
Proxy Statement;
(iii) the financial statements and other information
concerning Basic, including Basic’s Annual Reports on
Form 10-K
for each of the years in the three-year period ended
December 31, 2007, certain other communications from Basic
to its stockholders, and Basic’s most recent Proxy
Statement;
(iv) certain business and financial analysis and
information relating to the Company and Basic, including certain
internal financial forecasts prepared by management of the
Company and Basic and which were provided to us by the Company;
(v) certain publicly available information concerning the
trading of, and the trading market for, Grey Wolf’s Common
Stock and Basic’s Common Stock;
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(vi) certain publicly available information with respect to
certain other companies we believe to be comparable to the
Company or Basic and the trading markets for certain of such
companies’ securities;
(vii) certain publicly available information concerning the
estimates of the future operating and financial performance of
the Company, Basic and the comparable companies prepared by
industry experts unaffiliated with either the Company or Basic;
(viii) certain publicly available information concerning
the nature and terms of certain other transactions considered
relevant to our analysis;
(ix) we have also met with officers and employees of the
Company and have participated in discussions with officers of
Basic to discuss the foregoing, as well as other matters
believed relevant to our analysis; and
(x) we also considered such other information, financial
studies, analysis and investigations and financial, economic and
market criteria which we deemed relevant.
In connection with our review, we have not independently
verified any of the foregoing information and have relied on it
being complete and accurate in all material respects. With
respect to the financial forecasts, we have assumed that they
have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the
Company’s management as to the future financial performance
of the Company and Basic. We have assumed that the Merger will
be consummated in accordance with the terms set forth in the
Merger Agreement without any waiver, amendment or delay of any
terms or conditions. We have assumed that in connection with the
receipt of all necessary governmental, regulatory or other
approvals and consents required for the Merger, no delays,
limitations, conditions or restrictions will be imposed that
would have a material adverse effect on the contemplated
benefits expected to be derived by the Merger. We are not legal,
tax or regulatory advisors and have relied upon, without
independent verification, the assessment of the Company and its
legal, tax and regulatory advisors with respect to such matters.
Our opinion is necessarily based on financial, economic, market
and other conditions as in effect on, and the information made
available to us as of, the date hereof. Events occurring after
the date hereof may affect this opinion and the assumptions used
in preparing it, and we do not assume any obligation to update,
revise or reaffirm this opinion.
Simmons & Company International (“Simmons”)
is an internationally recognized investment banking firm that
specializes in the energy industry. Simmons is continually
engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, secondary distributions of listed and
unlisted securities and private placements.
We have been engaged by the Company to perform a financial
analysis of the Merger for the purpose of rendering this opinion
and will receive a fee for so doing. In addition, the Company
has agreed to indemnify us for certain liabilities that may
arise out of our engagement. Other than in the context of this
proposed Merger, Simmons has not acted as financial advisor to
the Company, although we may act as financial advisor to Grey
Wolf with respect to future transactions.
In the ordinary course of our business, we actively trade debt
and equity securities for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or
short position in such securities of the Company and Basic.
It is understood that this letter is for the information of the
Board of Directors of the Company and is not to be quoted or
referred to, in whole or in part, in any registration statement,
prospectus, or proxy statement (except for the registration
statement, proxy statement, or prospectus related to the Merger
as provided below), or in any other written document used in
connection with the offering or sale of securities, nor shall
this letter be used for any other purposes, without
Simmons’ prior written consent. It is further understood
that, if the opinion is included in the registration statement,
proxy statement or prospectus in connection with the Merger, the
opinion will be reproduced in such registration statement, proxy
statement or prospectus in full, and any
description of or reference to Simmons or summary of the opinion
in such registration statement, proxy statement or prospectus
will be in a form reasonably acceptable to Simmons and its
counsel.
Our opinion does not address the Company’s underlying
business decision to pursue the Merger or the relative merits of
the Merger as compared to any alternative business strategies
that might exist for the Company. Our opinion does not
constitute a recommendation as to how the holders of shares of
Grey Wolf’s Common Stock should vote with respect to the
Merger.
The issuance of our opinion was approved by a Simmons fairness
committee. Our opinion does not express an opinion about the
fairness of the amount or nature of compensation to any of the
Company’s officers, directors or employees, or any class of
such persons, relative to the Grey Wolf Merger Consideration or
the Basic Merger Consideration.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, it is our opinion
that, as of the date hereof, the Basic Merger Consideration
relative to the Grey Wolf Merger Consideration, as set forth in
the Merger Agreement, is fair to the Company from a financial
point of view.
HORSEPOWER
HOLDINGS, INC.
2008 EQUITY INCENTIVE PLAN
ARTICLE I.
PURPOSE
The purpose of this Plan is to provide a means through which the
Company and its Affiliates may attract highly-qualified persons
to serve as Directors or to enter the employ of the Company and
its Affiliates and to provide a means whereby those individuals,
whose present and potential contributions to the Company and its
Affiliates are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare
of the Company and its Affiliates. A further purpose of the Plan
is to provide such individuals with additional incentive and
reward opportunities designed to enhance the profitable growth
of the Company and its Affiliates, and to promote the
achievement of other business goals of the Company and its
Affiliates. Accordingly, the Plan provides for the grant of
Options, Restricted Stock, Restricted Stock Units, Stock
Appreciation Rights, Performance Awards and Other Stock-Based
Awards, or any combination of the foregoing, as is best suited
to the circumstances of the particular Employee or Director as
determined by the Committee in its sole discretion.
ARTICLE II.
DEFINITIONS
The following definitions shall be applicable throughout the
Plan unless specifically modified by any paragraph:
(a) “Affiliate”means any corporation,
partnership, limited liability company or partnership,
association, trust or other organization which, directly or
indirectly, controls, is controlled by, or is under common
control with, the Company. For purposes of the preceding
sentence, “control” (including, with correlative
meanings, the term’s “controlled by” and
“under common control with”), as used with respect to
any entity or organization, shall mean the possession, directly
or indirectly, of the power (i) to vote more than 50% of
the securities having ordinary voting power for the election of
directors of the controlled entity or organization, or
(ii) to direct or cause the direction of the management and
policies of the controlled entity or organization, whether
through the ownership of voting securities or by contract or
otherwise.
(b) “Award”means, individually or
collectively, any Options, Restricted Stock, Restricted Stock
Units, Stock Appreciation Rights, or Performance Awards granted
under the terms of the Plan.
(c) “Award Notice”means a written notice
setting forth the terms of an Award.
(d) “Board”means the Board of Directors
of the Company.
(e) “Cause”means unless otherwise defined
in the applicable Award Notice (i) the commission by a
Participant of an act of fraud, embezzlement or willful breach
of a fiduciary duty to the Company or an Affiliate (including
the unauthorized disclosure of confidential or proprietary
material information of the Company or an Affiliate),
(ii) a conviction of a Participant (or a plea of nolo
contendere in lieu thereof) for a felony or a crime involving
fraud, dishonesty or moral turpitude, (iii) willful failure
of a Participant to follow the written directions of the
Participant’s supervisor or a superior officer of the
Company or the Board, in the case of executive officers of the
Company; (iv) willful misconduct as an Employee of the
Company or an Affiliate, including (without limitation) willful
non-compliance with the written policies and procedures of the
Company
and/or its
Affiliates as effective and as amended from time to time;
(v) willful failure of a Participant to render services to
the Company or an Affiliate in accordance with his employment
arrangement, which failure amounts to a material neglect of his
duties to the Company or an Affiliate or (vi) substantial
dependence, as determined by the Committee, in its sole
discretion, on
any drug, immediate precursor or other substance listed on
Schedule IV of the Federal Comprehensive Drug Abuse
Prevention and Control Act of 1970, as amended. With respect to
any Participant residing outside of the United States, the
Committee may revise the definition of “Cause” as
appropriate to conform to the laws of the applicable
non-U.S. jurisdiction.
(f) “Code”means the U.S. Internal
Revenue Code of 1986, as amended. References in the Plan to any
section of the Code shall be deemed to include any amendments or
successor provisions to such section and any regulations under
such section.
(g) “Committee”means the Committee
defined in Article IV, paragraph (a) of the Plan.
(h) “Common Stock”means the common stock,
par value $.01 per share, of the Company, or any security into
which such common stock may be charged by reason of any
transaction or event of the type described in Article XII.
(i) “Company”means Horsepower Holdings,
Inc., a Delaware corporation, or any successors thereto.
(j) “Corporate Change”means (unless
otherwise defined in the Award Notice pursuant to
Article IV, paragraph (j)):
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of l 934, as amended (the
“Exchange Act”)) (a “Person”)
of beneficial ownership (within the meaning of
Rule 13d-3
promulgated under the Exchange Act) of 40% or more of either
(A) the then outstanding shares of common stock of the
Company (the “Outstanding Company Common Stock”) or
(B) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in
the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that for purposes of this
subsection (i), any acquisition by any Person pursuant to a
transaction which complies with clause (A) of
subsection (iii) of this definition shall not constitute a
Corporate Change; or
(ii) Individuals, who, as of the date hereof, constitute
the Board (the “Incumbent Board”) cease for any reason
to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent
to the date hereof whose election, or nomination for election by
the Company’s stockholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent
Board shall be considered for purposes of this definition as
though such individual was a member of the Incumbent Board, but
excluding, for these purposes, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than
the Board; or
(iii) The consummation of a reorganization, merger or
consolidation involving the Company or any of its subsidiaries,
or the sale, lease or other disposition of all or substantially
all of the assets of the Company and its subsidiaries, taken as
a whole (other than to an entity wholly owned, directly or
indirectly, by the Company) (each, a “Corporate
Transaction”), in each case, unless, following such
Corporate Transaction, (A) all or substantially all of the
individuals and entities who were the beneficial owners of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Corporate Transaction
beneficially own, directly or indirectly, more than 50% of
respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the Resulting Corporation in
substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, and (B) at least a
majority of the members of the board of directors of the
Resulting Corporation were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action
of the Board, providing for such Corporate Transaction. The term
“Resulting Corporation” means (1) the
Company or its successor, or (2) if as a result of a
Corporate Transaction the Company or its
successor becomes a subsidiary of another entity, then such
entity or the parent of such entity, as applicable, or
(3) in the event of a Corporate Transaction involving the
sale, lease or other disposition of all or substantially all of
the assets of the Company and its subsidiaries, taken as a
whole, then the transferee of such assets in such Corporate
Transaction.
(k) “Director”means an individual who is
elected to the Board by the stockholders of the Company or by
the Board under applicable corporate law and who is serving on
the Board on the date the Plan is adopted by the Board, or is
subsequently elected to the Board, and who is not an Employee.
(l) “Disability,”unless otherwise defined
in the applicable Award Notice, means any physical or mental
condition for which the Participant would be eligible to receive
long-term disability benefits under the Company’s long-term
disability plan. With respect to any Participant residing
outside of the United States, the Committee may revise the
definition of “Disability” as appropriate to
conform to the laws of the applicable
non-U.S. jurisdiction.
(m) “Employee”means any person who is an
employee of the Company or any Affiliate. If an entity ceases to
be an Affiliate of the Company, a Participant employed by such
entity shall be deemed to have terminated his employment with
the Company and its Affiliates and shall cease to be an Employee
under the Plan. For any and all purposes under the Plan, the
term “Employee” shall exclude an individual
hired as an independent contractor, leased employee, consultant,
or a person otherwise designated by the Committee, the Company
or an Affiliate at the time of hire as not eligible to
participate in or receive benefits under the Plan, even if such
ineligible individual is subsequently determined to be an
employee by any governmental or judicial authority. For purposes
of any Award granted to a person residing outside of the United
States, the Committee may revise the definition of
“Employee” as appropriate to conform to the laws of
the applicable
non-U.S. jurisdiction.
(n) “Fair Market Value”of a share of
Common Stock means, as of any specified date: (i) if the
Common Stock is listed on one or more U.S. national
securities exchange or quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System
(“NASDAQ”), the closing sales price of a share of
Common Stock on that date on the principal U.S. national
securities exchange or which the Common Stock is then listed, or
if no prices are reported on that date, on the last preceding
day on which the Common Stock was traded, as reported by such
principal U.S. national exchange or NASDAQ, as the case may
be; and (ii) if the Common Stock is not listed on a
national securities exchange or quoted on the NASDAQ, but is
traded in the over-the-counter market, the average of the bid
and asked prices for a share of Common Stock on the most recent
date on which the Common Stock was publicly traded. In the event
the Common Stock is not publicly traded at the time a
determination of its value is required to be made hereunder, the
determination of its Fair Market Value shall be made by the
Committee in good faith and in such manner as it deems
appropriate.
(o) “Incentive Stock Option”means an
Option granted under Article VII of the Plan that is an
incentive stock option within the meaning of Section 422 of
the Code.
(p) “1934 Act”means the
U.S. Securities Exchange Act of 1934, as amended.
(q) “Non-Qualified Option”means an Option
granted under Article VII of the Plan that is not an
Incentive Stock Option.
(r) “Option”means an option to purchase
shares of Common Stock granted under Article VII of the
Plan that may be either an Incentive Stock Option or a
Non-Qualified Option.
(s) “Other Stock-Based Awards”means an
Award granted pursuant to Article XI, paragraph (g).
(t) “Participant”means an Employee or
Director who has been granted an Award under the Plan.
(u) “Performance Award”means an
opportunity for a Participant to earn additional compensation if
certain Performance Measures or other criteria are met, as
described in Article XI of the Plan.
(v) “Performance Measure”means any
performance objective established by the Committee in its sole
discretion, including, but not limited to, one or more of the
following:
(11) the sales of a business unit or assets of the Company
or any Affiliate designated by the Committee;
(12) the net income (before or after taxes) of the Company,
any business unit or financial reporting segment of the Company
designated by the Committee;
(13) the employee hiring or retention performance of the
Company or any business unit designated by the Committee;
(14) the cash flow return on investment, cash value added,
and/or
working cash flow of the Company, any business unit or financial
reporting segment of the Company designated by the Committee;
(15) the earnings before or after interest, leasing
expense, taxes, depreciation, distributions on mandatorily
redeemable preferred stock,
and/or
amortization of the Company, any business unit or financial
reporting segment of the Company designated by the Committee;
(16) the economic or market value added;
(17) the return on stockholders’ equity achieved by
the Company;
(18) the return on capital employed of the Company or any
business unit or financial reporting segment of the Company
designated by the Committee; or
(19) levels of operating expense, maintenance expense or
measures of customer satisfaction and service.
A Performance Measure may be subject to adjustment for changes
in accounting standards required by the Financial Accounting
Standards Board after the goal is established, for specified
significant items or events, and may be absolute, relative to
one or more other companies, or relative to one or more indexes,
and may be contingent upon future performance of the Company or
any Affiliate, division, department or financial reporting
segment thereof.
(w) “Plan”means this Horsepower Holdings,
Inc. 2008 Equity Incentive Plan, as amended from time to time.
(x) “Restricted Stock”means Common Stock
subject to certain restrictions, as described in
Article VIII of the Plan.
(y) “Restricted Stock Unit”means a
promise to deliver a share of Common Stock, or the Fair Market
Value of such share in cash, in the future if certain criteria
are met, as described in Article IX of the Plan.
(z) “Retirement”means a Termination of
Service, other than due to Cause or death, on or after the
Participant attains (i) age 65 or
(ii) age 55 and with the written consent of the
Committee. Notwithstanding the foregoing, with respect to a
Participant residing outside of the United States, the Committee
may revise the definition of “Retirement” as
appropriate to conform to the laws of the applicable
non-U.S. jurisdiction.
(aa) “Stock Appreciation Right”means a
right entitling the Participant to the difference between the
Fair Market Value of a share of Common Stock on the date of
exercise and the Fair Market Value of a share of Common Stock on
the date of grant, as described in Article X of the Plan.
(bb) “Termination of Service”means a
Participant’s termination of employment, if an Employee, or
a termination of service, if a Director, as the case may be. A
Participant who is both an Employee and a Director shall not
incur a Termination of Service until the Participant terminates
both positions.
ARTICLE III.
EFFECTIVE DATE AND DURATION OF THE PLAN
After its adoption by the Board, the Board of Directors of Grey
Wolf, Inc. and the Board of Directors of Basic Energy Services,
Inc., the Plan shall become effective upon the effective date of
the consummation of the mergers contemplated by that certain
Agreement and Plan of Merger among the Company, Basic Energy
Services, Inc. and Grey Wolf, Inc.; provided that the
Plan has been approved by the stockholders of each of the
Company, Grey Wolf, Inc. and Basic Energy Services, Inc.
Notwithstanding any provision in the Plan, no Award shall be
granted hereunder prior to such stockholder approval. No further
Awards may be granted under the Plan after 10 years from
the effective date of the Plan. The Plan shall remain in effect
until all Awards granted under the Plan have been exercised or
expired or vested or forfeited.
At the effective time of this Plan, the name of this Plan shall
become the “Grey Wolf, Inc. 2008 Equity Incentive
Plan,” without further action or consent by the Board or
stockholders of the Company.
ARTICLE IV.
ADMINISTRATION
(a) Composition of Committee. The Plan
shall be administered by the Compensation Committee of the Board
or such other committee, if any, that may be designated by the
Board to administer the Plan (the “Committee”);
provided, however, that any and all members of the
Committee shall satisfy any independence requirements prescribed
by any stock exchange on which the Company lists its Common
Stock; provided, further, that Awards may be granted to
individuals who are subject to Section 16(b) of the
1934 Act only if the Committee is comprised solely of two
or more “Non-Employee Directors” as defined in
Securities and Exchange Commission
Rule 16b-3
(as amended from time to time, and any successor rule,
regulation or statute fulfilling the same or similar function);
provided, further, that any Award intended to qualify for
the “performance-based compensation” exception
under Section 162(m) of the Code shall be granted only if
the Committee is comprised solely of two or more
“outside directors” within the meaning of
Section 162(m) of the Code and regulations pursuant thereto,
(b) Powers. Subject to Article IV,
paragraph (d), and the express provisions of the Plan, the
Committee shall have authority, in its discretion, to determine
which Employees or Directors shall receive an Award, the time or
times when such Award shall be made, the terms and conditions of
an Award, the type of Award that shall be made, the number of
shares subject to an Award and the value of an Award. In making
such determinations, the Committee shall take into account the
nature of the services rendered by the respective
Employees or Directors, their present and potential contribution
to the Company’s success and such other factors as the
Committee, in its sole discretion, shall deem relevant.
(c) Additional Powers. The Committee
shall have such additional powers as are delegated to it by the
other provisions of the Plan. Subject to the express provisions
of the Plan, this shall include the power to construe the Plan
and the respective notices provided hereunder, to prescribe
rules and regulations relating to the Plan, and to determine the
terms, restrictions and provisions of the notice relating to
each Award, including such terms, restrictions and provisions as
shall be required in the judgment of the Committee to cause
designated Options to qualify as Incentive Stock Options, and to
make all other determinations necessary or advisable for
administering the Plan. The Committee may correct any defect or
supply any omission or reconcile any inconsistency or ambiguity
in the Plan or in any notice relating to an Award in the manner
and to the extent it shall deem expedient to carry it into
effect. Any determination or decision made by the Committee or
its delegate (pursuant to Article IV, paragraph (d)) under
the terms of the Plan shall be made in the sole discretion of
the Committee or such delegate and shall be final and binding on
all persons, including the Company and Participants, but subject
to ratification by the Board if the Board so provides.
(d) Delegation of Powers. Subject to
Article IV, paragraph (a) above, the Committee may
delegate to the Board or to the Chief Executive Officer or one
or more other senior officers of the Company the authority to
grant Awards to Employees who are not subject to Section 16(b)
of the 1934 Act. Further, the Committee may delegate to the
Nominating and Governance Committee of the Board the authority
to make Awards to Directors, including to determine which
Director shall receive an Award, the time or times when such an
Award shall be made, the terms and conditions of such an Award,
the type of Award that shall be made to a Director, the number
of shares subject to such an Award, and the value of such an
Award. The Committee may delegate to the Chief Executive Officer
or one or more other senior officers of the Company its
administrative functions under this Plan with respect to the
Awards. Any delegation described in this paragraph shall contain
such limitations and restrictions as the Committee may provide
and shall comply in all respects with the requirements of
applicable law, including the Delaware General Corporation Law.
The Committee may engage or authorize the engagement of a third
party administrator or administrators to carry out
administrative functions under the Plan. No member of the
Committee or officer of the Company or an Affiliate to whom the
Committee has delegated authority in accordance with the
provisions of Article IV of this Plan shall be liable for
anything done or omitted to be done by him or her, by any member
of the Committee or by any officer of the Company or Affiliate
in connection with the performance of any duties under this
Plan, except for his or her own willful misconduct or as
expressly provided by statute.
(e) Awards Outside of the United
States. With respect to any Participant or
eligible Employee who is resident outside of the United States,
the Committee may, in its sole discretion, amend or vary the
terms of the Plan in order to conform such terms with the
requirements of local law, to meet the goals and objectives of
the Plan, and may, in its sole discretion, establish
administrative rules and procedures to facilitate the operation
of the Plan in such
non-U.S. jurisdictions.
The Committee may, where it deems appropriate in its sole
discretion, establish one or more sub — plans of the
Plan for these purposes.
ARTICLE V.
SHARES SUBJECT TO THE PLAN; AWARD LIMITATIONS
(a) Shares Subject to the Plan. Subject
to adjustment as provided in Article XII, the aggregate
number of shares of Common Stock that may be issued under the
Plan shall not exceed 4,250,000 and of such amount the total
number of Shares shall be available for Awards of Incentive
Stock Options. Except as provided in the last sentence hereof,
any Options or other stock-settled Awards are cancelled,
expired, forfeited, settled in cash, withheld for taxes or the
purchase price or otherwise terminated without issuing the
underlying shares of Common Stock to the Participant, such
shares shall remain available for future grant under the Plan,
and if issued but unvested shares of Restricted Stock are
forfeited or withheld for the purchase price or taxes, such
shares shall become available for future grant under the Plan.
Shares of Common Stock that are otherwise issuable to the
Participant pursuant to an Award that are withheld to satisfy
tax withholding obligations or to
pay the exercise price of an Option or Stock Appreciation Right
shall be counted against the aggregate limitation of the Plan as
provided herein and shall not become available for future grant
under the Plan.
(b) Share and Value Limitation on Individual
Awards. The maximum number of shares of Common
Stock that may be issuable under Awards granted to any one
individual during any twelve month period shall not exceed
4,000,000 shares of Common Stock (subject to adjustment in
the manner as provided in Article XII). In addition, the
maximum amount of cash compensation that may be paid under
Awards intended to qualify for the “performance-based
compensation” exception under Section 162(m) of the
Code granted to any one individual during any twelve month
period may not exceed $5,000,000. The limitations set forth in
this Article are intended to permit certain awards under the
Plan to constitute “performance-based” compensation
for purposes of Section 162(m) of the Code.
(c) Stock Offered. Subject to the
limitations set forth in Article V, paragraph (a), the
stock to be offered pursuant to the grant of an Award may be
authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Company. Any of
such shares which remain unissued and which are not subject to
outstanding Awards at the termination of the Plan shall cease to
be subject to the Plan but, until termination of the Plan, the
Company shall at all times make available a sufficient number of
shares to meet the requirements of the Plan.
ARTICLE VI.
ELIGIBILITY AND GRANT OF AWARDS
Subject to the delegation of power in Article IV, paragraph
(d), the Committee, in its sole discretion, may from time to
time grant Awards under the Plan as provided herein to any
individual who, at the time of grant, is an Employee or a
Director. An Award may be granted on more than one occasion to
the same person, and, subject to the limitations set forth in
the Plan. Awards may include Options, Restricted Stock,
Restricted Stock Units, Stock Appreciation Rights, Performance
Awards or any combination thereof. The Plan is discretionary in
nature, and the grant of Awards by the Committee is voluntary
and occasional. The Committee’s selection of an eligible
Employee or Director to receive an Award in any year or at any
time shall not require the Committee to select such Employee or
Director to receive an Award in any other year or at any other
time. The selection of an Employee or Director to receive one
type of Award under the Plan does not require the Committee to
select such Employee or Director to receive any other type of
Award under the Plan. The Committee shall consider such factors
as it deems pertinent in selecting Participants and in
determining the type and amount of their respective Awards.
ARTICLE VII.
STOCK OPTIONS
(a) Option Types and Option
Period. Options may be in the form of Incentive
Stock Options or Non-Qualified Options, or both, for eligible
Employees (as described below), as determined by the Committee,
in its sole discretion. Any Options granted to Directors shall
be Non-Qualified Options. Except as otherwise provided in
Subparagraph (c) below or such shorter term as may be
provided in an Award Notice, each Option shall expire
10 years from its date of grant and, unless provided
otherwise in the Award Notice, shall be subject to earlier
termination as follows: Options, to the extent vested as of the
date a Participant incurs a Termination of Service, may be
exercised only within three months of such date, unless such
Termination of Service results from (i) death, Retirement
or Disability of the Participant, in which case all vested
Options held by such Participant may be exercised by the
Participant, the Participant’s legal representative, heir
or devisee, as the case may be, within two years from the date
of the Participant’s Termination of Service, or
(ii) Cause, in which event all outstanding vested Options
held by such Participant shall be automatically forfeited
unexercised on such termination; provided, however, that
notwithstanding the foregoing, no termination event described in
(i) above shall extend the expiration date of an Option
beyond the 10th anniversary of its date of grant or, such
shorter period, if any, as may be provided in the Award Notice.
(b) Vesting. Subject to the further
provisions of the Plan, Options shall vest and become
exercisable in accordance with such vesting schedule as the
Committee may establish in its sole discretion, including
vesting upon the satisfaction of one or more Performance
Measures. A Participant may not exercise an Option except to the
extent it has become vested. Unless otherwise provided in the
Award Notice, all unvested Options shall automatically become
fully vested upon a Participant’s Termination of Service
due to his or her death, Disability or Retirement. Options that
are not vested on a Participant’s Termination of Service
shall automatically terminate and be cancelled unexercised on
such date. The Committee may, in its discretion and as of a date
determined by the Committee, fully vest any portion or all of a
Participant’s Options and, upon such vesting, all
restrictions applicable to such Options shall terminate as of
such date. Any action by the Committee pursuant to this
Subparagraph may vary among Participants and may vary among the
Options held by any Participant.
(c) Special Limitations on Incentive Stock
Options. An Incentive Stock Option may be granted
only to an Employee of the Company or any parent or subsidiary
corporation (as defined in Section 424 of the Code) at the
time the Option is granted. To the extent that the aggregate
Fair Market Value (determined at the time the respective
Incentive Stock Option is granted) of Common Stock with respect
to which Incentive Stock Options are exercisable for the first
time by an individual during any calendar year under all
incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock
Options shall be treated as Non-Qualified Options. The Committee
shall determine, in accordance with applicable provisions of the
Code, any applicable treasury regulations and other
administrative pronouncements, which of a Participant’s
Incentive Stock Options will not constitute Incentive Stock
Options because of such limitation and shall notify the
Participant of such determination as soon as practicable after
such determination is made. No Incentive Stock Option shall be
granted to an individual if, at the time the Option is granted,
such individual owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or
of any parent or subsidiary corporation, within the meaning of
Section 422(b)(6) of the Code, unless (i) at the time
such Option is granted the Option price is at least 110% of the
Fair Market Value of the Common Stock subject to the Option and
(ii) such Option by its terms is not exercisable after the
expiration of five years from the date of grant. An Incentive
Stock Option shall not be transferable otherwise than by will or
the laws of descent and distribution, and shall be exercisable
during the Participant’s lifetime only by such Participant
or the Participant’s guardian or legal representative.
(d) Award Notice. Each Option shall be
evidenced by an Award Notice in such form and containing such
provisions not inconsistent with the provisions of the Plan and
under such terms as the Committee from time to time shall
establish, including, without limitation, provisions to qualify
an Incentive Stock Option under Section 422 of the Code. An
Award Notice may provide for the payment of the Option price, in
whole or in part, by cash, a check acceptable to the Company,
the delivery of a number of already-owned shares of Common Stock
(plus cash if necessary) having a Fair Market Value equal to
such Option price (provided such shares have been owned for more
than six months by the Participant), a “cashless broker
exercise” of the Option through any other procedures
established or approved by the Committee with respect thereto,
or any combination of the foregoing. Further, an Award Notice
may provide, in the sole discretion of the Committee, for the
surrender of the right to purchase shares under the Option in
return for a payment in cash or shares of Common Stock or a
combination of cash and shares of Common Stock equal in value to
the excess of the Fair Market Value of the shares with respect
to which the right to purchase is surrendered over the Option
price therefor, on such terms and conditions as the Committee in
its sole discretion may prescribe. In the case of any such right
that is granted in connection with an Incentive Stock Option,
such right shall be exercisable only when the Fair Market Value
of the Common Stock exceeds the price specified therefor in the
Option or the portion thereof to be surrendered. The terms and
conditions of the respective Award Notices need not be
identical. Subject to the consent of the Participant, the
Committee may, in its sole discretion, amend an outstanding
Award Notice from time to time in any manner that is not
inconsistent with the provisions of the Plan (including, without
limitation, an amendment that accelerates the time at which the
Option, or a portion thereof may be exercisable).
(e) Option Price and Payment. The price
at which a share of Common Stock may be purchased upon exercise
of an Option shall be determined by the Committee but, subject
to adjustment as provided in
Article XII, such purchase price shall not be less than the
Fair Market Value of a share of Common Stock on the date such
Option is granted. The Option price payment shall be payable by
the Participant in cash upon the exercise of the Option in the
manner as determined by the Committee. The Committee in its sole
discretion may allow the Participant to pay the Option price by
the withholding shares of Common Stock otherwise issuable upon
exercise or with shares of Common Stock previously owned by the
Participant or any combination of cash or any of the foregoing.
The Option or portion thereof shall only be exercised, and any
applicable taxes shall be withheld, in accordance with such
procedures as are established or approved by the Committee.
(f) Restrictions on Repricing of
Options. Except as provided in Article XII,
the Committee may not amend any outstanding Award Notice to
lower the exercise price (or cancel and replace any outstanding
Option with Options having a lower exercise price).
(g) Stockholder Rights and
Privileges. The Participant shall be entitled to
all the privileges and rights of a stockholder only with respect
to such shares of Common Stock as have been purchased upon
exercise of the Option and registered in the Participant’s
name.
(h) Options in Substitution for Options Granted by Other
Employers. Options may be granted under the Plan
from time to time or approved by the Committee or the Board in
substitution of options held by individuals providing services
to corporations or other entities who become Employees or
Directors as result of a merger or consolidation or other
business transaction with the Company or any Affiliate.
(i) Service Recipient
Stock. Non-Qualified Options that are intended to
be excluded from the deferred compensation requirements under
Code Section 409A may only be granted to Employees or
Directors if the Option would be for a “service
recipient” common stock within the meaning of Code
Section 409A as determined by the Committee.
ARTICLE VIII.
RESTRICTED STOCK
(a) Restrictions to be Established by the
Committee. Restricted Stock shall be subject to
restrictions on disposition by the Participant and an obligation
of the Participant to forfeit and surrender the shares to the
Company under certain circumstances, and any other restrictions
determined by the Committee in its sole discretion on the date
of grant; provided, however, that such restrictions shall lapse
upon:
(i) the attainment of one or more Performance Measures;
(ii) the Participant’s continued employment with the
Company and its Affiliates, or continued service as a Director,
for a specified period of time;
(iii) the occurrence of any event or the satisfaction of
any other condition specified by the Committee in its sole
discretion; or
(iv) a combination of any of the foregoing.
Each grant of Restricted Stock may have different restrictions
as established in the sole discretion of the Committee.
(b) Other Terms and
Conditions. Restricted Stock shall be evidenced
in a manner as determined by the Committee in its sole
discretion, including without limitation, issuance of a
certificate in the Participant’s name or otherwise
registered in the name of the Participant. Unless provided
otherwise in an Award Notice, the Participant shall have the
right to receive dividends in cash or Common Stock, with respect
to Restricted Stock, to vote Restricted Stock, and to enjoy all
other stockholder rights, except that: (i) the Company
shall retain custody of the Restricted Stock until the
Restrictions have expired; (ii) the Participant may not
sell, transfer, pledge, exchange, hypothecate or otherwise
dispose of the Restricted Stock until the restrictions have
expired; and (iii) a breach of the terms and conditions
established by the Committee pursuant to the Restricted Stock
Notice shall cause a forfeiture of the Restricted Stock. If a
Participant’s Termination of Service is due to
his or her death or Disability, all Awards of Restricted Stock
of such Participant then outstanding shall immediately vest in
full. At the time of grant, the Committee may, in its sole
discretion, establish additional terms, conditions or
restrictions relating to the Restricted Stock, including,
without limitation, required performance criteria, if any. Such
additional terms, conditions or restrictions shall be set forth
in an Award Notice delivered in conjunction with the Award.
(c) Payment for Restricted Stock. The
Committee shall determine the amount and form of payment
required from the Participant in exchange for a grant of
Restricted Stock, if any, provided that in the absence of such a
determination, a Participant shall not be required to make any
payment for Restricted Stock, except to the extent otherwise
required by law.
(d) Committee’s Discretion to Accelerate Vesting of
Restricted Stock. The Committee may, in its
discretion and as of a date determined by the Committee, fully
vest any or all of a Participant’s Restricted Stock and,
upon such vesting, all restrictions applicable to such
Restricted Stock shall terminate as of such date. Any action by
the Committee pursuant to this Subparagraph may vary among
individual Participants and may vary among the Restricted Stock
held by any individual Participant. Notwithstanding the
preceding provisions of this paragraph, the Committee may not
take any action described in this Subparagraph with respect to
Restricted Stock that has been designed to meet the exception
for performance-based compensation under Section 162(m) of
the Code; provided, however, this prohibition shall not apply to
an acceleration pursuant to Article XII or due to death or
Disability of the Participant or to any other acceleration
permitted under Code Section 162(m).
(e) Award Notice. Each grant of
Restricted Stock shall be evidenced by an Award Notice in such
form and containing such provisions not inconsistent with the
provisions of the Plan and under such terms as the Committee
from time to time shall establish. The terms and provisions of
the respective Award Notices need not be identical. Subject to
the consent of the Participant and the restriction set forth in
the last sentence of Subparagraph (d) above, the Committee
may, in its sole discretion, amend an outstanding Award Notice
that time to time in any manner at is not inconsistent with the
provisions of the Plan.
ARTICLE IX.
RESTRICTED STOCK UNITS
(a) Restrictions to be Established by the
Committee. Restricted Stock Units shall be
subject to a restriction on disposition by the Participant and
an obligation of the Participant to forfeit the Restricted Stock
Units under certain circumstances, and any other restrictions
determined by the Committee in its sole discretion on the date
of grant; provided, however, that such restrictions shall lapse
upon:
(i) the attainment of one or more Performance Measures;
(ii) the Participant’s continued employment with the
Company and its Affiliates or continued service as a Director
for a specified period of time;
(iii) the occurrence of any event or the satisfaction of
any other condition specified by the Committee in its sole
discretion; or
(iv) a combination of any of the foregoing.
Each Award of Restricted Stock Units may have different
restrictions as established in the sole discretion of the
Committee.
(b) Other Terms and Conditions. The
Participant shall not be entitled to vote the shares of Common
Stock underlying the Restricted Stock Units or enjoy any other
stockholder rights unless and until the restrictions have lapsed
and such shares have been registered in the Participant’s
name. Unless otherwise provided in the Award Notice, if a
Participant’s Termination of Service is due to his or her
death or Disability, all Restricted Stock Units of such
Participant then outstanding shall immediately vest in full and
all restrictions applicable to such Restricted Stock Units shall
terminate as of such date with all performance criteria, if any,
applicable to such Restricted Stock Units deemed met at 100% of
target. At the time of grant,
the Committee may, in its sole discretion, establish additional
terms, conditions or restrictions relating to the Restricted
Stock Units. Such additional terms, conditions or restrictions
shall be set forth in an Award Notice delivered in conjunction
with the Award.
(c) Payment. Upon the lapse of the
restrictions described in the Award Notice, the Participant
shall receive as soon as practicable payment equal to the Fair
Market Value of the shares of Common Stock underlying the
Restricted Stock Units on the vesting date, less applicable
withholding. Payment shall be in the form of shares of Common
Stock, cash, other equity compensation, or a combination
thereof, as determined by the Committee. Any cash payment shall
be made in a lump sum or in installments, as prescribed in the
Award Notice. Payment shall be made no later than
21/2
months following the end of the year in which the Restricted
Stock Units vest, unless payment is to be made in installments,
in which case such installments shall comply with the rules
under Section 409A of the Code, if applicable.
(d) Committee’s Discretion to Accelerate Vesting of
Restricted Stock Units. The Committee may, in its
discretion and as of a date determined by the Committee, fully
vest any portion or all of a Participant’s Restricted Stock
Units and, upon such vesting, all restrictions applicable to
such Restricted Stock Units shall terminate as of such date. Any
action by the Committee pursuant to this Subparagraph may vary
among Participants and may vary among the Restricted Stock Units
held by any Participant. Notwithstanding the preceding
provisions of this paragraph, the Committee may not take any
action described in this Subparagraph with respect to Restricted
Stock Units that have been designed to meet the exception for
performance-based compensation under Section 162(m) of the
Code; provided, however, this prohibition shall not apply to an
acceleration pursuant to Article XII or due to death or
Disability of the Participant or any other acceleration
permitted under Code Section 162(m).
(e) Award Notice. Restricted Stock Units
shall be evidenced by an Award Notice in such form and
containing such provisions not inconsistent with the provisions
of the Plan and under such terms as the Committee from time to
time shall establish. The terms and provisions of the respective
Award Notices need not be identical. Subject to the consent of
the Participant and the restriction set forth in the last
sentence of Subparagraph (d) above, the Committee may, in
its sole discretion, amend an outstanding Award Notice from time
to time in any manner that is not inconsistent with the
provisions of the Plan.
ARTICLE X.
STOCK APPRECIATION RIGHTS
(a) Restrictions to be Established by the
Committee. Stock Appreciation Rights shall be
subject to a restriction on disposition by the Participant and
an obligation of the Participant to forfeit the Stock
Appreciation Rights under certain circumstances, and any other
restrictions_ determined by the Committee in its sole discretion
on the date of grant; provided, however, that such restrictions
shall lapse upon:
(i) the attainment of one or more Performance Measures;
(ii) the Participant’s continued employment with the
Company and its Affiliates or continued service as a Director
for a specified period of time;
(iii) the occurrence of any event or the satisfaction of
any other condition specified by the Committee in its sole
discretion; or
(iv) a combination of any of the foregoing.
Each Award of Stock Appreciation Rights may have different
restrictions as established in the sole discretion of the
Committee.
(b) Other Terms and Conditions. Unless
otherwise provided in the Award Notice, if a Participant’s
Termination of Service is due to his or her death or Disability,
all Stock Appreciation Rights of such Participant then
outstanding shall immediately vest in full and all restrictions
applicable to such Stock Appreciation Rights shall terminate as
of such date with all performance criteria, if any, applicable
to such Stock Appreciation Rights deemed met at 100% of target.
At the time of grant, the Committee may, in its sole
discretion, establish additional terms, conditions or
restrictions relating to the Stock Appreciation Rights. Such
additional terms, conditions or restrictions shall be set forth
in the Award Notice delivered in conjunction with the Award.
(c) Exercise Price and Payment. Subject
to adjustment as provided in Article XII, the exercise
price of the Stock Appreciation Rights shall not be less than
the Fair Market Value of the shares of Common Stock underlying
the Stock Appreciation Rights on the date of grant. Upon the
lapse of the restrictions described in the Award Notice, the
Participant shall be entitled to exercise his or her Stock
Appreciation Rights at any time up until the end of the period
specified in the Award Notice. The Stock Appreciation Rights, or
portion thereof, shall only be exercised and any applicable
taxes withheld, in accordance with such procedures as are
established or approved by the Committee. Upon exercise of the
Stock Appreciation Right, the Participant shall be entitled to
receive payment in an amount equal to: (i) the difference
between the Fair Market Value of the underlying shares of Common
Stock subject to the Stock Appreciation Rights on the date of
exercise and the exercise price; times (ii) the number of
shares of Common Stock with respect to which the Stock
Appreciation Rights are exercised; less (iii) any
applicable withholding taxes. Payment shall be made in the form
of shares of Common Stock or cash, or a combination thereof, as
determined by the Committee. Cash shall be paid in a lump sum
payment and shall be based on the Fair Market Value of the
underlying Common Stock on the exercise date. The exercise price
shall be payable by the Participant in cash; provided,
however, that the Committee in its sole discretion may allow
the Participant to pay the exercise price by the withholding
shares of Common Stock otherwise issuable upon exercise or with
shares of Common Stock previously owned by the Participant or
any combination of any of the foregoing.
(d) Committee’s Discretion to Accelerate Vesting of
Stock Appreciation Rights. The Committee may, in
its discretion and as of a date determined by the Committee,
fully vest any portion or all of a Participant’s Stock
Appreciation Rights and, upon such vesting, all restrictions
applicable to such Stock Appreciation Rights shall terminate as
of such date. Any action by the Committee pursuant to this
Subparagraph may vary among Participants and may vary among the
Stock Appreciation Rights held by any Participant, and if
required, for Awards intended to comply with the
performance-based exception of Code Section 162(m) any such
modification shall comply with Code Section 162(m).
(e) Award Notice. Stock Appreciation
Rights shall be evidenced by an Award Notice in such form and
containing such provisions not inconsistent with the provisions
of the Plan and under such terms as the Committee from time to
time shall establish. The terms and provisions of the respective
Award Notices need not be identical. Subject to the consent of
the Participant and the restriction set forth in the last
sentence of Subparagraph (d) above, the Committee may, in
its sole discretion, amend an outstanding Award Notice from time
to time in any manner that is not inconsistent with the
provisions of the Plan.
(f) Service Recipient Stock. Stock
Appreciation Rights that are intended to be excluded from the
deferred compensation requirements of Code Section 409A may
only be granted to Employees or Directors if the Stock
Appreciation Right would be for “service recipient”
common stock within the meaning of Code Section 409A, as
determined by the Committee.
ARTICLE XI.
PERFORMANCE AWARDS AND OTHER STOCK-BASED AWARDS
(a) Performance Period. The Committee
shall establish, with respect to and at the time of each
Performance Award, the maximum value of the Performance Award
and the performance period over which the performance applicable
to the Performance Award shall be measured.
(b) Performance Measures and Other
Criteria. A Performance Award shall be awarded to
a Participant contingent upon future performance of the Company
or any Affiliate, or a division or department of the Company or
any Affiliate, during the performance period. With respect to
Performance Awards intended to qualify as performance-based
compensation under Section 162(m) of the Code, the
Committee shall establish the Performance Measures applicable to
such performance either (i) prior to the beginning of the
performance period or (ii) within 90 days after the
beginning of the performance period if the outcome of the
performance
targets is substantially uncertain at the time such targets are
established, but not later than the date that 25% of the
performance period has elapsed and shall comply with the
requirements of Code Section 162(m). The Committee shall
provide that the vesting of the Performance Award will be based
upon the Participant’s continued employment with the
Company or its Affiliates or continued service as a Director for
a specified period of time and
(i) the attainment of one or more Performance Measures, or
a combination thereof;
(ii) the occurrence of any event or the satisfaction of any
other condition specified by the Committee in its sole
discretion; or
(iii) a combination of any of the foregoing.
The Committee, in its sole discretion, may also provide for an
adjustable Performance Award value-based upon the level of
achievement of Performance Measures.
(c) Vesting. Unless the Award Notice
provides otherwise, if a Participant’s Termination of
Service is due to his or her death or Disability, all
Performance Awards of such Participant then outstanding shall
immediately vest in full and all restrictions applicable to such
Awards shall terminate as of such date with all performance
criteria, if any, applicable to such Awards deemed met at 100%
of target.
(d) Award Criteria or Modification or
Adjustments. In determining the value of a
Performance Award, the Committee shall take into account a
Participant’s responsibility level, performance, potential,
other Awards, total annual compensation and such other
considerations as it deems appropriate. The Committee, in its
sole discretion, may modify or provide for a reduction in the
value of a Participant’s Performance Award during the
performance period; provided, however, with respect to
Awards that are specified as to meet the performance-based
exemption in Code Section 162(m), the Committee may only
modify or adjust such Awards in accordance with Code
Section 162(m).
(e) Payment. Following the end of the
performance period, the holder of a Performance Award shall be
entitled to receive payment as soon as practicable of an amount
not exceeding the maximum value of the Performance Award, based
on the achievement of the Performance Measures for such
performance period, as determined and certified in writing by
the Committee. Payment of a Performance Award may be made in
cash, Common Stock, Options or other equity compensation, or a
combination thereof as determined by the Committee. Payment
shall be made in a lump sum or in installments as prescribed in
the Award Notice. If a Performance Award covering shares of
Common Stock is to be paid in cash, such payment shall be based
on the Fair Market Value of a share of Common Stock on the
payment date. Unless otherwise provided in the Award Notice,
payment shall be made no later than
21/2
months following the end of the year in which the Performance
Award vests, unless payment is to be made in installments, in
which case such installments shall comply with the rules under
Section 409A of the Code, if applicable.
(f) Award Notice. Each Performance Award
shall be evidenced by an Award Notice in such form and
containing such provisions not inconsistent with the provisions
of the Plan and under such terms as the Committee from time to
time shall establish. The terms and provisions of the respective
Award Notices need not be identical. Subject to the consent of
the Participant, the Committee may, in its sole discretion,
amend an outstanding Award Notice from time to time in any
manner that is not inconsistent with the provisions of the Plan.
(g) Other Stock-Based Awards. The
Committee may also grant to Participants an Other Stock-Based
Award, which shall consist of a right which is an Award
denominated or payable in, valued in whole or in part by
reference to, or otherwise based on or related to, shares of
Common Stock as is deemed by the Committee to be consistent with
the purposes of the Plan and shall be payable in cash or Common
Stock as determined by the Committee in the Award Notice.
Subject to the terms of the Plan, including the Performance
Measures, if any, applicable to such Award, the Committee shall
determine the terms and conditions of any such Other Stock-Based
Award including, without limitation, vesting provisions as
provided in the Award Notice. Notwithstanding any other
provision of the Plan to the contrary, any Other Stock-Based
Award shall contain terms, as determined by the Committee in its
sole discretion, that (i) are designed to be excluded from
the
deferred compensation requirements of Code Section 409A or
(ii) are designed to avoid adverse tax consequences under
Section 409A should that Code section apply to such Award.
The Committee may, in its discretion and as of a date determined
by the Committee, fully vest any portion or all of a
Participant’s Other Stock-Based Awards and, upon such
vesting, all restrictions applicable to such Other Stock-Based
Awards shall terminate as of such date. Any action by the
Committee pursuant to this Subparagraph may vary among
Participants and may vary among the Other Stock-Based Awards
held by any Participant. Notwithstanding the preceding
provisions of this paragraph, the Committee may not take any
action described in this Subparagraph with respect to Other
Stock-Based Awards if such Award has been designed to meet the
exception for performance-based compensation under
Section 162(m) of the Code; provided, however, this
prohibition shall not apply to an acceleration pursuant to
Article XII or due to death or Disability of the
Participant or as otherwise permitted under Code
Section 162(m).
ARTICLE XII.
RECAPITALIZATION OR REORGANIZATION
(a) No Effect on Right or Power. The
existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the
stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the
Company’s or any Affiliate’s capital structure or its
business, any merger or consolidation of the Company or any
Affiliate, any issue of debt or equity securities ahead of or
affecting Common Stock or the rights thereof, the dissolution or
liquidation of the Company or any Affiliate or any sale, lease,
exchange or other disposition of all or any part of its assets
or business or any other corporate act or proceeding.
(b) Subdivision or Consolidation of Shares; Stock
Dividends. If, and whenever, prior to the
expiration of an Award previously granted, the Company shall
effect a subdivision or consolidation of shares of Common Stock
or the payment of a dividend on Common Stock which is paid in
the form of Company stock without receipt of consideration by
the Company, the number of shares of Common Stock with respect
to which such Award may thereafter be exercised or satisfied,
shall be adjusted as follows: (i) in the event of an
increase in the number of outstanding shares, the number shares
of Common Stock subject to the Award shall be proportionately
increased, and the purchase price per share shall be
proportionately reduced; and (ii) in the event of a
reduction in the number of outstanding shares, the number shares
of Common Stock subject to the Award shall be proportionately
reduced, and the purchase price per share shall be
proportionately increased, other than in the event of a
Company-directed share repurchase program. Any fractional share
resulting from such adjustment shall be rounded up to the next
whole share. Such proportionate adjustments will be made for
purposes of making sure that to the extent possible, the fair
value of the Awards after the subdivision, consolidation or
dividend is equal to the fair value before the change.
(c) Corporate Changes. Except as
otherwise specifically provided in an Award Notice, if the
Participant has a Termination of Service without Cause or for
Good Reason (as defined in the Award Notice) within two yeas
after a Corporate Change (or at such earlier time as the
Committee may provide), all Options then outstanding shall
immediately become exercisable in full, all Restricted Stock
shall vest in full and cease to be subject to any restrictions,
all Restricted Stock Units shall vest in full and cease to be
subject to any restrictions, any Stock Appreciation Rights shall
immediately be exercisable in full, Other Stock-Based Awards
shall vest in full, and all Awards, the payout of which is
subject to Performance Measures, shall vest in full and become
immediately payable at such levels as the Committee in its sole
discretion shall determine. In addition, the Committee, acting
in its sole discretion without the consent or approval of any
Participant, may effect one or more of the following
alternatives, which alternatives may vary among individual
Participants and which may vary among Awards held by any
individual Participant: (i) require the mandatory surrender
to the Company by selected Participants of some or all of the
outstanding Options, stock-settled Restricted Stock Units and
stock-settled Stock Appreciation Rights held by such
Participants as of a date, before or after such Corporate
Change, specified by the Committee, in which event the Committee
shall thereupon cancel such Awards and the Company shall pay (or
cause to be paid) to each such Participant an amount of cash per
share equal to the excess, if any, of the amount calculated in
Subparagraph (d) below (the
“Change of Control Value”) of the shares subject to
such Awards over the exercise price(s), if any, under such
Awards for such shares, or (ii) provide that the number and
class of shares of Common Stock covered by such Awards shall be
adjusted so that such Awards shall thereafter cover securities
of the surviving or acquiring corporation or other property
(including, without limitation, cash) as determined by the
Committee in its sole discretion.
(d) Change of Control Value. For the
purposes of clause (i) in Subparagraph (c) above, the
“Change of Control Value” shall equal the amount
determined in clause (i), (ii) or (iii), whichever is
applicable, as follows: (i) the per share price offered to
stockholders of the Company in any such merger, consolidation,
sale of assets or dissolution transaction, (ii) the price
per share offered to stockholders of the Company in any tender
offer or exchange offer whereby a Corporate Change takes place,
or (iii) if such Corporate Change occurs other than
pursuant to a tender or exchange offer, the fair market value
per share of the shares into which such Awards being surrendered
are exercisable or payable, as determined by the Committee as of
the date determined by the Committee to be the date of
cancellation and surrender of such Awards. In the event that the
consideration offered to stockholders of the Company in any
transaction described in this Subparagraph (d) or
Subparagraph (c) above consists of anything other than
cash, the Committee shall determine the fair cash equivalent of
the portion of the consideration offered which is other than
cash.
(e) Other Changes in the Common Stock. In
the event of changes in the outstanding Common Stock by reason
of recapitalization, reorganization, merger, consolidation,
combination, stock split, stock dividend, spin-off, exchange or
other relevant changes in capitalization or distributions to the
holders of Common Stock occurring after the date of the grant of
any Award and not otherwise provided for by this
Article XII, which would have the effect of diluting or
enlarging the rights of Participants, such Award and any notice
evidencing such Award shall be subject to equitable or
proportionate adjustment by the Committee at its sole discretion
as to the number and price of shares of Common Stock or other
consideration subject to such Award. In the event of any such
change in the outstanding Common Stock or distribution to the
holders of Common Stock, or upon the occurrence of any other
event described in this Article XII, the aggregate number
of shares available under the Plan and the maximum number of
shares that may be subject to Awards granted-to any one
individual may be appropriately adjusted to the extent, if any,
determined by the Committee, whose determination shall be
conclusive. Such proportionate adjustments will be made for
purposes of making sure that to the extent possible, the fair
value of the Awards after the subdivision, consolidation or
dividend is equal to the fair value before the change.
(f) No Adjustments Unless Otherwise
Provided. Except as hereinbefore expressly
provided, the issuance by the Company of shares of stock of any
class or securities convertible into shares of stock of any
class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, and in any
case whether or not for fair value, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to Awards theretofore
granted or the purchase price per share, if applicable.
ARTICLE XIII.
AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time
with respect to any shares of Common Stock for which Awards have
not theretofore been granted. The Board shall have the right to
alter or amend the Plan or any part thereof from time to time;
provided that no change in the Plan may be made that would
materially impair the rights of a Participant with respect to
any outstanding Award without the consent of the Participant,
and provided, further, that the Board may not, without approval
of the stockholders of the Company (a) amend the Plan to
increase the maximum aggregate number of shares that may be
issued under the Plan or change the class of individuals
eligible to receive Awards under the Plan, (b) amend or
delete Article VII, paragraphs (f) or (c) amend
Article XII to delete paragraphs (a) or (b).
(a) No Right To An Award. Neither the
adoption of the Plan nor any action of the Board or of the
Committee shall be deemed to give any individual any right to be
granted an Option, Restricted Stock, Restricted Stock Units,
Stock Appreciation Rights, or a Performance Award, or any other
rights hereunder except as may be evidenced by an Award Notice,
and then only to the extent and on the terms and conditions
expressly set forth therein.
(b) Unfunded Status of Plan. The Plan is
intended to constitute an “unfunded” plan for
incentive and deferred compensation purposes, including
Section 409A of the Code. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver shares of Common Stock or make
payments; provided the Committee first determines in its sole
discretion that the structure of such trusts or other
arrangements shall not cause any change in the
“unfunded” status of the Plan.
(c) No Employment/Membership Rights
Conferred. Nothing contained in the Plan or any
Award shall (i) confer upon any Employee any right to
continued employment with the Company or any Affiliate or
(ii) interfere in any way with the right of the Company or
any Affiliate to terminate his or her employment at any time.
Nothing contained in the Plan shall confer upon any Director any
right to service, or interfere in any way with the right of the
Company to terminate his or her service at any time.
(d) Compliance with Securities Laws. The
Company shall not be obligated to issue any shares of Common
Stock pursuant to as Award granted under the Plan at any time
when the shares covered by such Award have not been registered
pursuant to applicable U.S. federal, state or
non-U.S. securities
laws, or, in the opinion of legal counsel for the Company, the
issuance and sale of such shares is not covered under an
applicable exemption from such registration requirements.
(e) No Fractional Shares. No fractional
shares of Common Stock nor cash in lieu of fractional shares of
Common Stock shall be distributed or paid pursuant to an Award.
For purposes of the foregoing, any fractional shares of Common
Stock shall be rounded up to the nearest whole share.
(f) Tax Obligations; Withholding of
Shares. Except with respect to non-Employee
Directors and as otherwise provided under the Plan, no later
than the date as of which an amount first becomes includible in
a Participant’s taxable income for U.S. federal,
state, local or
non-U.S. income
or social insurance tax purposes with respect to an Award
granted under the Plan, the Participant shall pay to the Company
or the Affiliate employing the Participant, or make arrangements
satisfactory to the Company or the Affiliate employing the
Participant for the payment of any such income or social
insurance taxes of any kind required by law to be withheld with
respect to such taxable amount. Notwithstanding the foregoing,
the Company and its Affiliates may, in its sole discretion,
withhold a sufficient number of shares of Common Stock that are
otherwise issuable to the Participant pursuant to an Award to
satisfy the minimum of any such income or social insurance taxes
of any kind required by law to be withheld, as may be necessary
in the opinion of the Company or the Affiliate to satisfy all
obligations for the payment of such taxes. For purposes of the
foregoing, the Committee may establish such rules, regulations
and procedures as it deems necessary or appropriate.
(g) No Restriction on Corporate
Action. Nothing contained in the Plan shall be
construed to prevent the Company or an Affiliate from taking any
action that is deemed by the Company or such Affiliate to be
appropriate or in its best interest, regardless of whether such
action would have an adverse effect on the Plan or any Award
made under the Plan. No Employee, Participant, representative of
an Employee or Participant, or other person shall have any claim
against the Company or any Affiliate as a result of any such
action.
(h) Restrictions on Transfer. An Award
(other than an Incentive Stock Option, which shall be subject to
the transfer restrictions set forth in Article VII,
paragraph(c)) shall not be transferable otherwise than
(i) by will or the laws of descent and distribution,
(ii) pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules
thereunder, or (iii) if vested, with the consent of the
Committee, in its sole discretion provided that any such
transfer is permitted under the applicable securities laws.
(i) Limitations Period. Any Participant
who believes he or she is being denied any benefit or right
under the Plan may file a written claim with the Committee. Any
claim must be delivered to the Committee within forty-five
(45) days of the specific event giving rise to the claim.
Untimely claims will not be processed and shall be deemed
denied. The Committee, or its designee, will notify the
Participant of its decision in writing as soon as
administratively practicable. Claims not responded to by the
Committee in writing within one hundred and twenty
(120) days of the date the written claim is delivered to
the Committee shall be deemed denied The Committee’s
decision is final and conclusive and binding on all persons. No
lawsuit relating to the Plan may be filed before a written claim
is filed with the Committee and is denied or deemed denied and
any lawsuit must be filed within one year of such denial or
deemed denial or be forever barred.
(j) Section 409A of the Code. To the
extent that any Award is deferred compensation subject to Code
Section 409A, as determined by the Committee, the Award
Agreement shall comply with the requirements of Code
Section 409A in a manner as determined by the Committee in
its sole discretion including, without limitation, using
applicable definitions from Code Section 409A, such as a
more restrictive definition of Corporate Change to comply with
Code Section 409A to the extent that it is more restrictive
than as defined in the Plan, using the more restrictive
definition of Disability as provided in Code Section 409A
and specifying a time and form of payment schedule. In addition
if any Incentive Award constitutes deferred compensation under
Section 409A of the Code (a “Section 409A
Plan”), then the Incentive Award shall be subject to
the following requirements, if and to the extent required to
comply with Code Section 409A, and as determined by the
Committee and specified in the Award Notice:
(i) Payments under the Section 409A Plan may not be
made earlier than (i) the Participant’s separation
from service, (ii) the date of the Participant’s
Disability, (iii) the Participant’s death, (iv) a
specified time (or pursuant to a fixed schedule) specified in
the Award Notice at the date of the deferral of such
compensation, (v) a change in the ownership or effective
control of the corporation, or in the ownership of a substantial
portion of the assets of the corporation, or (vi) the
occurrence of an unforeseeable emergency;
(ii) The time or schedule for any payment of the deferred
compensation may not be accelerated, except to the extent
provided in applicable Treasury Regulations or other applicable
guidance issued by the Internal Revenue Service;
(iii) Any elections with respect to the deferral of such
compensation or the time and form of distribution of such
deferred compensation shall comply with the requirements of
Section 409A(a)(4) of the Code; and
(iv) In the case of any Participant who is specified
employee, a distribution on account of a separation from service
may not be made before the date which is six months after the
date of the Participant’s separation from service (or, if
earlier, the date of the Participant’s death).
For purposes of the foregoing, the terms “separation
from service” and “specified
employee”, all shall be defined in the same manner as
those terms are defined for purposes of Section 409A of the
Code, and the limitations set forth herein shall be applied in
such manner (and only to the extent) as shall be necessary to
comply with any requirements of Section 409A of the Code
that are applicable to the Award as determined by the Committee.
If an Award is subject to Code Section 409A, as determined
by the Committee, the Committee may amend any Award to comply
with Code Section 409A without a Participant’s consent
even if such amendment would have an adverse affect on a
Participant’s Award. With respect to an Award that is
subject to Code Section 409A, the Board may amend the Plan
as it deems necessary to comply with Section 409A and no
Participant consent shall be required even if such an amendment
would have an adverse effect on a Participant’s Award.
(k) Governing Law. The Plan shall be
governed by, and construed in accordance with, the laws of the
State of Delaware, without regard to its conflicts of laws
principles.
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to
such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to § 228 of this
title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder’s shares of stock
under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word
“stockholder” means a holder of record of stock in a
stock corporation and also a member of record of a nonstock
corporation; the words “stock” and “share”
mean and include what is ordinarily meant by those words and
also membership or membership interest of a member of a nonstock
corporation; and the words “depository receipt” mean a
receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely
of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to
§ 251 (other than a merger effected pursuant to
§ 251(g) of this title), § 252,
§ 254, § 257, § 258,
§ 263 or § 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national
securities exchange or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for
its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of
§ 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to
§§ 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as
a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the
certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder’s
shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for
appraisal of such stockholder’s shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholder’s
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
§ 228 or § 253 of this title, then either a
constituent corporation before the effective date of the merger
or consolidation or the surviving or resulting corporation
within 10 days thereafter shall notify each of the holders
of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holder’s shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder’s shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded
appraisal of such holder’s shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation
or any stockholder who has complied with subsections (a)
and (d) of this section hereof and who is otherwise
entitled to appraisal rights, may commence an appraisal
proceeding by filing a petition in the
Court of Chancery demanding a determination of the value of the
stock of all such stockholders. Notwithstanding the foregoing,
at any time within 60 days after the effective date of the
merger or consolidation, any stockholder who has not commenced
an appraisal proceeding or joined that proceeding as a named
party shall have the right to withdraw such stockholder’s
demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder
who has complied with the requirements of subsections (a)
and (d) of this section hereof, upon written request, shall
be entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth
the aggregate number of shares not voted in favor of the merger
or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder’s
written request for such a statement is received by the
surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal
under subsection (d) of this section hereof, whichever is
later. Notwithstanding subsection (a) of this section, a
person who is the beneficial owner of shares of such stock held
either in a voting trust or by a nominee on behalf of such
person may, in such person’s own name, file a petition or
request from the corporation the statement described in this
subsection.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after
such service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After the Court determines the stockholders entitled to
an appraisal, the appraisal proceeding shall be conducted in
accordance with the rules of the Court of Chancery, including
any rules specifically governing appraisal proceedings. Through
such proceeding the Court shall determine the fair value of the
shares exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation,
together with interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value,
the Court shall take into account all relevant factors. Unless
the Court in its discretion determines otherwise for good cause
shown, interest from the effective date of the merger through
the date of payment of the judgment shall be compounded
quarterly and shall accrue at 5% over the Federal Reserve
discount rate (including any surcharge) as established from time
to time during the period between the effective date of the
merger and the date of payment of the judgment. Upon application
by the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court
may, in its discretion, proceed to trial upon the appraisal
prior to the final determination of the stockholders entitled to
an appraisal. Any stockholder whose name appears on the list
filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such
stockholder’s certificates of
stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Payment shall be so made to each such stockholder, in the case
of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Court’s decree may be enforced as other decrees in the
Court of Chancery may be enforced, whether such surviving or
resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney’s fees
and the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholder’s demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval
may be conditioned upon such terms as the Court deems just;
provided, however that this provision shall not affect the right
of any stockholder who has not commenced an appraisal proceeding
or joined that proceeding as a named party to withdraw such
stockholder’s demand for appraisal and to accept the terms
offered upon the merger or consolidation within 60 days
after the effective date of the merger or consolidation, as set
forth in subsection (e) of this section.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
Art. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID
CORPORATE ACTIONS.
A. Any shareholder of any domestic corporation who has the
right to dissent from any of the corporate actions referred to
in Article 5.11 of this Act may exercise that right to
dissent only by complying with the following procedures:
(1)(a) With respect to proposed corporate action that is
submitted to a vote of shareholders at a meeting, the
shareholder shall file with the corporation, prior to the
meeting, a written objection to the action, setting out that the
shareholder’s right to dissent will be exercised if the
action is effective and giving the shareholder’s address,
to which notice thereof shall be delivered or mailed in that
event. If the action is effected and the shareholder shall not
have voted in favor of the action, the corporation, in the case
of action other than a merger, or the surviving or new
corporation (foreign or domestic) or other entity that is liable
to discharge the shareholder’s right of dissent, in the
case of a merger, shall, within ten (10) days after the
action is effected, deliver or mail to the shareholder written
notice that the action has been effected, and the shareholder
may, within ten (10) days from the delivery or mailing of
the notice, make written demand on the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the
case may be, for payment of the fair value of the
shareholder’s shares. The fair value of the shares shall be
the value thereof as of the day immediately preceding the
meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. In computing the fair value
of the shares under this article, consideration must be given to
the value of the corporation as a going concern without
including in the computation of value any control premium, any
minority discount, or any discount for lack of marketability. If
the corporation has different classes or series of shares, the
relative rights and preferences of and limitations placed on the
class or series of shares, other than relative voting rights,
held by the dissenting shareholder must be taken into account in
the computation of value. The demand shall state the number and
class of the shares owned by the shareholder and the fair value
of the shares as estimated by the shareholder. Any shareholder
failing to make demand within the ten (10) day period shall
be bound by the action.
(b) With respect to proposed corporate action that is
approved pursuant to Section A of Article 9.10 of this
Act, the corporation, in the case of action other than a merger,
and the surviving or new corporation (foreign or domestic) or
other entity that is liable to discharge the shareholder’s
right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to
each shareholder of record as of the effective date of the
action notice of the fact and date of the action and that the
shareholder may exercise the shareholder’s right to dissent
from the action. The notice shall be accompanied by a copy of
this Article and any articles or documents filed by the
corporation with the Secretary of State to effect the action. If
the shareholder shall not have consented to the taking of the
action, the shareholder may, within twenty (20) days after
the mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder’s shares. The fair value of the shares shall be
the value thereof as of the date the written consent authorizing
the action was delivered to the corporation pursuant to
Section A of Article 9.10 of this Act, excluding any
appreciation or depreciation in anticipation of the action. The
demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as
estimated by the shareholder. Any shareholder failing to make
demand within the twenty (20) day period shall be bound by
the action.
(2) Within twenty (20) days after receipt by the
existing, surviving, or new corporation (foreign or domestic) or
other entity, as the case may be, of a demand for payment made
by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or
domestic) or other entity shall deliver or mail to the
shareholder a written notice that shall either set out that the
corporation (foreign or domestic) or other entity accepts the
amount claimed in the demand and agrees to pay that
amount within ninety (90) days after the date on which the
action was effected, and, in the case of shares represented by
certificates, upon the surrender of the certificates duly
endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the
shares, together with an offer to pay the amount of that
estimate within ninety (90) days after the date on which
the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the
shareholder agrees to accept that amount and, in the case of
shares represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which
the corporate action was effected, the value of the shares is
agreed upon between the shareholder and the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the
case may be, payment for the shares shall be made within ninety
(90) days after the date on which the action was effected
and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the
agreed value, the shareholder shall cease to have any interest
in the shares or in the corporation.
B. If, within the period of sixty (60) days after the
date on which the corporate action was effected, the shareholder
and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, do not so agree,
then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the
expiration of the sixty (60) day period, file a petition in
any court of competent jurisdiction in the county in which the
principal office of the domestic corporation is located, asking
for a finding and determination of the fair value of the
shareholder’s shares. Upon the filing of any such petition
by the shareholder, service of a copy thereof shall be made upon
the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the
office of the clerk of the court in which the petition was filed
a list containing the names and addresses of all shareholders of
the domestic corporation who have demanded payment for their
shares and with whom agreements as to the value of their shares
have not been reached by the corporation (foreign or domestic)
or other entity. If the petition shall be filed by the
corporation (foreign or domestic) or other entity, the petition
shall be accompanied by such a list. The clerk of the court
shall give notice of the time and place fixed for the hearing of
the petition by registered mail to the corporation (foreign or
domestic) or other entity and to the shareholders named on the
list at the addresses therein stated. The forms of the notices
by mail shall be approved by the court. All shareholders thus
notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the
court.
C. After the hearing of the petition, the court shall
determine the shareholders who have complied with the provisions
of this Article and have become entitled to the valuation of and
payment for their shares, and shall appoint one or more
qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty
of valuing, and they shall make a determination of the fair
value of the shares upon such investigation as to them may seem
proper. The appraisers shall also afford a reasonable
opportunity to the parties interested to submit to them
pertinent evidence as to the value of the shares. The appraisers
shall also have such power and authority as may be conferred on
Masters in Chancery by the Rules of Civil Procedure or by the
order of their appointment.
D. The appraisers shall determine the fair value of the
shares of the shareholders adjudged by the court to be entitled
to payment for their shares and shall file their report of that
value in the office of the clerk of the court. Notice of the
filing of the report shall be given by the clerk to the parties
in interest. The report shall be subject to exceptions to be
heard before the court both upon the law and the facts. The
court shall by its judgment determine the fair value of the
shares of the shareholders entitled to payment for their shares
and shall direct the payment of that value by the existing,
surviving, or new corporation (foreign or domestic) or other
entity, together with interest thereon, beginning 91 days
after the date on which the applicable corporate action from
which the shareholder elected to dissent was effected to the
date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated
shares immediately but to the holders of shares represented by
certificates only upon, and simultaneously with, the surrender
to the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, of duly endorsed
certificates for those shares. Upon payment of the judgment, the
dissenting shareholders
shall cease to have any interest in those shares or in the
corporation. The court shall allow the appraisers a reasonable
fee as court costs, and all court costs shall be allotted
between the parties in the manner that the court determines to
be fair and equitable.
E. Shares acquired by the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case
may be, pursuant to the payment of the agreed value of the
shares or pursuant to payment of the judgment entered for the
value of the shares, as in this Article provided, shall, in the
case of a merger, be treated as provided in the plan of merger
and, in all other cases, may be held and disposed of by the
corporation as in the case of other treasury shares.
F. The provisions of this Article shall not apply to a
merger if, on the date of the filing of the articles of merger,
the surviving corporation is the owner of all the outstanding
shares of the other corporations, domestic or foreign, that are
parties to the merger.
G. In the absence of fraud in the transaction, the remedy
provided by this Article to a shareholder objecting to any
corporate action referred to in Article 5.11 of this Act is
the exclusive remedy for the recovery of the value of his shares
or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, complies with the
requirements of this Article, any shareholder who fails to
comply with the requirements of this Article shall not be
entitled to bring suit for the recovery of the value of his
shares or money damages to the shareholder with respect to the
action.
SPECIAL MEETING OF STOCKHOLDERS OF BASIC ENERGY SERVICES, INC. July 15, 2008 Please sign, date and
mail your proxy card in the envelope provided as soon as possible. Please detach along perforated
line and mail in the envelope provided. 00030300300000000000 5 071508THE BOARD OF DIRECTORS
RECOMMENDS A VOTE “FOR” PROPOSALS 1, 2 AND 3. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x FOR AGAINST ABSTAIN 1.
ADOPTION OF AGREEMENT AND PLAN OF MERGER To adopt the Agreement and Plan of Merger, dated April20, 2008, among Basic Energy Services, Inc. (“Basic”), Grey Wolf, Inc., and Horsepower Holdings,
Inc. (“Holdings”). 2. APPROVAL OF HOLDINGS 2008 EQUITY INCENTIVE PLAN To approve the Horsepower
Holdings, Inc. 2008 Equity Incentive Plan, to be used by Holdings following the consummation of the
mergers. (Proposal number 2 will be implemented only if it and proposal number 1, adoption of the
Agreement and Plan of Merger, are approved by stockholders) 3. ADJOURNMENT OF BASIC MEETING To
approve the adjournment of the Basic special meeting, if necessary or appropriate, to solicit
additional proxies in favor of the foregoing proposals. In the discretion of the proxies, such
other business as may properly come before the meeting and at any adjournments or postponements
thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no
direction is made, this proxy will be voted FOR Proposals 1, 2 and 3, and, in the discretion of the
proxies, with respect to such other business as may properly come before the meeting. The Board of
Directors recommends a vote FOR Proposals 1, 2 and 3. To change the address on your account, please
check the box at right and indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via this method. Signature of
Stockholder Date: Signature of Stockholder Date: Note: Please sign exactly as your name or names
appear on this Proxy. When shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full title as such. If the
signer is a corporation, please sign full corporate name by duly authorized officer, giving full
title as such. If signer is a partnership, please sign in partnership name by authorized person.
SPECIAL MEETING OF STOCKHOLDERS OF BASIC ENERGY SERVICES, INC. July 15, 2008 MAIL — Sign, date and
mail your proxy card in the envelope provided as soon as possible. TELEPHONE — Call toll-free
1-800-PROXIES (1-800-776-9437) in the United States or 1-718- 921-8500 from foreign countries and
follow the instructions. Have your proxy card available when you call. INTERNET — Access
“www.voteproxy.com” and follow the on-screen instructions. Have your proxy card available when you
access the web page. IN PERSON — You may vote your shares in person by attending the Special
Meeting. PROXY VOTING INSTRUCTIONSCOMPANY NUMBER ACCOUNT NUMBERYou may enter your voting
instructions at 1-800-PROXIES in the United States or 1-718-921-8500 from foreign countries or
www.voteproxy.com up until 11:59 PM Eastern Time on July 14, 2008. Please detach along perforated
line and mail in the envelope provided IF you are not voting via telephone or the Internet.
00030300300000000000 5 071508THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS 1, 2 AND 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR
BLACK INK AS SHOWN HERE xFOR AGAINST ABSTAIN1. ADOPTION OF AGREEMENT AND PLAN OF MERGER To adopt
the Agreement and Plan of Merger, dated April 20, 2008, among Basic Energy Services, Inc.
(“Basic”), Grey Wolf, Inc., and Horsepower Holdings, Inc. (“Holdings”). 2. APPROVAL OF HOLDINGS
2008 EQUITY INCENTIVE PLAN To approve the Horsepower Holdings, Inc. 2008 Equity Incentive Plan, to
be used by Holdings following the consummation of the mergers. (Proposal number 2 will be
implemented only if it and proposal number 1, adoption of the Agreement and Plan of Merger, are
approved by stockholders) 3. ADJOURNMENT OF BASIC MEETING To approve the adjournment of the Basic
special meeting, if necessary or appropriate, to solicit additional proxies in favor of the
foregoing proposals. In the discretion of the proxies, such other business as may properly come
before the meeting and at any adjournments or postponements thereof. This proxy, when properly
executed, will be voted in the manner directed herein. If no direction is made, this proxy will be
voted FOR Proposals 1, 2 and 3, and, in the discretion of the proxies, with respect to such other
business as may properly come before the meeting. The Board of Directors recommends a vote FOR
Proposals 1, 2 and 3. To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes to the registered
name(s) on the account may not be submitted via this method. Signature of Stockholder Date:
Signature of Stockholder Date: Note: Please sign exactly as your name or names appear on this
Proxy. When shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such.
If signer is a partnership, please sign in partnership name by authorized person.
BASIC ENERGY SERVICES, INC. PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS ON JULY 15, 2008 The Special Meeting of the Stockholders of Basic
Energy Services, Inc. (“Basic”) will be held on Tuesday, July 15, 2008, at 9:00 a.m. local time, at
the Hyatt Regency Houston, located at 1200 Louisiana Street, Houston, Texas77002. The undersigned,
having received the notice and accompanying Proxy Statement for said meeting, hereby constitutes
and appoints Kenneth V. Huseman and Alan Krenek, or any of them, his/her true and lawful agents and
proxies, with power of substitution and resubstitution in each, to represent and vote at the
Special Meeting scheduled to be held on July 15, 2008, or at any adjournment or postponement
thereof on all matters coming before said meeting, all shares of Common Stock of Basic which the
undersigned may be entitled to vote. The above proxies are hereby instructed to vote as shown on
the reverse side of this card. YOUR VOTE IS IMPORTANT TO ASSURE YOUR REPRESENTATION AT THE MEETING,
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY AS PROMPTLY AS POSSIBLE. AN ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE. (Continued and to be
signed on the reverse side) 14475
Dates Referenced Herein and Documents Incorporated by Reference
